Учебный год 2023 / phd
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setting an important benchmark for SSA countries and other developing countries.261 Secondly, the integration of the other members such as Anglo-phone countries might present opportunities for improvement of the regime given the experiences and lessons that have been learnt over the years within OHADA and from other arrangements whose membership is not strictly confined to states of a particular legal family. 262
6.8Conclusion
There is a growing awareness of the importance of effective insolvency systems incorporating cross-border insolvency aspects in SSA countries. This is partly reflected in the emerging reform trends that address cross-border insolvency issues. Hitherto insolvency related laws recorded not only low awareness among the various stakeholders and general public but also remained largely in disuse. This emerging trend seems to have been significantly influenced by the desire and thrust of competing in attracting trade and capital inflows into SSA countries as host countries of foreign direct investments in the international economic cooperation as opposed to increasing incidences of insolvency with international character.
The survey of the state of the law in SSA countries, as represented by Tanzania and Kenya, revealed that the laws and their respective developmental trends in these countries still reflect the prevailing colonial legacies and are greatly influenced by the legislative developments in the former colonial powers, and partly by the international insolvency benchmarks. What is clear from the insolvency reform trends is that there is a marked contrast among the countries under study as to the extent to which reform has been effected, and the manner in which they seek to approach cross-border insolvency. Such a contrast is notwithstanding that these countries are subjected to the same reform drivers, share the same legal history and socio-economic circumstances. Despite the general thrust on facilitation of flow of investment and trade, such a drive is yet to be clearly and unambiguously reflected within the laws. It remains to be seen
261JL Westbrook and others (n 253) 247, 262-264, observing inter alia that OHADA ‘shares the main features of modern trans-border insolvency legislation…’
262JL Westbrook and others (n 253) 262-264
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whether the current reform initiative and the implementation of the resulting law will eliminate the uncertainties and unpredictability that are in place as to the manner in which the relevant authorities, courts in particular, in these countries may approach and deal with various issues that relate to cross-border insolvency.
The emerging reform initiative and the reformed law that is in place or being proposed seem to suggest that the common law approach to cross-border insolvency is still relevant and indeed applicable to supplement the international character of the law by filling up what might be seen to be lacking in the enacted law. One critical implication arising from the consideration of international commitments, such as the bilateral investment treaty commitments, means that such commitments may need to be read into the laws and taken into account during the reform and implementation of the law. Clearly, such implications may potentially mandate the application of the law to be done in a manner that will make such commitments prevail. For examples, the commitments as to extending national treatments, most favoured national treatments, fair and equitable treatment, right to repatriation and transfer of funds and capital, and protection and promotion of foreign investment may limit, reduce or prescribe the scope and manner in which the law must be invoked. It must be reiterated that the commitments reflect the obligation on the part of the host countries to provide a favourable legal environment within which foreign investors operate. It seems that, save for the contemplated reform in Kenya, the current law in both Tanzania and Kenya does not guarantee such an outcome that is in line with the commitments.
While in SSA it is only OHADA that has widely been acknowledged for institutionalising a regional cross-border insolvency regime based on uniform law, there has long been in existence a harmonised legal regime for Tanzania, Kenya (including Uganda) for reciprocal co-operation in cross-border insolvency. Despite being forgotten in statute books and based on the personal bankruptcy legislation, there is scope for arguing that such a regime is still in force, and that it is also meant to apply to cross-border insolvencies. While the
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arrangement still seems to have the potentials for making an effective crossborder insolvency regime within the East African regional context and providing an important historical context for crafting a modern regional framework for EAC, there are also many benefits that could be achieved by integrating with the OHADA regime. There is a possibility of overcoming the factors that may present difficulties for Anglophone countries integrating with the OHADA given the inspiration that is in place for regional co-operation among SSA countries. Considering the existing legislative frameworks as whole and the direction of the reform initiatives it is clear that there is a strong pull away from territorialist approach.
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CHAPTER SEVEN
ISSUES AND PERSPECTIVES FOR CONSIDERATION IN DEVELOPING A FRAMEWORK FOR ADDRESSING THE CHALLENGES OF CROSS-BORDER INSOLVENCIES
7.1Introduction
The challenge that Sub-Saharan African (“SSA”) countries face is developing an appropriate and workable cross-border insolvency law system. This means the development of a system that is sensitive to the local context and takes account of international benchmarks, such as the UNCITRAL Model Law on CrossBorder Insolvency (“the Model Law”). The looming danger in the countries under study is that the forces presented by the challenges discussed in the previous chapters are likely to lead to unsuitable legislative reform which rigidly adheres to international benchmarks and/or the theoretical models at the expense of the local contexts. Despite the international insolvency benchmarks and the theoretical models that countries may have regard to in reforming their laws, it is, as shown in chapter two, settled that local policies tend to have significant influence in informing and shaping the insolvency system of a country and its cross-border insolvency regime.1 The influence informs and shapes both the ingredients and the overall theoretical framework of the law to be adopted.
