Universalism in Insolvency Proceedings and the Common Law

Author(s): Gerard McCormack

Source: Oxford Journal of Legal Studies , Summer 2012, Vol. 32, No. 2 (Summer 2012),
pp. 325-347
Published by: Oxford University Press

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Oxford Journal of Legal Studies, Vol. 32, No. 2 (2012)., pp. 325-347
doi: 10.1 093/ojls/gqs008
Published Advance Access April 4, 2012

Universalism in Insolvency Proceedings

and the Common Law

Gerard McCormack*

Abstract - This article critically examines the principle, articulated by Lord

Hoffmann in leading cases, that universalism in insolvency proceedings is the
golden thread of the common law. This principle suggests that there should be a
unitary bankruptcy proceeding in a bankrupt's 'home' jurisdiction that applies
universally to all the bankrupt's assets and which receives worldwide recognition.
The article argues that the principle is not a practical reality in the common law
and should not influence the interpretation of the international insolvency
agreements to which the UK is a party. It suggests that the common law, instead
of reflecting a universalist ideal, has steered a pragmatic middle course that owes
more to realpolitik than to principle. This is not surprising given that vital national
policies are often at stake in insolvency, and given the mishmash of sometimes
competing principles at the heart of the subject such as encouraging the prompt
payment of debts, adjustment of prior transactions, restoring the status quo ante,
investigating past misconduct and debtor and business rehabilitation.

Keywords: conflict of laws, commercial law, corporate law

1. Introduction

Lord Hoffmann has talked about universalism in insolvency proceedings as the

golden thread of the common law.1 He has spoken of a general principle of
private international law that bankruptcy should be unitary and universal. This
principle suggests that there should be a unitary bankruptcy proceeding in a
bankrupt's 'home' country, which applies universally to all the bankrupt's assets
and which receives worldwide recognition. In his view, fairness between
creditors requires, ideally, a single bankruptcy with universal application in
which all creditors are entitled and required to prove. No creditor should suffer

* Professor of International Business Law, University of Leeds. Email: g.mccormack@leeds.ac.uk.

Re HIH Casualty and General Insurance Ltd [2008] UKHL 21, [2008] I WLR 852. In this article, the
expressions 'bankruptcy' and 'insolvency' and their affiliates are used interchangeably.
© The Author 2012. Published by Oxford University Press. All rights reserved. For permissions,
please e-mail: journals.permissions@oup.com

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 326 Oxford Journal of Legal Studies vol. 32

a disadvantage merely because he happens to live in a juris

are fewer assets or more creditors or vice versa.2
Lord Hoffmann has variously described the universalist notion as an
'aspiration' and as a 'principle' rather than a 'rule' but nevertheless as a
'potent principle'.3 He also said that full realization of the ideal could only
come about through international treaty.4 This article examines the extent to
which the universalist principle has, and should, become a practical reality in
the English common law. It also considers the extent to which the principle is
reflected in international insolvency agreements to which the UK is a party,
namely the EU Regulation on Insolvency Proceedings5 and the United Nations
Commission on International Trade Law (UNCITRAL) Model Law on
Cross-Border Insolvency.6 It asks whether the universalist spirit supposedly
animating the common law can fill in gaps in the international instruments.
The article consists of four sections. Section 2 considers the concept of
universalism in insolvency proceedings and contrasts this concept with the
opposing notion of 'territorialism'. Section 3 considers how the universalist
ideal is played out in three fields of insolvency practice - collection and
distribution of assets, discharge of debts, and avoidance of antecedent
transactions. Section 4 addresses whether universalism is mirrored in the
international instruments and considers whether the common law can be
prayed in aid to repair any cracks in the reflection of the ideal. Section 5
concludes. The basic message is that the acceptance of the universalist ideal by
the common law is an ambivalent and pragmatic one that probably owes more
to realpolitik than to principle. This is hardly surprising for vital national
interests are often at stake in insolvency - the price paid for credit, who gets
what; whether local priorities should be respected, the emphasis given to
restructuring and debtor rehabilitation over liquidation, and how to achieve the
most efficient economic use of assets. The shape of insolvency law in a
particular jurisdiction owes a lot to the balance of political power and the
nature of the social arrangements in that jurisdiction.7 This is illustrated by

