Financial Distress Has No Borders

The Swedish word designating a corporation is aktiebolag (lit., "stock company"), abbreviated "A/B." This A/B represents the last two letters in the name of one of Sweden's most beloved companies, Saab (Svenska Aeroplan A/B, Swedish Airplane Co.), which took a nose dive into bankruptcy by filing a request for reorganization today, which was approved by the Vänersborg district court in southwestern Sweden. Though the plan seems to be to consolidate company operations in Sweden, I strongly suspect that Saab has assets (and creditors) in a variety of countries, including the U.S. How will the Swedish bankrutpcy filing affect assets and creditors' efforts to grab those assets outside Sweden?

This kind of question involving the cross-border effects of bankruptcies by multinational businesses has become more common in recent years, and specific legislation and/or judicial practice has been evolving quickly in the area of international bankruptcy. As for the effect of the Swedish case in the U.S., for example, perhaps the only good news from the 2005 amendments to U.S. law was the inclusion of a new Chapter 15 on harmonizing the cross-border aspects of international bankruptcies. I wonder if we'll see a Chapter 15 petition in Detroit, New York, or Delaware for recognition of the Swedish restructuring in the next days and weeks.

For a fabulous illustration and discussion of how such applications are analyzed, the new opinion In re Betcorp. by Judge Bruce Markell in the Bankruptcy Court for the District of Nevada is a must-read. Judge Markell clearly and convincingly analyzes whether Betcorp's Australian winding-up proceeding is a "foreign proceeding" within the terms of Chapter 15, and more importantly whether the Australian case is a deference-worthy "main proceeding" because Australia is Betcorp's "center of main interests" or COMI. These questions and the answers will surely arise in the U.S. with increasing frequency in the years to come, especially in this era of worldwide financial distress.

Shameless plug alert! About a year ago, Judge Markell kindly invited me to join him and another major world expert, Bob Wessels of the University of Leiden in the Netherlands, in co-authoring a book on the past, present, and future of cooperation in international bankruptcy cases. The invitation was an incredible honor for me, and writing this book was an absolute joy--I must say, I believe we've produced quite an engaging and useful resource. Our editors at Oxford University Press tell us that they sent the book to press this week for expected delivery in mid- to late-March. The table of contents is available here, on Bob's weblog (which itself is an invaluable resource for cross-border insolvency issues). You can get a taste of the book early by reading this excerpt from Chapter 3, as well.  Enjoy!