However, the challenge is in identifying the local policies, which reflect such aspects as the historical, social, political, cultural, economic, and philosophical contexts of SSA countries, using Tanzania and Kenya as case studies. The other challenge is in identifying the policy implications of specific cross-border insolvency issues and making appropriate choices around those implications in relation to theoretical aspects of cross-border insolvency and the international insolvency benchmarks such as those provided by the Model Law. This chapter
1 Text to n 14-15 in chapter 2; and text to n 2 - 4 below. See also, JL Westbrook, CD Booth, CG Paulus and H Rajak, A Global View of Business Insolvency Systems (World Bank, Washington 2010) 228 and 229
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seeks to do just that, by employing selected national policies of the countries under study which bear the most relevant local policy perspectives.
The primary concern of the chapter is twofold. The first is to demonstrate how the relevant local context of the countries under study can be identified from national policies and used to inform and shape the cross-border insolvency reform process. And the second is to demonstrate how the local policy perspectives may be employed to determine the appropriate theoretical approach and the extent to which the existing international initiative, such as the Model Law, might be relevant. The discussions that ensue proceed from the perspective of the countries that would be expected to defer to foreign proceedings in a crossborder insolvency setting.
The chapter shows that the local policy perspectives emerging from the analysis of the national policies provide an important insight into the local interests that are essential for a deep reflection and understanding of the context within which a cross-border insolvency framework in SSA countries and its requisite ingredients can be made. The potential challenges presented by negotiating the place of the local perspectives in the development of a suitable cross-border insolvency law system are also considered in the discussions. The chapter argues that the policy perspectives that emerged point to modified universalism as the appropriate theoretical approach relevant to the SSA context. The chapter, among other things, maintains that the UNCITRAL Model Law on Cross-Border Insolvency (“the Model Law”) is relevant and suitable for cross-border insolvency law reform in the countries under study as, given its nature and attributes, it can be customised and adapted to reflect the relevant theoretical approach. The special policy emphasis placed in strengthening of existing regional co-operations and traditional and long standing relations with some foreign countries suggest that a rather special arrangement might be needed for such countries. Among the issues raised in the discussion, which might need to be further considered in future research is in relation to adoption of the Model Law as a regional instrument (i.e East Africa Community (“EAC”) law) to help
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realise even further the whole idea of regional market enlargement for facilitation of trade and foreign investment.
7.2Context for Consideration in Developing a Cross-Border Insolvency Framework
The challenges exposed by various forces to which SSA countries are subject, as identified in the preceding chapters, present key elements which must arguably be taken into account in a consideration and crafting of a framework for crossborder insolvencies in these countries. While there is no need to repeat the relevant challenges from the previous chapters, it is important to point out three issues which provide important scope and context for the present chapter.
The first is the view that the challenges expose SSA countries to the risk of undertaking unsuitable legislative reform which may only take account of the current global wave and international standards, while ignoring the local policies which are necessary for making the law relevant and enforceable. The second is the perspective of a country that might always be deferring to foreign proceeding which the countries under study must adopt when giving consideration to policy choices to be made in crafting a suitable framework. The perspective derives from, and account must therefore be taken of, the fact that the countries under study are merely the hosts of the much needed foreign direct investments. The argument here is that the above two issues set an important context for considering the local policies that must be served by a cross-border insolvency law system to be developed. The third and last issue regards a theoretical framework that would enable development of a regime that reflects local values of the countries under study. It is argued in this chapter that modified universalism adopted in the form of the Model Law could be an appropriate approach in enabling the countries under study to take account of the characteristics emerging from their local policy perspectives.