2 Cambridge Gas Transport Corporation v Official Committee of Unsecured Creditors (of Navigator Holdings Pic)
[2006] UKPC 26, [2007] 1 AC 508 [16]-[17].
HIH Insurance (n 1) 7. Recently, support for Lord Hofi&nann's views has been voiced by Proudman J in Re
Phoenix Kapitaldienst GmbH [2012] EWHC 62 (Ch) [14], [62].
4 Much earlier in Barclays Bank pic v Homan [1992] BCC 757 (CA), 766, Hoffmann J said that 'the only
satisfactory solution to the possibility of jurisdictional conflicts in cross-border insolvencies would be an
international convention' while in Re Bank of Credit and Commerce International SA [1992] BCC 83 (Ch) 89
Browne-Wilkinson V-C said it was 'a matter of profound regret' that there was no international convention
regulating international insolvency and Nicholls V-C in Re Paramount Airways Ltd [1993] Ch 223 (CA) 239
spoke of 'a crying need' for such a convention.
5 Council Regulation (EC) 1346/2000 of 29 May 2000 on insolvency proceedings [2000] OJ LI 60/1.
The Model Law (1997) is available on the UNCITRAL website, <www.uncitral.org/>. See also A Berends,
'UNCITRAL Model Law on Cross-Border Insolvency: A Comprehensive Overview' (1998) 6 Tulane J Intl &
Comp L 309; J Clift, 'The UNCITRAL Model Law on Cross-Border Insolvency - A Legislative Framework to
Facilitate Coordination and Cooperation' (2004) 12 T Tulane J Intl & Comp L 307.
7 See generally, O Kahn-Freund, 'On Uses and Misuses of Comparative Law' (1974) 37 MLR 1, 12.

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summer 2012 Universalism in Insolvency Proceedings 327
recent litigation in the UK about whether a liability to make good deficiencies
in a corporate pension plan constitutes an expense of the insolvency process
payable in priority to unsecured corporate debts and an insolvency represen-
tative's own remuneration and expenses.8 The local often wins out against the
international. This state of affairs is unlikely to change in the foreseeable
future.

2. Universalism versus Territorialism

Universalism implies that there should be a single set of bankruptcy

proceedings that collects, administers and then distributes all the debtor's
assets wherever these assets may be situated throughout the world.9 All
creditors should be entitled to submit proofs of their claims in these
proceedings and be paid accordingly.10 Strictly speaking one could distinguish
between unity of proceedings and universalism. The former signifies a single
set of proceedings and the latter the collection and distribution of assets on a
worldwide basis. The notion of universalism is compatible with the existence of
separate insolvency proceedings in jurisdictions where the debtor's assets
happen to be located so long as these separate proceedings are merely
mechanisms for the more convenient collection of assets, which are then
remitted to the insolvency representative in the principal proceedings.11 If the
separate proceedings have their own independent distributional consequences
then the universalist ideal is compromised.12
At the opposite pole from universalism is territorialism, which implies that
insolvency proceedings should have an exclusively national or territorial
focus.13 In other words, the proceedings should only apply to assets within
the particular national territory, presumably with the corollary that only 'local'
creditors (however defined) should be entitled to prove in the proceedings.
Universalism has claimed advantages in terms of convenience. Costs should
be kept down if the number of separate proceedings is reduced and it is more

8 See Bloom v Pensions Regulator [2010] EWHC 3010 (Ch), [2011] BCC 277. For the Court of Appeal
decision in the case see [2011] EWCA Civ 1124, [2012] BCC 83.
9 See generally, the series of articles in 'Colloquy: International Bankruptcy' (2000) 98 Michigan L Rev
2177-328. See also L Perkins, 'A Defense of Pure Universalism in Cross-Border Corporate Insolvencies' (2000)
32 NYU J Intl L & Politics 787; S Franken, 'Three Principles of Transnational Corporate Bankruptcy Law: A
Review' (2005) 1 1 ELT 232.
10 It is basic to an English winding up that English creditors cannot be ring-fenced and treated more
favourably than foreign creditors - Scott VC in Re BCCI (No 10) [1997] Ch 213, 239-40.
See JL Westbrook, 'Multinational Enterprises in General Default: Chapter 1 5, The ALI Principles and The
EU Insolvency Regulation' (2002) 76 Am Bankr LT 1, 10-12.
12 See the description in the US case Re Hamilton 240 F 3d 148, 153 (2d Cir 2001): 'Under the
"universality" approach, a primary insolvency proceeding is instituted in the debtor's domiciliary country, and
ancillary courts in other jurisdictions - typically in jurisdictions where the debtor has assets - defer to the foreign
proceeding and in effect collaborate to facilitate the centralized liquidation of the debtor's estate according to the
rules of the debtor's home country.'
See generally, L LoPucki, 'Cooperation in International Bankruptcy: A Post-Universalist Approach' (1999)
84 Cornell L Rev 696 and see also JL Westbrook, 'Theory and Pragmatism in Global Insolvencies: Choice of
Law and Choice of Forum' (1991) 65 Am Bankr LJ 457.

