Учебный год 2023 / phd

foreign proceeding or enforcement of a foreign law. This perhaps includes having the distribution of proceeds being effected in accordance with, or the same as undertaken by, the laws of the countries under study. The importance of this consideration reflects an observation made with regard to the protection of local interests under the US Chapter 15 which is the US version of the Model Law:

The requirement of sufficient protection of domestic creditors before turning the assets over to a foreign representative allows the state to safeguard the interests of its constituents, thus letting it fulfil its duty while submitting to the foreign law. This mixed approach seems to provide the best of both worlds: protecting the interests of local creditors in cases where the value of assets located in a particular jurisdiction is greater than the debt owed to local creditors and, at the same time, allowing foreign recovery in cases where the debt owed to local creditors is greater than the assets located in that jurisdiction. The success of such system, however, hinges upon just the right balance between universalism and territorialism. There is a fine line that the courts need not cross in order to preserve the integrity of the system: providing local creditors some protection while maintaining deference to the foreign law.155

An appropriate choice that is commensurate with the local circumstances of the countries under study is adopting a regime that is based on a strictly modified universalist approach which provides the flexibility needed by such countries. 156 The flexibility has the potential of allowing such countries to recognise foreign proceedings and cooperate accordingly to the extent permitted by the local policies while viewing the entire proceedings from a global perspective.157 If the local jurisdiction determines that local interests would be treated fairly in the foreign main proceedings, they can then condition the protection of assets within their jurisdiction from local creditors’ claims on the main proceedings’ assurance

155KV Proskurchenko ‘Chapter 15 Cross-Border Insolvency: Is it True to Its Universalism Aspirations? (2008) 5 Rutgers Bus LJ 96, 112-113. Notably, the US enactment of the Model Law is largely faithful to the text of the Model Law which is not surprising given the US’ lead role in the drafting of the Model Law.

156JL Westbrook (n 10) 2302 and 2324, stating that ‘Modified universalism is "modified" precisely because it permits local courts to evaluate foreign law and foreign courts before deferring to a main proceeding.’; See also, JAE Pottow (n 138 ) 1915-1919, stating that ‘Modified universalism replaces the “must” of deference to the home country’s bankruptcy laws…..with a “may.”’

157JL Westbrook (n 10) 2301. Notably, national interests, sovereignty, independence issues and selective co-operation which potentially link with the proposition for a flexible approach are central aspects emerging from the national policies discussed above.

298

that there will be a special distribution of those assets in a way that protects the local interests.158 This might be viewed as a weaker form of modified universalism. However, it appears to be the most appropriate approach for any cross-border insolvency law reform initiative in the countries under study, based on the incremental grounds discussed in chapter two and three of this thesis and the prevailing historical, political and socio-economic aspects in these countries.

If the reverse is true, the local jurisdictions will be entitled to refuse to submit to the exterritorial effect of the foreign proceedings and will instead open parallel proceedings and administer the assets themselves.159 The suitability of this approach is in its flexibility which provides room for consideration of the extent to which the proceedings affect local interests as determined by the local policies. Perhaps the most suitable formulation of modified universalism on the basis of which a theoretical framework for any cross-border insolvency regime for the countries under study should be based is one that ‘…accepts the central premise of universalism, that assets should be collected and distributed on a worldwide basis, but reserves to local courts discretion to evaluate the fairness of the home country procedures and to protect the interests of local creditors.’160 The exception, as above discussed, could be where there is separate and special co-operation arrangement that is based on the well-established trust derived from a ‘long-lasting common tradition plus a legal or economic interrelationship.’161

Indeed, the modified universalism approach reflects the broad theoretical sense of legal systems and heritage of most SSA countries that have a common law background as has already been discussed.162 However, while this could be seen as supporting the argument for embracing the modified universalist approach, construction of such a framework must be mindful of the fact that the existing laws, including the relevant common law, have generally been in disuse. The

158J Pae , ‘EU Regulation on Insolvency Proceedings: The Need for a Modified Universal Approach’ (2004)27 Hastings Int’l & Comp L Rev 555, 578

159JL Westbrook (n 10) 2301

160JL Westbrook (n 21) 517; and JL Westbrook (n 10) 2301

161JL Westbrook and others (n 1) 240. See also Tanzania (n 45) 3, which provides for placing due priority on consolidation of the traditional relations [Tanzania has] had with [other countries such as] her trading and development partners.’