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7.3Policy Choices in the Development and Implementation of CrossBorder Insolvency Law
7.3.1Local Policy Sensitive-Aspects of Cross-Border Insolvency
It is a widely held view that insolvency law is particularly sensitive and responsive to societal values.2 Such sensitivity and responsiveness explain the basis of the existing divergence of insolvency systems of different countries. Cross-border insolvency systems are without exception as they ‘take into account multiplicity of considerations resulting from the economic system of the respective country, the overall purpose of its insolvency law, the whole legislative body relating to the pre-insolvency situation…., its relationship with particular other countries, or the hoped-for treatment of its business abroad.’3 A cross-border insolvency law must therefore be largely based on and reflect the domestic insolvency law of the respective country and the multiplicity of considerations which relate to the country’s societal values to mention but a few.4 Thus, consideration of any potential framework for cross-border insolvency legislation must identify and consider aspects of cross-border insolvencies which are sensitive to deeply held local policies that reflect historical, social, political, economic, philosophical and cultural contexts of a society.5 As pointed out in chapter two, it is however, not that easy to determine the local contexts that are not only truly representative of a nation-wide consensus of a country but also relevant to cross-border insolvencies.6 The multiplicity of problems that SSA countries experience, the lack of practical application of the law relating to insolvency and involvement in the high profile cross-border insolvency cases that
2TC Halliday, ‘Lawmaking and Institution Building in Asian Insolvency Reforms: Between Global Norms and National Circumstances’(5th Forum for Asian Insolvency Reform, Beijing, 27-
28April 2006) <http://www.oecd.org/DAF/corporate-affairs/ > accessed 17 July2009 [3]; and N 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; JL Westbrook and others
(n 1) 228 and 229. See also, W Menski, Comparative Law in Global Context: The Legal Systems of Asia and Africa 2nd ed (CUP, England 2006) 26-37 and text to n 14-15 in chapter 2.
3JL Westbrook and others (n 1) 228 and 229
4JL Westbrook and others (n 1) 228, noting that “the common understanding is that the treatment of foreign creditors is an issue purely for domestic regulation-recommended rule being that of equal treatment”; and JL Westbrook, ‘Priority Conflicts as a Barrier to Cooperation in Multinational Insolvencies’ (2008-2009) 27 Penn St Int’l L Rev 870
5See for instance, P Legrand, ‘How to Compare Now’ (1996) 16 Legal Stud 232,236; and JL Westbrook and others (n 1) 228 and 229
6Text to n 161 in chapter 2. See also JL Westbrook, ‘A Comment on Universal Proceduralism’ (2009-2010) 48 Colum J Transnat’l L 503, 515-516
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occurred recently and in the recent past means that it is even complex to identify the most relevant aspects for SSA circumstances and perhaps also to have them, once identified, reflected in the framework being developed.7 Extensive application of the law and involvement in high profile cross-border insolvencies would have enabled the countries under study to gain enough experience to better understand and identify relevant policies and policy issues.8
One key area which is prone to and informed by the local policies is the overall policy objective of the entire insolvency system including cross-border insolvency.9 The debate on the policy objective of a given insolvency law system reveals that theorising of an insolvency system should not remove the policy analysis too far from reality of the societal values, as doing that exposes the exercise to the risks of becoming meaningless in helping to inform the system.10 This is an important starting point as it is this general objective of the insolvency system that determines the inclination of other aspects within the system. Thus, the choices made or which should be made as to a particular aspect of insolvency and its implication depend on the local circumstances, needs, priorities, culture and legal tradition, its relation or contemplated relation with particular other countries and the likes that characterise the relevant country’s local policies. 11
7TC Halliday (n 2); and TC Halliday, and BG Carruthers, Bankrupt: Global Lawmaking and Systemic Financial Crisis (Stanford University Press, California 2009). These works are the only ones out of the reviewed works for this study that at least discuss this issue and attempt to propose a model for negotiating reform using international insolvency benchmarks in a manner that is sensitive to the local context. The work reveals the policy hurdles that are likely to be encountered in the process.
8See JL Westbrook (n 4) 870, 877, noting, for example, the importance of having enough litigation on matters relating to treatment of tort claims in international insolvency co-operation as a key aspect in finding a solution for the existing concern on treatment of tort claimants under universalism.
9E Warren, ‘Bankruptcy Policymaking in an Imperfect World’ (1993-1994) 92 Mich L Rev 336; and S Davydenko and J Franks 'Do Bankruptcy Codes Matter? A Study of Defaults in France, Germany, and the UK' (2008) 63 Journal of Finance 565
10E Warren (n 9) 377-378; JL Westbrook, ‘A Global Solution to Multinational Default’ (19992000) 98 Mich L Rev 2276, 2277, starting that ‘[insolvency law ] is one of those laws that cannot perform its function unless it is symmetrical to the market in which it operates. Virtually all theorists share this view and it is reflected in the nearly unanimous practice of nations….’