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 328 Oxford Journal of Legal Studies vol. 32

convenient for debtors and their creditors to deal with one

insolvency representatives. Restructuring or the sale of a
be easier to accomplish if the debtor's assets are treated as
universalism in its purest form has its disadvantages for c
creditors may not know of the insolvency proceedings or
notice of them. Language barriers may put them at a disad
far easier to submit a proof in local proceedings rather than
where legal proceedings are transacted in a language that th
understand.
The advantages of universalism can be realized fully only if all states practise
it. If one State has universalist pretensions whereas another state practises
territorialism then jurisdictional conflicts will arise and the national interests of
the universalist state may be compromised. The universalist state yields up
local assets for the benefit of foreign creditors, including creditors in a
territorialist state, whereas the territorialist state does not reciprocate for the
benefit of creditors in the universalist state. Moreover, universalism only works
if there is single agreed-upon uniform standard for determining which state
exercises universal bankruptcy jurisdiction.15 If one state purports to exercise
universal bankruptcy jurisdiction on the basis of tenuous links with that state
then other states with superficially stronger links to the insolvent debtor may
cry foul. Even if a single connecting factor such as 'principal place of business'
or 'centre of main interests' is in place, courts and states may differ on the
interpretation of the tests.16 While the tests may work passably in the majority
of cases, they are fuzzy, manipulable and indeterminate to a degree and
encourage eve-of-bankruptcy forum shopping to favoured jurisdictions.
Advocates of 'territorialism' pick up on these points and add more. Different
countries have different tax and employment policies. Tax claims may be
prioritized in different jurisdictions not least because the revenue collection
procedures may be inadequate to combat large-scale tax evasion. Many
jurisdictions lack comprehensive welfare or social security nets and giving
employees priority in the event of their employer becoming insolvent is seen as
a valuable measure of social protection. Unless local assets can be ring fenced
for the benefit of local priority creditors, then these vital national policies may
be jeopardized. But territorialism has its unattractive features. National
chauvinism is especially unappealing if it overtly discriminates against foreign
creditors.

14 See generally, F Tung, 'Is International Bankruptcy Possible? (2001) 23 Michigan J Intl L 31.
15 See S Franken, 'Three Principles of Transnational Corporate Bankruptcy Law: A Review' (2005) 11 ELJ
232, 236.
16 See the comments of Lord Hoffmann in Re HIH Insurance (n 1) [31] 'the company's domicile ... is the term
used in the old cases, but I do not claim it is necessarily the best one. Usually it means the place where the
company is incorporated but that may be some offshore island with which the company's business has no real
connection. The Council Regulation on insolvency proceedings (Council Regulation (EC) No 1346/2000 of 29
May 2000) uses the concept of the "centre of a debtor's main interests" as a test, with a presumption that it is
the place where the registered office is situated . . . That may be more appropriate.'

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summer 2012 Universdlism in Insolvency Proceedings 329

