Transnational Bankruptcy

At the final day of the INSOL conference in Vancouver, I attended a fascinating panel on the issues that arise when a multinational corporate group seeks to reorganize. The panel was staffed by judges from Canada, the UK, Korea, and Germany -- and  deftly chaired by a U.S. judge who managed to resist drawing the discussion back to the U.S. For those of us from the U.S., I think the discourse was particularly enlightening. While the panel began with lots of optimism about the new tools for cross-border coordination, by the end it became plain that only Canada would consider a joint reorganization case. In the other jurisdictions, it was clear that the vision of a cross-border case was actually a series of parallel cases within the several jurisdictions, aimed at reaching a common point.

The distinction is important, and a point that is often lost in the good-feeling surrounding the adoption of chapter-15-like procedures. In a joint reorganization case, creditors are apt to be treated equally, based on the value of the unified enterprise. In the case of parallel proceedings, creditors in those jurisdictions that happen to have readily "realizable" assets are going to have significant holdup power, especially if the assets remain "local" as part of a separate bankruptcy proceeding. For local secured creditors, that may be a fair result, but for unsecured creditors who likely relied on the value of the overall enterprise, this sort of jurisdictional fragmentation is likely to produce very arbitrary (and likely inefficient) results.