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The Mother of All Cross-Border Bankruptcies?

posted by Jason Kilborn

No, not Lehman.  Though  much smaller in monetary terms (probably), a filing by BP would likely be the biggest international insolvency case in engaging the U.S. public interest, and probably its ire.  And what of a BP filing in its jurisdiction of registry?  A BP filing in the U.K. seems sure to create a cross-the-Pond furor not seen since the late 1700s, or so this BusinessWeek article suggests.  One line from that article particularly intrigued me:  "No doubt London courts would deliver an outcome more favorable to BP. And they’re apt to be less generous when it comes to paying damages to folks three times removed from directly affected claimants."  No doubt, eh???  This is, of course, the primary concern in cross-border cases, generally, but I think this worry is overblown (sensationalist journalism from BW--go figure!).

First, British reorg/rescue law still remains less debtor-friendly (and decidedly less management-friendly) than the U.S. Chapter 11 system (see, e.g., this very useful comparison), and management decides where to file.  While a U.S. DIP might well be able to maneuver the proceedings to low-ball Gulf-area claimants, I doubt a U.K. administrator would be willing to face the international backlash of such a tactic, especially since the adminsitrator would not be biased by his or her own participation in the creation of the catastrophe (unlike the DIP) and would have no reputational "sunk costs" to attempt to salvage (again, unlike a DIP).

Second, to the (unlikely) extent that the Businessweek article is making the sophisticated suggestion that British law would be chosen to control matters of claims administration and distribution, this is probably just wrong.  Cross-border insolvency law doesn't deal with such matters, and Jay Westbrook has written some very thoughtful analyses of the sticky choice-of-law issues in this context (I couldn't find any public hyperlinks, but see especially 23 Penn State Int'l L. Rev. 625 (2005); 33 Texas Int'l L.J. 27 (1998); and 65 American Bankruptcy L.J. 457 (1991)).  Any reasonable choice of law analysis would lead to application of U.S. law to the Gulf disaster, and a U.K. judge would be very hard-pressed to "deliver an outcome more favorable to BP" if that meant doing anything that remotely resembled flouting the governing law.

Might BP avoid punitive damages and other uniquely U.S. craziness by filing in the U.K.?  Probably, but my sense is BP would not face such emotion-driven madness in U.S. Bankruptcy Court, either.  State court tort trials get big headlines, but the bankruptcy cases that bring those damage awards back down to earth seldom catch the public's attention.  A long line of cases beginning with Maxwell suggests that U.K. and U.S. bankruptcy judges are more or less of one mind, so the only remaining questions concern choice of adminitration and choice of law.  The former strongly favors a U.S. filing (if any), and the latter should be indifferent to the choice of forum (no, I'm not being Pollyanna-ish here, I really do believe the choice of law would work out the same on either side of the Pond).  So, John Conyers, put down that silly bill to prohibit U.S. cooperation with a U.K. filing by BP, and focus on helping to clean up the mess down in the Gulf! 


A Bankrupt BP - Worse For The Financial World Than Lehman Brothers - People are seriously underestimating how much liquidity in the global financial world is dependent on a solvent BP. BP extends credit – through trading and finance. They extend the amounts, quality and duration of credit a bank could only dream of. The Gold community should think about the financial muscle behind a company with 100+ years of proven oil and gas reserves. Think about that in comparison with what a bank, with few tangible assets, (truly, not allegedly) possesses (no wonder they all started trading for a living!). Then think about what happens if BP goes under. This is no bank. With proven reserves and wells in the ground, equity in fields all over the planet, in terms of credit quality and credit provision – nothing can match an oil major. God only knows how many assets around the planet are dependent on credit and finance extended from BP. It is likely to dwarf any banking entity in multiples. And at the heart of it all are those dreadful OTC derivatives again!


Thanks for the very interesting and informative post, if BP files God help us all.

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