In practice, few countries will adhere to either 'universalism' or 'territori-

alism' in their purest forms. Lord Hoffmann has said that the common law is
committed to a concept of modified universalism. The main modification he
spoke of was section 221 Insolvency Act 1986 but one could take a different
view and treat section 221 as an assertion of UK bankruptcy universalism. Th
section gives an English court the power to wind up a foreign incorporated
company despite the absence of main insolvency proceedings in the country of
incorporation. There has been an extensive body of case law setting out the
parameters of section 221, with the relevant test being whether the company
has sufficient connection with the UK.17 The test may be criticized on th
basis that it is somewhat circular, but nevertheless it is clear that UK courts
have been invested with a broad winding up jurisdiction in respect of foreign
companies not limited to cases where the company has its principal place of
business or centre of main interests in the UK.
The UK jurisdictional reach is however more modest than that of the United
States. In the United States, jurisdiction under the Bankruptcy Code may be
exercised over any legal person who resides, or has a domicile, place of business
or property in the United States.18 In the absence of any finding of bad faith,
bankruptcy jurisdiction may be exercised on the basis of a single bank account
in the United States. According to the case law a 'dollar, a dime or a
peppercorn' provides a sufficient jurisdictional nexus.19 The United States
courts may decline jurisdiction, however, if, for instance, a debtor is attempting
in bad faith to get around choice-of-forum clauses in his contracts with
principal creditors.
The expansionist ambitions of the US Bankruptcy Code are also seen in its
provisions on the automatic stay. Once a bankruptcy case is filed in the United
States, a so-called stay arises by operation of law that prohibits creditors from
instituting or continuing any action to obtain assets from the bankruptcy estate
or to collect a debt owed by the debtor.20 The stay is automatic and applies
worldwide, irrespective of whether or not this is consistent with the domestic
law of the relevant foreign country. If a creditor violates the stay, whether in the
United States or abroad, that creditor is liable to penalties in the US
bankruptcy courts, which may include denial of the creditor's claim. In
practice, of course, if the creditor is beyond US jurisdictional reach, the debtor
or trustee may have difficulty enforcing the automatic stay.21

17 See most recently Re Rodenstock GmbH [2011] EWHC 1104 (Ch), [2011] Bus LR 1245 and see generally
Re A Company (No 00359 of 1987) [1988] Ch 210 where Peter Gibson J held that it was enough that there was a
sufficient connection with the jurisdiction and a reasonable possibility of benefit accruing to creditors as a result
of the winding up. See also Banco Nacional de Cuba v Cosmos Trading [2000] BCC 910 (CA).
18 US Bankruptcy Code, s 109(a).
19 See Re Spanish Cay Co Ltd 161 BR 715, 721 (Bankr SD Fla 1993); Re McTague 198 BR 428, 429 (Bankr
WDNY 1996).
20 US Bankruptcy Code, s 362.
21 For a discussion, see Banque Indosuez v Ferromet [1993] BCLC 112 (Ch).

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 330 Oxford Journal of Legal Studies vol. 32

The broad scope of the US automatic stay is illustrated by

Co22 where it was held that a German company had w
automatic stay by causing the arrest in Belgium of a sh
debtor so as to enforce pre-bankruptcy debts arising from
other ships. The German company had no direct contacts with either the
debtor or the United States. The court, however, found that the company had
been established by the original two creditors after the bankruptcy filing and
the debts covertly transferred to it. This was done to avoid the automatic stay
and to disrupt the Chapter 1 1 bankruptcy process. The US bankruptcy court
determined that it had personal jurisdiction over one of the original creditors
because the creditor had filed a claim in the bankruptcy case and as a result
had submitted to the jurisdiction of the court.
The effect of the equivalent stay in the UK is more modest. In the UK, the
presentation of a winding-up petition enables the company to obtain a stay of
any pending actions23 and if a winding-up order is made all proceedings are
automatically stayed, unless the court grants leave for them to be continued.24
In a voluntary liquidation, it is the practice of the courts to stay proceedings
against the company once the winding up commences. In a similar fashion, the
commencement of the administration procedure imposes a moratorium or
freeze on proceedings or executions against the company and its assets. By
virtue of the moratorium, no legal process may be instituted or continued
against the company or its property except with the leave of the court and
subject to such terms as the court may impose, or else with the consent of the
administrator.25
It is long established that the liquidation stay is not extraterritorial, ie it does
not extend to proceedings brought in foreign courts.26 Nevertheless, the assets
of a company in liquidation, including assets located abroad, are held on a
statutory trust. While the company creditors have no beneficial interest in the
assets, these assets are held on a trust to be dealt with in accordance with the
statutory scheme.27 The so-called 'trust' is, in effect, a legal construct created
to achieve the equitable distribution of company assets, wherever situated, but
the statutory trust enables an English court to escape some of the territorial
limitations of the 'automatic' stay. In Re Vocalion (Foreign) Ltd, for instance, the