162Text to n 9-10 and 82-85 in chapter 5

299

other consideration is on the application of the common law which is subject to being compatible to local circumstances. All these seem to dictate and reiterate the need of crafting a simple, practical and realistic regime that is not only free from complexities but is also responsive to the characteristics of the developing economies and the limits beyond which they are unlikely to embrace.163

Because of over dependence on foreign capital and the existence of long standing traditional and established relationship with some foreign countries including those emanating from such arrangements as the bilateral investment treaties, it seems that the countries under study must be careful in having such a flexibility in the law of deciding whether or not to cooperate and to whom such a law should apply.164 Apparently, any such decision may have far reaching implications for the inflow of the foreign capitals and trade co-operation with foreign countries. However, as it became clear in chapter four and chapter five, the bilateral investment commitments could be a hindrance in applying modified universalism, as it is likely to undermine the predictability and certainties and fair and equal treatment that the treaties seek to achieve.165 As discussed above, this is the very reason why the countries under study may need to consider having a different arrangement for contracting states under bilateral investment treaties, regional integration and with those that they may have outstanding relationship.

7.6A Critique of the Relevance and Suitability of Existing Initiatives

In the foregoing discussions, it has been argued that modified universalism could be the most appropriate theoretical approach on the basis of which the countries under study should develop their respective cross-border insolvency frameworks. In the recent past, there have been significant achievements in the development of initiatives for dealing with cross-border insolvencies. These initiatives have

163IF Fletcher, ‘Maintaining the Momentum: The Continuing Quest for Global Standards and Principles to Govern Cross-Border Insolvency’ (2006-2007) Brook J Int’l L 767, 774; and IF Fletcher, ‘European Union Convention on Insolvency proceedings: Choice of Law Provisions’ (1998) 33 Tex Int’l LJ 119, 124, and 139

164F Tung, ‘Is International Bankruptcy Bankruptcy Possible?’ (2001-2002) 23 Mich J Int’l L 31,

67

165 See text to n 66 and 67 in chapter 4 and text to part 5.3 and 5.4 in chapter 5

300

elsewhere been subjects of extensive scholarship thus far. The cross-border insolvency theories have been employed to explain these initiatives.166 It is common ground that most, if not all, such models are inclined towards universalism, although they represent examples more of a modified universalism than pure universalism. As discussed above, this is a clear reflection of the persistence of tension in the attempt to strike a balance between globalisation of trade and investment on one hand and containing local interests. As such, one dominant outcome of this tension is having regimes that reflect modified universalism which advocates of universalism describe as a transition towards universalism.167

For the present purposes, the outstanding initiatives thus far are the Model Law, the EC Regulation on Insolvency Proceedings (“ECIR”) and for the SSA region, the OHADA Uniform Organising Collective Proceedings (“OHADA Law”).168 The question is whether and to what extent such initiatives are relevant to the circumstances of the countries under study in so far as development of an appropriate framework for their cross-border insolvency is concerned. To the extent that the initiatives considerably reflect a modified universalism, they are relevant. However, the question remains how and to what extent. The relevance of such initiatives is explored below based on the policy perspectives that emerged from the analysis of the selected national policies of the countries under study and the relevant historical context that is characterised by what has hitherto and at least in theory been in place in dealing with cross-border insolvencies. It is in this discussion that the relevance and suitability of the Model Law as an appropriate initiative in adopting the modified universalism and the local interests is made. It is also under this part whereby a consideration is made as to how crafting a regional cross-border regime using East Africa Community (“EAC”) as a case study can be done based on the existing regional initiatives and the relevant historical contexts.

166See for example, JL Westbrook (n 10) 2276 - 2277; LM LoPucki, ‘The Case for Cooperative Territoriality in International Bankruptcy’ (2002) 98 Mich L Rev 2216, 2218; and Pae (n 158)

167JL Westbrook (n 101) 9; and RK. Rasmussen, ‘Where Are All the Transnational Bankruptcies? The Puzzling Case for Universalism’, (2007) 32 Brook J Int‘l L 983, 983

168JL Westbrook and others (n 1) 246 - 265

301

7.6.1Customising the UNCITRAL Model Law on Cross-Border Insolvency for Respective SSA Countries: Is it Possible and Suitable?

