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border insolvency regulation.27 The measures seek to facilitate trade and investment during crises by ensuring that member states do not resort to discriminatory state measures. One such measure proposes negotiation to be held among members and agreement to be concluded as to the best practices when implementing measures that are not directly subject to the WTO accords but have potential implications for foreign commercial interests. Another measure proposes that member states should be compelled to adopt principles of accountability, transparency, and evidence-based policymaking in any regulatory measures taken that may implicate foreign commercial interests. Among the long term measures proposed is negotiation of the WTO disciplines that would limit resort to murky protectionism. Naturally, policies that limit foreign creditors participation in local insolvency proceedings; or deny co-operation and coordination in cross-border insolvencies which might preserve rather than destroy going concern value,28 could all amount to instances of discriminations covered by the proposed measure.
It is arguable that when SSA countries consider how to regulate cross-border insolvencies, they should necessarily take account of their obligations and key principles that characterise the multilateral trade arrangements under the WTO. Although such obligations may help SSA countries to determine their priorities, they effectively limit their scope of policy choices. The least developed countries in SSA are not, under the WTO, expected to reciprocate. Nevertheless, they are necessarily not expected to entertain domestic policies that will not be preferred by the investors from their trading partners in the WTO regime.29
4.4.2An Example of Cross-Border Insolvency Implication Arising from Activities of other Multilateral Institutions
The UNIDROIT Cape Town Convention on International Interest in Mobile Equipment (the Convention)30 potentially implicates the international character
27Ibid
28Text to n 61 in chapter 3
29Notably such countries have already bound themselves in BITs which do not offer them such differential treatments
30It came into force on 01 March 2006
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of SSA states’ insolvency legislation.31 As SSA countries are increasingly ratifying and implementing the Convention, the move is directly transforming their insolvency law towards the direction of universalism and in particular the priority ranking of creditors in the international context.32 The Convention offers contracting states the choice of two alternative approaches as to the status of creditor’s rights during the insolvency of a debtor that is a subject of a contract of sale of aircraft equipment creating or providing for an international interest.33 The approaches aim at enabling creditors with interests in aircraft objects to exercise their remedies in insolvency proceedings.34 This potentially accords super priority to those who engage in financing or leasing aircraft objects during insolvency proceedings compared to persons who finance or lease other types of equipment.
The first approach provides that, upon the debtor’s insolvency, the insolvency administrator or the debtor must within a specified time, either cure all defaults and agree to satisfy all future obligations or allow the creditor to take possession of the aircraft. During such period the creditor may seek any interim relief available.35 The second approach provides that, upon insolvency, the creditor can demand that the insolvency administrator gives notice within a prescribed time, either that it will cure all defaults and agree to satisfy all future obligations or that it will permit the creditor to take the aircraft object. For either of the
31JL Westbrook and others, A Global View of Business Insolvency Systems (World Bank, Washington 2010) 264, stating that this convention provides mobile equipment ‘industries with a
worldwide applicable super-priority under any national insolvency law.’; KV Proskurchnko, ‘Chapter 15 Cross-Border Insolvency: Is It True to Its Universalism Aspirations?’ (2008) 5
Rutgers Bus LJ 96, 109; and SJ Roberts, J Carruth, WD Stuber, and MJ Sundehl, ‘International Secured Transactions and Insolvency’ (2006) 40 Int’l L 381, 388392
32SSA countries that have implemented the convention are, Angola, Burundi, Cape Verde, Ethiopia, Gabon, Kenya, Nigeria, Rwanda, Seychelles, Republic of South Africa, Togo,
Tanzania, and Zimbabwe. See < http://www.unidroit.org/english/implement/i-2001- convention.pdf > accessed 13 October 2010 and also < http://www.icao.int/icao/en/leb/capetown-
conv.pdf > accessed 13 October 2010.
33It is to be noted that the US did not subscribe to any of the two approaches but chose to utilise its insolvency system which has been put to test and widely used as a model in the reform of
many of insolvency systems in the world.
34DG Mayer and FL Polk, ‘A Test of the Cape Town Convention: Useful Tool in Debtor Insolvencies and Defaults or Trap for the Unwary?’(2009) 2.5 Corporate Rescue and Insolvency
35UNIDROIT Cape Town Convention , Art XI (5)
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approaches to be applied, it is a requirement that there should be co-operation ‘to the maximum extent possible’36 between courts of the relevant contracting states.