22 207 BR 282 (Bkrtcy MD Fla 1997). See also In re Nortel Networks Corp 426 BR 84 (Bkrtcy D Del 2010)
aff'd US Court of Appeals 3rd Circuit, 29 December 2011.
23 Insolvency Act 1986, s 126(1).
24 ibid s 130(2).
25 The administration moratorium is laid down by Insolvency Act 1986, sch B1 para 43(6).
26 See Mazur Media Ltd v Mazur Media GmbH [2004] EWHC 1566 (Ch), [2004] 1 WLR 2966.
See Ayerst v C & K (Construction) Ltd [1976] AC 167 (HL). Millett LJ commented in Mitchell v Carter
[1997] 1 BCLC 673 (Ch) 686, 'the making of a winding-up order divests the company of the beneficial
ownership of its assets which cease to be applicable for its own benefit. They become instead subject to a
statutory scheme for distribution among the creditors and members of the company'.

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summer 2012 Universalism in Insolvency Proceedings 331

court stressed that the stay did not apply to proceedings in a foreign court.28
As summarized in the headnote of the report, the court could, however

in the exercise of its equitable jurisdiction in personam restrain a respondent properly

served in this country from proceeding with an action brought in a foreign . . . court to
enforce a liability incurred abroad. But as against a respondent domiciled abroad,
substantial justice is more likely to be attained by allowing the foreign proceedings t
continue, and in such a case the court will not as a rule exercise that jurisdiction.29

In the Harms case, it was held that the same principle applied to a company
in administration.30 Administration, like liquidation, involves the assets of the
company being dealt with by an officer of the court in accordance with
statutory duties. Creditors were entitled to have the assets administered in
accordance with the statutory scheme. Therefore, the English courts could, in
the exercise of an in personam jurisdiction, restrain a person who was properly
served with notice of the English proceedings from instituting or continuing
with an action against a company in administration or its assets, although the
statutory moratorium in respect of such companies did not have any
extra-territorial force per se. Accordingly, the English statutory stay has
gained indirect extra-territorial effect albeit still less extensive than that of its
US counterpart.

3. Universalism and Insolvency Practice

A. Collection and Distribution of Assets

The filing of a US bankruptcy case creates a bankruptcy estate that
encompasses all the debtor's property including property located outside the
United States.31 The Bankruptcy Code is specifically stated to apply all the
assets of the debtor, wherever the assets may be located, and this includes
assets outside as well as inside the United States.32 In this respect, US
bankruptcy law is committed to a universalist stance. While there are no
unequivocal statutory statements, the effect of a UK winding up is essentially
the same. Millett J in Re International Tin Council remarked that the statutory
trusts, which it brings into operation, are imposed on all the company's assets,
within or outside the country.33 The statutory trusts extended to foreign assets,
as did the statutory obligation to collect and realize these assets and to deal
with their proceeds in accordance with the statutory scheme. At common law it

28 [1932] 2 Ch 196.
29 ibid 196.
30 Bloom v Harms Offshore AHT [20091 EWCA Civ 632, [2010] Ch 187.
31 US Bankruptcy Code, s 541(a).
32 See Re Filipek 35 BR 339 (Bankr D Haw 1983); Re Nakash 190 BR 763 (Bankr SDNY 1996).
33 [1987] Ch 419, 446-47.

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 332 Oxford Journal of Legal Studies vol. 32
was not possible to have a winding up that was confined to d
the debtor.
As Lord Hoffmann explained, however, in the Cambridge Gas case34 where a
company was being wound up in its country of incorporation, an English court
would seek to avoid unnecessary conflict and in practice try to ensure that the
English winding up was conducted on an ancillary basis to the principal
liquidation in the country of incorporation.35 In effect, the courts 'disapplied'
the statutory trusts and duties in relation to the foreign assets of foreign
companies by authorizing the liquidator to refrain from seeking to recover such
assets, thereby giving protection against any complaint of dereliction of duty.
Lord Hoffmann suggested that this practice was based on two factors. The first
was the pragmatic consideration that a foreign country, which applied similar
private international law rules to the English rules, would not recognize the
title of an English ancillary liquidator to the company's foreign assets. The
second was the principle of universalism.
Support for the view that universalism underlies the practice of ancillary
liquidations comes from Phillip Smart. Smart has articulated the view that
where 'an ancillary winding up has been ordered, the ultimate objective is to
hand over the English assets to the foreign liquidator: so that the foreign court,
conducting the main liquidation, has control of all the corporation's assets; and
all the creditors, foreign and English, may bring their claims pari passu in a
single set of proceedings'.36 An English liquidator, however, is not a mere
minion for the collection of local assets and their subsequent transmission to
the foreign liquidator. English preferential creditors must be paid out of the
'English' claims even though these claims may not have preferential status
under the relevant foreign law. Likewise, domestic revenue claims must be
satisfied from the English assets even though such claims may not be admitted
to proof under the relevant foreign law. In Re BCCI (No 10)> Scott VC held
that the ancillary aspect did not 'relieve an English court of the obligation to
apply English law, including English insolvency law, to the resolution of any
issue arising in the winding up which is brought before the court' though he
added that English conflicts of law rules might lead to the application of some
foreign law principle to resolve a particular issue.37 Under Rule 4.90 of the
Insolvency Rules the application of set-off between mutual debts or mutual

