A new international instrument for the recognition and enforcement of insolvency-related judgments: time for reflection
Professor Irit Mevorach
The United Nations Commission on International Trade Law (UNCITRAL) has endorsed a new Model Law on the Recognition and Enforcement of Insolvency-Related Judgments in July 2018 [‘ Model Law on Insolvency Judgments’].
The Model Law on Insolvency Judgments aims to complement the main instrument for cross-border insolvency – the UNCITRAL Model Law on Cross-Border Insolvency (‘Model Law on Cross-Border Insolvency’) – adopted by UNCITRAL in 1997 and so far, in 46 states.
The Model Law on Insolvency Judgments also aims to create certainty, ensure timely and cost-effective recognition and enforcement of judgements, protect and maximise the value of the estate, avoid duplication of proceedings, and promote comity (as stated in its preamble and Guide to Enactment).
Importantly, this new instrument is a response to an uncertainty, which was highlighted in certain case law in the UK and elsewhere, but most notably in the decision of the UK Supreme Court in Rubin v Eurofinance in 2012 (Rubin v Eurofinance SA [2012] UKSC 46, [2013] 1 AC 236). In this case, the UK court refused to enforce an insolvency-related judgment (concerning the avoidance of a transaction) of a US Bankruptcy Court, which was clearly the main insolvency forum. The UK court concluded that neither the Model Law on Cross-Border Insolvency nor common law provide special rules on enforcement of insolvency judgments. Therefore, the court applied the general common law rule according to which a judgment in personam cannot be enforced against persons who were not present in the foreign country or did not submit to the jurisdiction of the court entering the judgment.
Courts in the US have interpreted the Model Law on Cross-Border Insolvency more widely – as allowing enforcement of insolvency-related judgements pursuant to this model law’s relief provisions. Indeed, the Model Law on Cross-Border Insolvency seeks to support requests for relief and assistance especially in relation to main proceedings, subject to the proceedings being procedurally fair. This approach is in line with the norm of ‘modified universalism’ which seeks to promote cross-border cooperation and global collective insolvency proceedings (see also Mevorach, The Future of Cross-Border Insolvency: Overcoming Biases and Closing Gaps, OUP 2018, Ch 1).
The new Model Law on Insolvency Judgments now provides rules for uniform adoption by states on recognition and enforcement of judgments, closing that gap or uncertainty where the Model Law on Cross-Border Insolvency focused on the proceedings, and did not explicitly refer in its recognition or relief provisions to the judgments within them.
The instrument defines an insolvency-related judgment as ‘a judgment which arises as a consequence of or that is materially associated with an insolvency proceeding’. It provides a procedure and criteria for seeking the recognition/enforcement, for making decisions on such requests (including the grounds for refusing to recognise and enforce judgements), for providing provisional relief, and for giving effect to the judgments.
The Model Law on Insolvency Judgments also ends with a provision (article X!) which states that: ‘Notwithstanding any prior interpretation to the contrary, the relief available under [insert a cross-reference to the legislation of this State enacting article 21 of the UNCITRAL Model Law on Cross-Border Insolvency] includes recognition and enforcement of judgments’. Namely, this provision endorses the wider interpretation of the Model Law on Cross-Border Insolvency (contrary to Rubin).
So far, the Model Law on Insolvency Judgments received positive reactions. For example, an INSOL International Report from March 2019 describes the new model law as universalist and as providing ‘a streamlined procedure and greater clarity on when an insolvency-related judgment should be recognised and enforced’ (see INSOL International, ‘UNCITRAL’s Model Law on Recognition and Enforcement of Insolvency-Related Judgments – a universalist approach to cross-border insolvency’ March 2019, ii). The Model Law on Insolvency Judgments is also being promoted by UNCITRAL ( see a short film produced by UNCITRAL).
The Model Law on Insolvency Judgments entails challenges, though, especially in terms of its implementation in domestic laws. Model Laws are not binding. They become effective and impactful when they are enacted by countries. Regarding this model law, it is also crucial that it is integrated well with the existing UNCITRAL regime as promulgated in the Model Law on Cross-Border Insolvency, because currently these model laws are not fully aligned.
Countries may need to carefully consider and decide if to enact the new model law as a standalone instrument, in conjunction with enactment of the Model Law on Cross-Border Insolvency (if it has not been enacted yet) or whether to incorporate its provisions into the Model Law on Cross-Border Insolvency (as enacted in the country) while making necessary adjustments.
For the UK’s implementing institutions, the adoption of the Model Law on Insolvency Judgments by UNCITRAL is also an opportunity to reflect on the approach taken in Rubin, and in other decisions, which arguably ‘defected’ from the norm of modified universalism (see also Mevorach, ‘Modified Universalism as Customary International Law’ Texas Law Review 2018).
May 2019