The relevance of the Model Law on Cross-Border Insolvency as it relates to specific concerns that arise from the policy perspectives has already been addressed in the respective sections above and which need not to be repeated. What is important in the present context is to consider how the Model Law as a governing framework can well be adapted to reflect such concerns among others which mainly reflect protection of local interests.

To be sure the Model Law is ‘designed to assist states to equip their insolvency laws with a modern, harmonised and fair framework to address more effectively instances of cross-border insolvency.’169 It is designed to operate by allowing a foreign representative to apply for recognition,170 determining whether the foreign proceeding is main or non-main, and granting the appropriate relief and circumstances on basis of which different measures may be invoked to protect creditors, debtors and other interested persons. It provides that the court must decide whether or not to recognise the foreign proceeding and, if recognised, how to recognise the proceeding, including the nature of the proceeding on whether it is main or non-main proceeding. Accordingly, when a proceeding is recognised as a foreign main proceeding, all the local legal actions are stayed, the debtor’s insolvency is accordingly proved and consequent proceeding is pursued if the debtor has assets in the state.171 One notable assumption of the Model Law is that recognition of a foreign proceeding does not restrict the right to initiate a domestic proceeding which can accordingly be given local priority as against the foreign proceeding.172 However, whenever there are two or more proceedings pending, the Model Law provides for their co-ordination by means of cooperation. Such co-operation may entail and be reflected in the support for the

169Guide to Enactment, para 1; BM Devling, ‘The Continuing Vitality of the Territorial Approach to Cross-Border Insolvency’ (2001-2002) 70 UMKC L Rev 435, 444

170UNCITRAL Model Law, art 15

171Text to n 144 above. There is a risk that a multinational enterprise will not apply for recognition in a local country where it is capable of marshalling the assets without involvement of the local court and local law. This seems to be potentially possible for most SSA countries given the implementation of bilateral investment treaties that provide right for transfer and expropriation of funds and capital. A proper and effective regulation as above suggested will ensure transparency. For a discussion on the right to transfer capital and funds see text to Part 4.5.2.4 in chapter 4

172JL Westbrook (n 1) 248 & 249

302

foreign representative, recognition of dividend in respective proceedings, and turnover of local assets for distribution in the main proceedings and handing over of surplus in a non-main proceedings to the main proceeding.173

The question is whether the Model Law is well positioned to accommodate the local policy perspectives of the countries under study without marginalising its basic features, ideas and affecting its utility. This is arguably possible given its ‘partial and rather abstract provisions’174 and the fact that it is ideally meant to be used as templates for adaptation. One element of the preamble to the Model Law directly correlates to the national policy endeavours for poverty reduction through job creation and ensuring that those that are already in employment do not lose their jobs, stipulating that the Model Law seeks to ‘provide effective mechanisms for dealing with cases of cross-border insolvency so as to promote the objective of facilitation of the rescue of financially troubled businesses, thereby protecting investment and preserving employment.’175 It appears that a well customised version of the Model Law has the ability to protect local interests whilst also signing to recognition of international insolvency interests. However, paragraph 12 of the Guide to Enactment of the Model Law explicitly states that while countries are free to make any changes they see fit, ‘…in order to achieve a satisfactory degree of harmonization and certainty, it is recommended that States make as few changes as possible in incorporating the Model Law into their legal systems.’176 Such recommendation is reinforced by article 8 of the Model Law which requires courts to have regard to the international origins of domestic implementing legislation – which does entail some degree of commitment to participating in an international interpretive community dominated by the leading common law countries and economies,

173See for example UNCITRAL Model Law art 32

174JL Westbrook and another (n 1) 250, contending that as the Model Law does not ‘go too deeply into details and that important features are …left aside….it leaves the interested countries much space to fill the gaps individually.’

175UNCITRAL Model Law art 68

176See also the UNCITRAL Legislative Guide para 13 [pg 13] and para 66 [pg 271]. The Guide recognises that insolvency laws must balance the interests of the debtors’ stakeholders against the relevant social, political, and other policy considerations that have an impact on the economic and legal goals of insolvency proceedings.

