Cross-Border Insolvency Forum Shopping Naivete

by Ted Janger and John Pottow

Recently, two U.S. law professors and a third from Singapore offered unsolicited advice to the United Nations Commission on International Trade Law (“UNCITRAL”) regarding that organization’s ongoing efforts to harmonize and modernize the law of cross-border insolvencies.  They wrote an open letter (the “Letter”) to the Secretariat—joined by a number of other academic signatories—that calls upon UNCITRAL to abandon one of the core principles of its Model Law on Cross Border Insolvency (the “MLCBI,” adopted as chapter 15 of the U.S. Bankruptcy Code): that, other things being equal, a cross-border bankruptcy case should be based where the debtor is located. 

This principle is implemented by according special deference and comity to the insolvency case located at the debtor’s center of main interest (the “COMI”).  The debtor’s COMI is the jurisdiction where it carries out its activities and, hence, is the jurisdiction that is known and readily apparent to third parties.  It therefore is predictable.  The COMI principle thus has a lot to recommend it.  In most cases it will enhance the legitimacy of bankruptcy outcomes by simultaneously furthering administrative convenience, increasing transparency, vindicating creditor expectations, and respecting national sovereignty.  Like most rules of private international law, it is rooted in common sense.

Notwithstanding COMI’s many virtues, the Letter’s authors recommend jettisoning COMI in favor of a regime of unfettered forum choice and jurisdictional competition; the main proceeding entitled to deference in a multinational insolvency should be freely selected by the debtor.