The international interests involved must have been registered in the international registry created under the Convention and the contracting states should have made and lodged a declaration to the registry as to the alternative approach it has chosen.37 Additionally, the remedies apply only where a contracting state involved is ‘the primary insolvency jurisdiction.’38 And what is critically crucial is the priority of interests that the convention establishes which directly affect the contracting state’s priority ranking in insolvency proceedings. This is to the effect that a registered interest has priority over any other interest registered subsequently and over a non-registered interest.
In their respective declarations for implementation of the Convention, Tanzania and Kenya opted to apply the first approach in its entirety to all types of insolvency proceedings.39 The implication is that it is now imperative to consider the ramification of the Convention and its protocol in any examination of cross-border aspects of insolvency law systems of SSA countries. One significant implication is that one must read such declarations into a SSA country’s cross-border insolvency regime. This again effectively contributes towards pulling the cross-border insolvency regime of contracting states in SSA
36See UNIDROIT Cape Town Convention, Arts X (6) (b) and XII (2)
37UNIDROIT Cape Town Convention, Art XXX (3). As to whether or not the Convention is meant to be self –executing, credence has been given to the view that, at a minimum, the remedial provisions of the convention were intended to be self-executing. In support of the view, reference has been given to article 5(2) of the Convention which arguably provides guidance on this aspect, as it points out how the Convention should be interpreted. For details on this see, E Gewirtz, ‘The Cape Town Convention: Similar is not the Same and Says Who’ (2006/2007) Air Finance Journal < www.milbank.com > accessed 16/11/2009.
38Article I of the Protocol to the Convention on International Interests in Mobile Equipment on Matters Specific to Aircraft Equipment defines the primary insolvency jurisdiction as ‘the contracting state in which the centre of the debtor’s main interests is situated, which for this purpose shall be deemed to be the place of the debtor’s statutory seat or, if there is none, the place where the debtor is incorporated or formed, unless proved otherwise.’
39For Declarations lodged by Tanzania and Kenya, see <
http://www.unidroit.org/english/conventions/mobileequipment/depositaryfunction/declarations/bycountry/unitedrepublicoftanzania.htm > and < http://www.unidroit.org/english/conventions/mobileequipment/depositaryfunction/declarations/bycountry/kenya.htm > respectively accessed 12/4/2009
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towards the direction of universalism. But this time, it is through harmonisation of applicable law rather than by a universal application of lex concursus. Such implication is at best incremental given that the convention is limited to very specific categories of mobile asset such as aircraft, railway rolling stock and space assets.
Clearly, the implementation of the Convention in SSA countries poses a potential conflict with the whole endeavour of implementing bilateral investment treaties and other international commitments which envisage realisation of the most favoured nation principle, national treatment, and fair and equitable treatment for all investors. It provides a priority ranking in insolvency proceedings to creditors whose interests against debtors in aircraft objects are registered in the international registry. An apparent challenge for SSA countries is to balance such interests with their priorities and needs, and perhaps to have an equally effective and efficient framework for dealing with creditors from all business sectors and industries in the event of insolvency proceedings.
4.5The Bilateral Investment Arrangements and their Linkage to CrossBorder Insolvency
There is a clear nexus between the bilateral investment treaties (“BITs”) which provide for cross-border investment arrangements on the one hand and crossborder insolvency regulations on the other.40 This part takes this point further by examination of principles and standards of the bilateral investment treaties as they link and implicate cross-border insolvency regulation for a host country in SSA. With the liberalisation of markets, there has been a growing number of BITs concluded by developing countries in SSA with developed countries. Quite recently, there has been an emerging pattern of cross-border investment arrangements among developing countries. This new pattern signifies the emergence of emerging economies in East Asia.41
40Text to n 57, 58 & 59 in chapter 3
41It is interesting that there have emerged a more or less standardised format of bilateral investment treaties. As such, even the treaties concluded between SSA countries and the
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Over the last few years African countries had concluded a total of 11 new bilateral investment treaties. They were party to 27% of all BITs in the world by 2007 while in 2006 alone they concluded 21 new agreements.42 An interesting development is the new interest of the US in SSA as reflected in the conclusion of the bilateral investment agreements between the US and several SSA countries and regional groupings.43 By the end of 2008 there were treaties covering investment and trade concluded by the US with COMESA, WAEMU, EAC, Mozambique, Rwanda, Ghana, Mauritius, and Nigeria.44
While European countries remain the dominant contracting partners in the majority of the BITs concluded by SSA countries, the emergence of China and other countries from Asia such as India, Malaysia and Indonesia is noteworthy.45 China alone accounts for a large share of the ‘South-South’46 agreements. In fact, about 60% of the Chinese BITs concluded from 2002 to 2007 were with other developing countries, mainly from SSA. Indeed, 8 of the 16 BITs China signed from 2003 to 2007 were concluded with SSA countries, namely Benin, Djibouti, Equatorial Guinea, Guinea, Madagascar, Namibia, Seychelles, and Uganda.47 The new trend of ‘treatification’ is one that combines trade, and investment
emerging markets have tended to be a replica of those concluded with developed countries. See generally, JW Salacuse, The Law of Investment Treaties (Oxford, OUP 2010)
42M Malik, ‘Recent Developments in Regional and Bilateral Investment Treaties’ (A Background paper for the 2nd Annual Forum for Developing Country Investment Negotiators, Marrakech, Morocco 2-4 November 2008)[1]-[5]; UNCTAD, World Investment Report 2008: Transnational Corporations and Infrastructure Challenge (United Nations, New York 2008) 15-
17and UNCTAD, Economic Development in Africa Report 2009: Strengthening Regional Economic Integration for Africa (United Nations, New York 2009)
43See UNCTAD, Economic development in Africa Report 2009 (n 42) 50
44UNCTAD, Economic Development in Africa Report 2009 (n 42) 50
45The leading European countries in concluding such treaties are the UK, Germany, Switzerland, Italy, France, Netherland, Belgium and Luxembourg.