303

especially, the UK, US, Australia, and Canada which are generating Model Law jurisprudence.

Accordingly, states seem to have space, with some restriction as above noted, to decide for themselves which part(s) of the Model Law they incorporate into their legislation and to what extent. It is thus not surprising that the Model Law has been adopted differently by different jurisdictions.177 It is therefore safe to say that customisation of the Model law is reasonably possible as far as it is seen fit to reflect national peculiarities and does not affect the certainty and predictability that are sought to be achieved by its adoption.178 Besides, the adaptation of the Model Law is not meant to displace local laws or to limit the court’s power to provide additional assistance in a cross-border insolvency setting. This is particularly so if an action would be manifestly contrary to the public policy of the countries under study.179

From the perspectives of the countries under study, the Model Law offers a useful framework in the following respect.180 Firstly, it offers the opportunity to make decisions as to whether or not to recognise and, if recognising, the nature of co-operation that should be provided. This means space and maximum flexibility for these countries to consider the extent to which co-operation through deference, or any other relief available, could prejudice the countries’ local interests. It seems that making the most of this flexibility requires expertise

177See generally, LC Ho (ed), Cross-Border Insolvency: A Commentary on the UNCITRAL Model Laws 2nd edn (Globe Business, London 2009)

178BM Devling (n 169) 447 while referring to Guide to Enactment states that ‘…if a nation chooses to adopt the Model Law, that nation is free to amend or delete provisions. The scope of the Model Law is limited to the procedural aspects of cross-border insolvencies. The law is not intended to alter the enacting nation’s substantive insolvency laws.’

179Notably, the UNCITRAL Model Law has been criticised in this context in that it ‘..leaves open the possibility of discrimination in the application of priorities when distributing assets to creditors.’ See, C Farley, ‘An Overview, Survey, and Critique of Administrating Cross-Border Insolvencies’ (2004-2005) 27 Hous J Int’l L 181, 216 citing in support JM Goffman and EA Michael, ‘Navigating Through a Multinational Restructuring: Cross-Border Insolvencies,

Proceedings and Workouts, Cross-Border Insolvencies: A Comparative Examination of Insolvency Laws of Industrialised Countries (American Bankruptcy Institute 5th Ann, New York 2003)

180JL Westbrook and others (n 1) 250, noting that the very nature of the Model Law ‘…add some attractiveness to it since it leaves the interested countries much space to fill the gaps [left by it] individually’

304

and practical experience in dealing with cross-border insolvency matters which is hugely lacking in these countries.

Second, it seems possible for the Model Law to be adopted to also deal with cross-border insolvencies that concern proceedings from foreign countries that maintain bilateral co-operation arrangements with the countries under study and perhaps other countries that have close ties with the countries under study. The underlying basis is the mutual relationship and trust that exists between the countries and which makes it possible, under the Model Law, to extend automatic recognition and co-operation to such countries in cross-border insolvencies and, as appropriate, according treatments to foreign creditors and debtors from contracting states that correspond with the standards stipulated in the respective bilateral investment treaties and such other international cooperation arrangements. There is scope for arguing that alongside this approach, such general provisions for recognition (subject to fulfilment of certain conditions) of proceedings originating from other countries can be maintained.

It would follow that all other countries that are not subject to the automatic recognition may only enjoy recognition and co-operation on a case-by case basis if there is sufficient fulfilment of the conditions set forth (e.g the conviction that the foreign proceeding fulfils the domestic functions and desirable features of an insolvency proceeding) or that it is otherwise in the public interest to extend such co-operation.181 Mauritius’s law that has recently adopted the Model Law seems to be based on this reasoning, though it requires the existence of an agreement for the mutual recognition of insolvency proceedings with any foreign jurisdiction (notwithstanding any prevailing long standing relationship) that provides appropriate protection for the interests of debtors and creditors in

181 It has been argued that full and willing co-operation is only achievable through the existence of an appropriate international agreement. See for instance PJ Omar (n 107) 173; and ML Nauta and F Bulten, ‘Introduction to Spanish Cross-Border Insolvency Law-An Adequate Connection with Existing International Insolvency Legislation’ (2009) 18 Int’l Insolv Rev 59, 71 and 72; and K Yamauchi, ‘Should Reciprocity Be a Part of the UNCITRAL Model Law on Cross-Border Insolvency?’(2007)16 Int’l Insolv Rev 145; and LC Ho (n 177) 11 and 12