11TC Halliday (n 2) 2; JL Westbrook and others (n 1) 228 and 229; and ED Flaschen and TB DeSieno, ‘The Development of Insolvency as Part of the Transition from a Centrally Planned to a Market Economy’ (1992) 26 Int’l L 667, 694
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It follows that one step that the governments of SSA countries must take is to consider and articulate clearly broad policy objectives that the cross-border insolvency law system must serve. Since the wider national interests of SSA countries are inclined towards economic growth as it relates to achieving poverty reduction, it can be argued that the overall policy objective should take that into account.12 This raises an issue as to whether and to what extent such a unique aspect can be so reflected and form the policy basis of the law without affecting other interests which are equally important.13
Local policy influences are also more pronounced in some specific aspects of the insolvency law system and especially those related to domestic priority rules, avoidance rules, the choice between liquidation and rehabilitation, and recognition of, and co-operation with foreign insolvency proceedings. These are the very aspects that have notable implications which facilitate or impede cooperation in a cross-border insolvency situation.14 It is common ground that these aspects differ markedly from one system to another notwithstanding some important commonalities.15 Westbrook and LoPucki respectively characterise such aspects as ‘the big four’ and the ‘core bankruptcy issues’ of any given insolvency system and its cross-border insolvency regime. 16
Rules of priority are the most controversial and important in cross-border insolvencies as they ‘impact…larger decisions beyond turnover or allocation of proceeds, including decisions about the scope and nature of asset sales and the choice of liquidation versus reorganization.’17 In the context of the competing theories for cross-border insolvencies discussed extensively in chapter two, each of such elements would, under universalism, be governed by the law of the
12Text to n 27 in chapter 2; and text to n 71, 143 and 153 in chapter 3. See also, ED Flaschen and TB DeSieno (n 11) 694
13See JL Westbrook, ‘Locating the Eye of Financial Storm’ (2006-2007) 32 Brook J Int’l L 1019, 1021, stating that ‘[e]very aspect of any national bankruptcy law is part of an integrated set of decisions about the policies to be benefited.’
14JL Westbrook and others (n 1) 227 and 228
15LM LoPucki, ‘Cooperation in International Bankruptcy: A Post-Universalist Approach’ (19981999) 84 Cornell L Rev 696,709; and JL Westbrook, ‘Universal Priorities’ (1998) 33 Tex Int’l LJ 27, 30
16JL Westbrook (n 13) 1021-1022; and LoPucki (n 15) 709
17JL Westbrook (n 15) 27
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foreign main proceedings whilst under territorialism they are virtually governed by the law of the country in which the assets are located.18 Under modified universalism, which is arguably the appropriate theoretical framework for crossborder insolvency regulation for the countries under study, the objective is to govern the elements by the law of the foreign main proceeding. However, such is not always the case, given the flexibility that the modified universalism accord to countries other than the foreign main jurisdiction to evaluate the fairness of the foreign proceeding when determining the extent and manner in which they have to cooperate.
Despite the wide acceptance of universalism at least in literature, one policy argument against its full implementation is in its potential for marginalising the national policies that an insolvency system is supposed to serve.19 Indeed, this is evident in the conflict of priority systems which represents a serious obstacle to implementation of universalism theory.20 Difference in priority systems in a cross-border insolvency co-operation setting reflects and explains two things. The first is the fear on the part of creditors of having their claims subjected to a different and unfavourable priority system. And the second is the resistance of local proceedings to cooperate with a foreign proceeding.21 The difference in priority systems explains further why modified universalism has been preferred in practice to universalism despite the latter’s wide academic approval. Such practical preference of modified universalism lies in its ability to accommodate and respect some legitimate local interests reflected in the local policies (served by the domestic systems) in a cross-border insolvency setting.22
18Text to Part 2.5.2 in chapter 2
19JL Westbrook (n 13) 1021-1022; JL Westbrook (n 10) 2298, arguing that the experience of the US points to the fact that ‘most of the law applied to an international insolvency case will to a large extent continue to be national law.’
20JL Westbrook (n 4) 870
21JL Westbrook, ‘Choice of Avoidance Law in Global Insolvencies’ (1999) 17 Brook J Int’l L 499; JL Westbrook (n 15) 34; and EJ Janger, ‘Virtual Territoriality’ (2009-2010) 48 Colum J Transnat’l L 401, 415, Janger illustrates this point by making reference to In re Treco 240 F 3d
148(2d Cir. 2000) arguing that ‘US Court declined to send assets to the Bahamas because a secured creditor’s claims were subordinate to the…costs of administration of the estate.’
22JL Westbrook (n 6) 515-516, attributing the legitimate local interests to ‘...interests that are truly local so that a person committed to a global approach to multinational insolvency would nonetheless agree that this or that sort of claim or claimant would best be governed by local insolvency law.’
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