International Insolvency Review
The Model Law on Cross-Border Insolvency is said to embody the concept of modified universalism for cross-border insolvency matters. In a pure universalist system, a single proceeding would deal with all of the debtor’s assets and debts globally. This is in contrast to a purely territorial approach, where multiple local proceedings would be required; one in each jurisdiction where the debtor had assets or debts, but each limited to the assets and debts located in that jurisdiction. While universalism emphasizes the economic goals of insolvency theory – to maximize the value of the estate and minimize the expense of the process -- territorialism emphasizes (or at least recognizes) the sovereignty of the states where the assets of the debtor are located or the effects of the insolvency proceeding are felt.
The modified universalist approach embodied in the Model Law reflects a compromise between the theory of universalism and the practical realities of the territorial sovereignty limitations on the effectiveness of any one state’s insolvency orders. It does this by accepting that there would be multiple proceedings in different states and then trying to reduce the inefficiencies that might create. Some of the inefficiencies can be reduced simply by communication and cooperation, but often the goal of maximizing value requires that there be a single plan for the resolution of the affairs of a single debtor. This requires coordination of the multiple proceedings pending in diverse jurisdictions. Coordination will often require that one of the local proceedings (the “main” proceeding) control the process and that the other proceedings (the “secondary” proceedings) defer to that proceeding. The Model Law accomplishes this by permitting the courts in an adopting jurisdiction to grant additional relief to a foreign representative from the main proceeding and encouraging deference to the main proceeding.