34 Cambridge Gas Transport Corporation v Official Committee of Unsecured Creditors of Navigator Holdings Pic
[20061 UKPC 26, [20071 1 AC 508.
35 See the comments of Vaughan Williams J in Re English , Scottish and Australian Chartered Bank [1893] 3 Ch
385 (CA) 394: 'One knows that where there is a liquidation of one concern the general principle is to ascertain
what is the domicile of the company in liquidation: let the court of the country of domicile act as the principal
court to govern the liquidation: and let the other courts act as ancillary, as far as they can, to the principal
liquidation.'
36 See P Smart, 'International Insolvency: Ancillary Winding Up and the Foreign Corporation' (1990) 39
ICLQ 827, 837.
37 Re BCCI (No 10) (n 10) 246.

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summer 2012 Universalism in Insolvency Proceedings 333

claims is compulsory in an English liquidation.38 The operation of set-of

between such debts or claims has been held to be automatic and self-executin
and only a net balance may be claimed by the creditor.39
In Re BCCI (No 10), where the English insolvency process was ancillary to
principal proceedings in Luxembourg, the application of English set-off rules to
the ancillary proceedings led to a substantial diminution in the amount that
was remitted to the Luxembourg liquidation. Luxembourg law envisaged a
much more limited role for insolvency set-off and BCCI (No 10) has been
criticized on the basis that it compromises the primacy of the principal
proceedings in Luxembourg. Despite the criticism, and his own clear
universalist bent, Lord Hoffmann accepted BCCI (No 10) in Re HIH
Insurance where the ambit of the universalist principle was considered by the
UK Supreme Court.40 One might argue, however, that it was politic to do so
given the fact that Lord Scott was a member of the Supreme Court bench in
HIH. Lord Hoffmann explained BCCI (No 10) on the basis that the mutual
debts, which were set off against each other, appear to have been entirely
governed by English law, which regards set off as a matter of substantial justice
between the parties.41
In HIH , the question was whether the assets of an insolvent Australian company
collected pursuant to an English ancillary liquidation should be remitted for
distribution to the principal liquidator acting in Australia according to Australian
insolvency rules. The effect of distribution under Australian law meant that
certain creditors would get better treatment than if the assets were distributed
according to English rules. In particular, under Australian law, insurance creditors
would be treated more favourably than general creditors though English law had
since been amended to bring it into line with the Australian position.42 Lord
Hoffmann, supported by Lord Walker, was prepared to order remittal of assets at
common law since in his view universalism, albeit modified universalism, was the
golden thread of the common law. In his view, English courts should, consistently
with justice and public policy, cooperate with the principal liquidation so as to
ensure that all the company's assets were distributed to creditors under a single
system of distribution. He suggested that the power to direct remittal was not
confined to cases where the relevant foreign law coincided with English law, for
otherwise no purpose would be served by the power, other than occasional
administrative convenience. The differences between English and foreign systems
of distribution were relevant only to discretion. The application of Australian law

38 Insolvency Rules, SI 1986/1925, r 4.90, as amended.

39 See Stein v Blake ' 19961 AC 243 (HL).
40 HIH Insurance (n 1).
41 Citing Forster v Wilson (1843) 12 M & W 191, 204; 152 ER 1165, 1171.
42 Lord Hoffmann pointed out in HIH Insurance (n 1) [32] that English law had now adopted a regime for the
winding-up of insurance companies which gave preference to insurance creditors: reg 21(2) of the Insurers
(Reorganisation and Winding Up) Regulations 2004, SI 2004/353, giving effect to Directive 2001/17/EC on the
reorganization and winding up of insurance companies.

