The UNCITRAL Model Law on Cross-Border Insolvency is due to come into force on 6 April 2006. It will apply to corporate and personal debtors wherever:
- a foreign insolvency office-holder seeks assistance from the English court for a foreign insolvency
- the English office-holder seeks assistance in a foreign state
- there are concurrent insolvency proceedings in England and elsewhere
- foreign creditors want to start or join in an English insolvency
The Model Law has already been or is about to be enacted by many of the major trading nations, including the US, Canada, Japan, South Africa, Australia and New Zealand. The key implications for banks are:
- faster recognition by English courts for insolvency office-holders in foreign main proceedings (where the debtor’s centre of main interests is). Banks should still insist on an English court order granting recognition to the insolvency office-holder before allowing him to deal with assets of the estate. Foreign insolvencies can already be recognised by English courts but the Model Law contains an express direction that an application for recognition should be decided at the earliest possible moment
- expect requests for bank statements or other information where the debtor has an account (to be complied with on production of an English court order for the information to be released)
- once foreign main proceedings are recognised, there is an automatic stay on legal proceedings and execution of judgments, and an automatic suspension of the transfer of assets. Other types of relief can also be granted. The court has discretion to order a stay in foreign proceedings that are not main proceedings (those brought where the debtor has an establishment)
- despite these stays and suspensions, banks can still exercise rights they would have in a bankruptcy or compulsory winding-up to set off, enforce security over the debtor's property and repossess hire purchase goods in the debtor’s possession.
The Model Law is overridden by the EC Regulation on Insolvency Proceedings wherever the two are in conflict and also does not affect the English courts’ powers and duties (under s.426 Insolvency Act 1986) to assist courts in the section 426 countries in insolvency proceedings.
Law: Draft Cross-Border Insolvency Regulations 2006
This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq
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The original publication date for this article was 29/03/2006.