46South-South is a phrase coined to describe co-operation between developing countries otherwise known as countries of the global South. See UNCTAD, South-South Cooperation in International Investment Arrangements (UN, New York 2005) 1-48; and Marrakech Declaration of South-South Co-operation December 2003 < www.g77.org/marrakech/MarrakechDeclaration.html > accessed 5 August 2011
47UNCTAD, World Investment Report 2008 (n 42) 15 and 34; M Malik (n 42)
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liberalisation whilst also involving SSA regional groups as contracting partners instead of individual SSA countries.48
There are various reasons that have been attributed to the surge in bilateral investment treaties starting from the 1990s. While the growth of the use of such agreements reflects both trade liberalisation and in particular co-operation with preferred partners on ‘behind the border policies,’49 the impetus behind the expansion of these agreements rests on the desire of multinational enterprises to invest safely and securely in developing countries and the need to create a stable and predictable international legal framework to facilitate and protect the crossborder trade and investments.50 Such desire reflects the absence of multilateral investment agreement to regulate foreign investments which meant that international regulation of foreign investment was a subject of great uncertain and controversy. 51 Accordingly, there was no effective mechanism for investors to pursue their claims against host countries that might have injured or appropriated their investments or refused to respect their contractual obligations. This was particularly important given that SSA countries are not only believed to have weak institutional and legal support for property rights and contract enforcement but also had a record of appropriating and nationalising foreign investments. 52
48UNCTAD, World Investment Report 2008(n 42)17; UNCTAD, Economic Development in Africa Report 2009 (n 42) 54; M Malik (n 42) 2. The on-going negotiations for investment and trade agreements between Africa’s regional trade agreements and the EU undertaken in the context of EPAs are illustrative, so is the Trade and Investment Development and Co-operation Agreement (“TIDCA”) between the US and the South Africa Custom Union (“SACU”) signed in
16July 2008 and several Trade and Investment Framework Agreements (“TIFAs”) that the US has signed by the end of 2008 with RTAs in SSA such as EAC, COMESA, and WAEMU.
49This is a terminology used to refer to facilitation measures regarding trade and investment competitiveness that a country might adopt in guiding its cross-border co-operation in trade and investment. They ‘..include regulations and institutions overseeing local and foreign investment, capital markets, customs, taxation, labor, private ownership, legal recourse, and so on’ See, World Bank, ‘Regional Challenges’ < http://go.worldbank.org/E96ILDA2Y0 > accessed 17
August 2011
50JW Salacuse and NP Sullivan, ‘Do BITs Really Work?: An Evaluation of Bilateral Investment
Treaties and Their Grand Bargain’ (2005) 46 Harv Int’l LJ 67, 75. It is the same impetus that exerts pressures for convergence of development of effective cross-border law systems across the globe and in developing countries in particular in order to create predictable and efficient machinery that seeks to maximise values of the estates of an insolvent debtor.