305

Mauritius.182 Much as this corresponds with the perspectives that emerge from the policies, consideration must be had to the pros and cons of various forms of reciprocity in cross-border insolvencies, and as mentioned earlier, the extent to which foreign jurisdictions might have incentive to strike agreements for the mutual recognition of insolvency proceedings with the countries under study. Incentive for concluding such agreements cannot be guaranteed as it largely depends on the extent of the capital flow and trade between the countries. Indeed, failure to conclude such agreements will have a direct consequence of making the law inapplicable.

The Legislative Guide, which recommends that states enact the Model Law, encourages the use of lex fori concursus in determining the applicable law in cross-border insolvencies and advocates that the forum state's laws should control "all aspects of the commencement, conduct, administration and conclusion"183of the proceeding. Given the significance of requirement of trust which is also reflected in the policy perspectives, this could be made to have direct effect only to countries that have traditional and long established relationships; concluded bilateral investment treaties with the countries under study; or those that are member states in the same regional integration groupings. It might also be applied within the context of an agreement for mutual cooperation among contracting parties, as above discussed. A potential problem is in relation to the ability of the countries under study to exercise independent views and wishes as to how best they should enact the Model Law in to a domestic law.184

7.6.2Searching for a Framework for a Regional Cross-Border Insolvency Regulation

One of the striking features of the national policies of the countries under study is the emphasis placed on regional co-operation and integration matters. Indeed, Tanzania and Kenya are among SSA countries that are member states of several

182See Insolvency Act 2009 (Mauritius) ss 366 and 368. It is not clear whether the existing bilateral investment treaties may be held to fall within the scope of the envisioned agreement for mutual co-operation.

183UNCITRAL Legislative Guide (Recommendation 31)

184See for example text to n 85 in chapter 3

306

regional integration arrangements.185 The policies reflect the aspiration and the need to strengthen and cooperate in regional integrations. As trade and investment expand and grow due to the enlargement of the market in a regional integration, competitiveness increases and thus also the potentialities for crossborder insolvencies affecting the member states. While addressing the challenge of cross-border insolvencies at a national level is a step in the right direction, cross-border insolvencies with a regional and global flavour would necessarily require a regime that reflects the objectives of the regional integration and one that will encourage trading and investing across the regional integration.186 These objectives point to a regional approach to cross-border insolvency that might arguably influence the manner of adoption of a framework such as the UNCITRAL Model Law. As discussed in the previous section, the Model Law can well be customised and adapted in a manner that is commensurate with the local policy perspectives.

7.6.2.1Benefiting from Selected Regional Cross-Border Insolvency Regimes

In considering a framework on the basis of which regional cross-border insolvency for SSA countries can be developed, one must have regard to the existing cross-border insolvency regimes crafted for regional integration purposes. The first is the ECIR which provides a coordinating measure for cooperation in cross-border insolvency matters among EU member states.187 The ECIR has potentials of having possible influence in SSA owing to the following facts. On the one hand is the historical influence that Europe has had on SSA for centuries, which is clearly apparent in the legal systems of all SSA states.188 And

185Text to n 137 in chapter 4. On average each SSA country is a member of at least two regional integrations

186JL Westbrook (n 101) 38 and 39. Westbrook underscores the importance of having regional integration being also ‘part of the continuing expansion of economic ties among all nations around the world.’ And that they should ‘avoid the reality, or even the appearance of creating a “club” that looks only inward.’

187A Walters and A Smith, ‘“Bankruptcy Tourism” under the EC Regulation on Insolvency Proceedings: A View from England and Wales’ (2010) 19 Int’l Insolv Rev 181

188These ties also explain why much of the bilateral investment treaties that SSA countries have concluded thus far were with developed countries from Europe. Notably, it is clear from the existing literature that the OHADA cross-border insolvency regime was also heavily influenced by the ECIR. However, OHADA was in fact implemented earlier than the ECIR because of the time spent in negotiating the EU regime.

307