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 334 Oxford Journal of Legal Studies vol. 32
to the distribution of all the assets was more likely to give effect to
of creditors as a whole than the distribution of some assets acc
law.43
Lords Scott and Neuberger took a different view, saying that domestic rules
should apply to ancillary liquidations and that a domestic court should not give up
'the forensic rules which govern the conduct of its own liquidation5. In their view,
however, remittal to Australia could be ordered in this particular case because the
request for assistance was made pursuant to section 426 of the Insolvency Act
1986. This provision enables an English court to give effect to requests for
assistance in insolvency cases from foreign courts provided that the foreign court is
in a designated country. In responding to the request, an English court is
authorized to apply either English insolvency law or the relevant foreign law. Lord
Neuberger pointed out that Australia was a designated country for section 426
purposes44 and in his view there was nothing unacceptably discriminatory or
otherwise contrary to public policy in the Australian insolvency provisions. The
application of the Australian insolvency regime would not perpetrate unfairness or
offend a fundamental principle of English insolvency law.45
The final judge, Lord Phillips, declined to stray beyond the ťarea of common
ground onto the controversial area of whether, in the absence of statutory
jurisdiction, the same result could have been reached under a discretion
available under the common law'. Accordingly, in Re Alitalia^ Newey J said that
HIH could not be taken as authority for a common law power to order an
English liquidator to remit assets to a foreign liquidator where the assets would
then be distributed in a different manner than under the English rules.46

B. Discharge of Debts

The traditional view under English law is that the discharge of a debt is
governed by the proper law of the contract. The leading case is Gibbs and Sons
v La Société Industrielle where it was held that debtor could still be sued in
England on a contract governed by English law although the debtor had gone
into liquidation in its 'home' jurisdiction and the effect of the foreign
liquidation law was to discharge the debt under the foreign law.47 The foreign
liquidation law was held to be irrelevant because it was 'not a law of the
country to which the contract belongs, or one by which the contracting parties
can be taken to have agreed to be bound; it is the law of another country by
which they have not agreed to be bound'.

43 See HIH Insurance (n 1) 33.

44 Certain countries and territories have been designated by the Co-Operation of Insolvency Courts
(Designation of Relevant Countries and Territories) Order 1986, SI 1986/2123, as amended by SI 1996/253 and
SI 1998/2766. These consist of Commonwealth countries and territories with the addition of the Republic of
Ireland and Hong Kong but excluding the United States.
45 HIH Insurance (n 1) 80.
46 [20111 EWHC 15 (Ch), [20111 BPIR 308.
47 (1890) 25 QBD 399 (CA), 406.

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summer 2012 Universalism in Insolvency Proceedings 335
The Gibbs decision has been stigmatized as belonging to an era of national
chauvinism that is out of keeping with the modern interdependent world. For
instance, Ian Fletcher has said that the ' Gibbs doctrine belongs to an age of
Anglocentric reasoning which should be consigned to history'.48 Arguably,
however, the decision owes more to an excessive deference to the proper law of
the contract and not enough attention to the scope of bankruptcy law. The
Privy Council decision in New Zealand Loan and Mercantile Agency v Morrison
illustrates that the effect of Gibbs is not entirely chauvinistic.49 In this case, it
was held that a debtor whose debt was discharged under UK restructuring law
could still be sued upon the debt in Australia where Australian law was the
proper law of the contract creating the debt.50
The Gibbs doctrine was subject to direct challenge in Global Distressed Alpha
Fund v PT Bakrie .51 The question was whether the discharge of a debt under
foreign (Indonesian) bankruptcy law would be given effect in the UK where the
contract creating the debt was subject to English law. It was argued that
recognition of the discharge under Indonesian law would be consistent with the
principle of universality because the debtor was an Indonesian company with
its business operations centred in Indonesia. The English law of cross-border
insolvency may have been in 'a state of arrested development' but Lord
Hoffmann's statement of principle enabled obstacles in the path of universalism
to be overcome and a single scheme for the distribution of the debtor's assets
to be accomplished.
The court considered this to be an excessively bold submission given the fact
that Lord Hoffmann had not expressly discussed Gibbs. Its precedential force
could not be overcome by a side sweep. Nevertheless, it referred with apparent
approval to various criticisms that had been levelled against Gibbs. That
decision generates anomalies. For example, while a debt governed by English
law will not be discharged by a foreign bankruptcy, the debtor's movable assets
situated in England are taken to have vested in the foreign trustee in
bankruptcy. The debtor remains liable to pay his debts but has been deprived
of the means that enable this to be done.52 Moreover, it was likely that the