51V Mosoti (n 10) 95, 113
52A Akinsanya, ‘International Protection of Direct Foreign Investment in the Third World’ (1987) 36 ICLQ 58, 58-77; M Sornarajah, ‘Protection of Foreign Investment in the Asian pacific
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Therefore individual countries (especially the developed ones) negotiated and concluded BITs with specific developing countries in order to protect their investors in those countries. Such protection is by firstly, subjecting host countries to set international legal rules that they had to observe in dealing with investors; and secondly by providing investors themselves the right to bring a claim in international arbitration against host country governments which violated those rules. In general terms, it is the intention of a BIT to restrain host country action against the interests of investors and thus providing assurance to the investors regarding their property rights. The conventional wisdom is that BITs help to remedy local institutional deficiencies, primarily in developing countries where fear of expropriation, among other things, might otherwise deter foreign investment.53
As far as SSA countries are concerned, the argument is that FDI plays an important role in fostering economic growth and development of developing countries. It contributes to a rise in domestic investment as well as skills, technology transfers and capacity. The impetus of SSA countries therefore derives from the desire to overcome the perception that they are an insecure destination for foreign capital.54
It has been argued that the desperation of SSA countries ‘for FDI overwhelmingly precludes them from making thorough analysis of economic, political, and social or other gains that may come from such inflows, and the laws and treaty they need to realise such gains.’55 Such observation owes from the nature of the obligations that the host countries take in relation to protection and treatment of foreign investments which constrain the host countries’
Economic Co-operation Region’ (2005) 29 J World Trade 105, 126; and V Mosoti (n 10) 113114
53See n 11 above
54See M Hallward-Driemeier, ‘Do Bilateral Investment Treaties Attract FDI? Only a Bit…and they could Bite’ (2003) World Bank Policy Research Working Paper No 3121 < http://ssrn.com/abstract=636541 > accessed 15 April 2011 [2]
55V Mosoti (n 10) 95, 99
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sovereignty and the ability to regulate. In reality the bargain that is reflected in these treaties is such that the host countries are not expected to export capital to the developed country.56 Rather, they are expected to live up to the promise of protection of the foreign capital in return for the prospect of more capital in future.57 These agreements therefore seek to establish binding rights and responsibilities for the contracting parties with regard to co-operation, trade access, and admission, promotion and protection of foreign investment.58
4.5.1The Implications of the Bilateral Investment Treaties for CrossBorder Insolvency Regulation
The surge in the growth of BITs involving SSA countries underlies the growing global importance attached to, and the role states play in competitively affording, a reliable legal environment to attract foreign investment and promote commercial activities in general.59 It is in this context that it becomes important to consider the involvement of SSA in facilitation of capital flow and how such involvement may require or influence cross-border insolvency regulation in SSA.
As SSA countries are increasingly becoming interdependent and connected to the global market through the facilitation and thus growth of capital flow, they face the challenge of reflecting in their insolvency regimes, the demands of the global market, which consists of various players from different jurisdictions and addressing financial fluctuations that are inherent in market economies.60 The cross-border investment arrangements involving SSA,61 thus, imply a challenge
56JW Salacuse, ‘The Treatification of International Investment Law’ (2007) 13 Law & Bus Rev Am 155, 157 &158; and JW Salacuse and NP Sullivan (n 50) 78
57Ibid
58UNCTAD, World Investment Report 2008 (n 42) 16
59AT Guzman, ‘Why LDCs Sign Treaties That Hurt Them: Explaining the Popularity of Bilateral Investment Treaties’ (1997-1998) 38 Va J Int’l L 640, 652
60J Stiglitz (n 5) 120; and JW Salacuse and NP Sullivan (n 50) 115; JW Salacuse (n 56) 165 stating that ‘as BITs proliferate, more and more countries incorporate BITs into their domestic legal systems. Thus, there is scope for arguing that BITs manifest certain concepts on the treatment of investors and investments that represent general principles of law’; and B Kishoiyian, ‘The Utility of Bilateral Investment Treaties in the Formulation of Customary International Law’ (1994) 14 Nw J Int’l L & Bus 327, 329
61V Mosoti (10); M Malik (n 32); UNCTAD, World Investment Report 2008 (n 42) 15 and 34; JW Salacuse (n 56) 163, discussing the consequences and challenges of treatification of
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to the SSA host countries to align their insolvency regimes and in particular cross-border insolvency law system with their entire legal environment for facilitation of investment, as well as standards and principles envisaged in such arrangements of which SSA countries are contracting parties.62 Addressing such a challenge in a manner that is legitimately expected by the investors is critically important in enabling such countries to honour their treaty obligations even during cross-border insolvencies. This may perhaps also entail adopting ‘best practices’ common to most of its trade and investment partners’ insolvency law systems.63 In so doing, such countries will avoid any potential arbitration claim for failure to properly regulate cross-border insolvencies.64 Contemplating the risk a host country may find itself in for failure to meet treaty commitments in the event of an insolvency situation, Salacuse argues that:
The issue……is an interesting and potentially important one. As financial crisis strike[s] countries, they will seek to deal with [insolvency issues], often without regard to the treaty commitments they have made. One can imagine a variety of situations in which a governmental measure or failure to act adversely affects the rights of an investor or creditor, leading that person to claim that his or her investment was expropriate[d], denied full protection and security, or fair and equitable treatment. Other treaty provisions may also be relevant. 65
investment law contends that ‘…..unlike the situation that prevailed thirty years ago, government officials, international executives, lawyers, and financiers increasingly must take investment treaties into account in planning, negotiating, undertaking, and managing international investment transactions.….[T]he process of treatification of international investment law has also resulted in the creation of an emerging global regime for international investment…… [that] …constrains and regularize the behaviour [of] participants, affect which issues among protagonists move on and off the agendas, determine which activities are legitimized or condemned, and influence whether, when, and how conflict are resolved. Taken together the network of international investment treaties do all of the things.’
