A Commentary on the UNCITRAL Model Law

Book review by Michael Murray, Legal Director, Insolvency Practitioners Association

The new third edition of Look Chan Ho’s review of international adoption of the UNCITRAL Model Law on Cross-Border Insolvency coincides with the fourth anniversary of the commencement of Australia’s Cross-Border Insolvency Act 2008, on 1 July 2009. The book consists of contributions from eminent authors in a range of jurisdictions. Each explains how their respective country has implemented the Model Law and how their courts have interpreted and applied its Articles.

Australia is privileged to have two eminent cross-border experts – professor Ros Mason, who wrote the contribution for the 2nd edition of this book in 2009 and Scott Atkins – write the chapter on Australia. Professor Mason has been at the forefront in the writing, developing and teaching of what is becoming an increasingly important aspect of Australia’s insolvency law, as well as of our international trade and commercial law. Scott Atkins has a reputation as a legal expert in insolvency and restructuring in Australia, and his cross-border experience was cemented by his becoming the first Australian lawyer to be appointed a Fellow of INSOL International.

Their chapter on Australia’s adoption and implementation of cross-border law is a neat summary of the progress in how the Model Law has been applied and how the cross-border laws have been used by foreign insolvency practitioners seeking to avail themselves of Australian assistance in administering their insolvencies. In an increasingly connected and globalised world, we all know that business does not respect national boundaries in its pursuit of trade and commerce. The United Nations already has significant treaties and protocols in place to assist these cross-border dealings. Insolvency practitioners also know that trading companies’ attention to their affairs will often be found wanting when a liquidator is appointed, causing difficulties in administration and that these difficulties are compounded when assets and enterprises and transactions cross international borders. All the more reason therefore for international attention to be given to resolving cross-border insolvency issues efficiently and fairly.

The chapter under review analyses Australian laws and the developing jurisprudence by reference to the various articles of the Model Law. Article 1 is the starting point, dealing with foreign assistance being sought in Australia, our own requests for foreign assistance in proceedings under our Bankruptcy Act and Corporations Act, concurrent foreign and Australian proceedings in respect of the same debtor, and the rights of foreign creditors commencing or participating in Australian insolvency proceedings.

Article 2 contains the important definitions – ‘foreign proceeding’, ‘foreign main proceeding’, and the ‘centre of main interests’ (COMI) and its related presumption and the ‘establishment’ of an entity. The reader is taken through Australian case law on these fundamental terms, including as to an entity’s ‘COMI’ and its related presumption under Article 16, and as to an entity’s place of ‘establishment’. The issue of the COMI is discussed in the important judgment in Ackers v Saad, where the Federal Court adopted the Eurofoods and Stanford Bank approach to the determination of this important item of proof in granting recognition to a foreign proceeding. The Court found that the English cases led to a more predictable and orderly international outcome than the less certain approach adopted by some of the US courts.

The chapter continues with analysis and case law on the nature of a ‘debtor’, and on a ‘collective judicial or administrative proceeding’ about the ‘law relating to insolvency’, all in Article 2. Followed by the various articles concerning our ‘competent courts (Article 4)’, public policy exceptions (Article 6), and rights of access of foreign representatives and creditors (Chapter II). The core of the process is then found in Chapter III - Articles 15 and following – concerning applications for recognition of foreign proceedings and consequential relief available, which bring in the analyses of the definitions in Article 2. The assistance given to the insolvency administrator, under Articles 15 and 19, and the stay implemented under Article 20, and cases concerning the types of assistance given, are discussed. Co-operation and communication between courts is explained, including recent protocols issued by our Australian courts.

The need to co-ordinate local and foreign concurrent proceedings is explained in the commentary on articles 29 and 30, as is the ‘hotchpot’ principle as adopted in article 32. The interplay between the Model Law and the existing cross-border provisions, which have been retained in our law, is covered by s22 of the Cross-Border Insolvency Act, and article 25, explained in the chapter. How foreign courts have addressed our laws – Betcorp (Nevada) and ABC Learning (Delaware) are early examples - is also addressed, including in the England and US chapters.

As to the broader scope of the book, readers will find comparable chapters on cross-border laws from other countries including Canada (which has a number of decisions on the presumption of the COMI), Japan, New Zealand (which, unlike Australia, does not exclude life insurance companies from the Act), Poland (with some discussion of its public policy exception), Romania, and South Africa (with issues discussed in relation to its lack of a strong reconstruction culture, only partly assisted by its adoption of the Model Law). It is apparent that European countries tend to adopt slightly different approaches to the Model Law, more consistent with the EC Insolvency regulation.

The most extensive chapters are on English law, written by Look Chan Ho, and on the US regime. The early jurisprudence of both countries significantly contributed to the debates underlying and the policy shaping the UNCITRAL Model Law.

Ho sees the book itself as facilitating comparative legal analysis that will allow the Model Law to be developed to its full potential. He acknowledges however that the Model Law at present represents only a “modest’’ attempt at management of cross-border insolvencies, noting that important issues remain for attention – choice of laws, recognition of foreign discharges, due process, and in particular the management of the insolvency of corporate groups.

For that purpose, each country’s chapter addresses future developments in the cross-border arena. Australia’s chapter explains moves to harmonise trans-Tasman insolvency law. Indeed, if there were two countries in this world that could and should readily do so, it would be Australia and New Zealand, although Europe’s EC Insolvency Regulation, and the Canada-US principles of co-operation between their respective courts, are other significant examples.

The book is a very useful summary of the present state of our own cross-border laws and a necessary reference point for us to understand comparative laws in other countries. Many of these are Australia’s major trading partners, where cross-border issues are very likely to arise. This third edition of the book will no doubt remain as a reference point for lawyers working in insolvency and international commerce, and those in Australian businesses whose interests extend overseas, and who are at risk of being affected by cross-border insolvency issues.