62Text to n 57-60 in chapter 3. It is to be noted that these arrangements as represented by bilateral investment treaties have been described by analysts and scholars as having the effect of constraining the sovereignty of a host country in its ability to take legislative and administrative action to advance and protect national interests. See JW Salacuse (n 56) 155, 158 & 163. For a comprehensive list of bilateral investment treaties involving SSA countries visit < http://www.unctadxi.org/templates/docsearch.aspx?id=779 > accessed 22/02/2010
63Ibid
64This will restrict the ability of an investor to complain against discriminatory treatment in insolvency proceedings involving his investment, his debtors and his creditors. See O Chung, ‘The Lopsided International Investment Law Regime and Its Effect on the Future of InvestorState Arbitration’ (2006-2007) 47 Va J Int’l L 953, 960, arguing that the bilateral ‘[i]nvestment treaties have become an open invitation to unhappy investors, tempted to complain that a financial and business failure was due to improper regulation, misguided macroeconomic policy or discriminatory treatment by the host government…’
65Statement by Professor JW Salacuse (Personal email correspondence 27 May 2010)
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Much as historical, socio-economic, political and cultural norms and needs of a given country have significant influence in shaping the country’s insolvency law and practice,66 the normative nature and breadth of the matters covered in the BITs,67effectively circumscribe the policy choice space of the host countries in SSA for cross-border insolvency regulation.
4.5.2Linking Tools between Bilateral Investment Treaties and CrossBorder Insolvency Regulation
The linkage between the cross-border investment arrangements and the host country’s cross-border insolvency regime is clearly apparent in FDIs expected to flow from the home country to the host country. The capital inflows to a host country may thus require an insolvency legal regime that is in harmony with the policy objectives of the prevailing arrangements.68 A regime that will take into account the foreign element that is apparent in such investments and the possibility of such investments being one among many operations of the home country entity scattered in SSA countries and the rest of the world, but connected to one another.69 It is common knowledge that the growth of international business and investment tends to enhance the potential for occurrence of crossborder insolvency and its associated challenges.70
66N Martin ‘The Role of History and Culture in Developing Bankruptcy and Insolvency Systems: The Perils of Legal Transplantation’ (2005) 28 BC Int’l & Comp L Rev 1, 4; F Tung (n 6) 561; and L Hoffmann, ‘Cross-Border InsolvencyThe 1996 Denning Lecture’ < www.filewiz.co.uk/bacfi/1996_denning_lecture.pdf > accessed 12 March 2009. Apparently, different policy choices that characterise a given insolvency system are a reflection of such country’s norms and inclinations.
67Despite the diversity in the nature of the bilateral investment treaties, there is consensus in the existing scholarship that the bilateral investment treaties underline some common features that potentially contribute towards development of international investment law. See JW Salacuse and NP Sullivan (n 50), noting how negotiation of bilateral investment Treaties has progressively resulted into standard BIT, aiming at according higher standard of protection and guarantee for the investments of the capital exporting country, from which countries are reluctant to depart especially with regard to objectives, and major provisions. See alsoV Mosoti (n 10) 115
68See n 60-62 above
69I Mevorach, Insolvency within Multinational Enterprise Groups (OUP, Oxford 2009)
70See R Mason, ‘Hotchpot and Other Tasty Morsels in International Insolvency’ (1995) 3 Insolv LJ 149, contending that ‘[a]s international trade and investment increases, so does the likelihood of there being insolvent corporations with cross-border links. These connections with other jurisdictions often raise problems……An obvious example is in the repatriation of foreign assets, while another may be in the processing of claims and distribution of assets where local creditors are joined by foreign claimants. What policies and principles should a particular jurisdiction apply in resolving issues [relating to the] foreign elements?’
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