48 See IF Fletcher, Insolvency in Private International Law (2nd edn, OUP 2005) para 2.129.
49 [1898] AC 349 (PC).
Even Lord Hoffmann appeared to accept the Gibbs rule in Wight v Eckhardt Marine [2003] UKPC 37,
[2004] 1 AC 147 [11].
51 Global Distressed Alpha Fund 1 Ltd Partnership v PT Bakrie Investindo [201 1] EWHC 256 (Comm), [201 1] 1
WLR 2038. For commentary on the case see Look Chan Ho, 'Recognising Foreign Insolvency Discharge and
Stare Decisis' (2011) 26 JIBLR 266.
52 Professor Fletcher in Insolvency in Private International Law (n 48) para 2.129 suggests that a modern
reformulation of the relevant rules is required and '[i]n the case of a contractual obligation which happens to be
governed by English law, a . . . rule should be developed whereby, if one of the parties to the contract is the subject
of insolvency proceedings in a jurisdiction with which he has an established connection based on residence or ties
of business, it should be recognised that the possibility of such proceedings must enter into the parties'
reasonable expectations in entering their relationship, and as such may furnish a ground for the discharge to take
effect under the applicable law.' See also P Smart, Cross Border Insolvency (2nd edn, Butterworths 1998) 261-66.

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 336 Oxford Journal of Legal Studies vol. 32

debtor's creditors would have foreseen the possibility that t

the Indonesian debts might take place in Indonesia. This suggested that
recognition of the Indonesian bankruptcy discharge would not be unjust.53

C. Avoidance of Antecedent Transactions

In many countries, there are provisions in insolvency law that allow certain
pre-insolvency transactions to be challenged by an insolvency representative on
the basis that they give certain creditors an advantage over other creditors if the
debtor becomes insolvent.54 These rules are referred to as the law of
preferences.55 Moreover, insolvency representatives may be empowered to
challenge transactions entered into by the debtor that are intended to delay or
defeat creditors - fraudulent transfers or conveyances which in the UK are
regulated by section 423 Insolvency Act. The US bankruptcy law has a similar
provision56 and the US law also extends to constructively fraudulent
transfers.57 These are cases where the debtor has received substantially less
in value under the transfer than the value of the assets transferred. The UK law
puts such transactions into a separate statutory category labelled 'transactions
at an undervalue'.58 While the underlying rationale is basically the same, there
are many detailed differences in respect of preference law and fraudulent
transfer law between the various countries.
Such differences of detail were largely ignored, however, by the Court of
Appeal in Rubin v Eurofinance where it was held that a monetary default
judgment given in the US bankruptcy proceedings could be enforced in the
UK.59 The judgment would not have been enforceable if it had been given in
the ordinary US courts because the defendant was not present in the United
States nor had he submitted to the jurisdiction of the US courts. It was
however held that the ordinary rules for enforcing foreign judgments in
personam did not apply to bankruptcy proceedings. The principle of modified

53 See the comment by Look Chan Ho (n 51) 274: ' Gibbs ultimately concerned whether the insolvent debtor's
assets should be distributed in accordance with the grab rule or universalist principle - a quintessential^
insolvency matter.'
54 s 547 of the Bankruptcy Code in the United States and s 239 of the Insolvency Act 1986 in the UK. The
Scottish provision is s 243.
55 See Rebecca Parry and others. Transaction Avoidance in Insolvencies (2nd edn, OUP 2011); G McCormack,
'Swelling Corporate Assets: Changing what is on the Menu' [2006] J Corp L Studies 39; A Walters, 'Preferences'
in J Armour and H Bennett (eds), Vulnerable Transactions in Corporate Insolvency (Hart Publishing 2003); and for
a US perspective see TH Jackson, 'Avoiding Powers in Bankruptcy' (1984) 36 Stanford L Rev 725; V
Countryman, 'The Concept of a Voidable Preference in Bankruptcy' (1985) 38 Vand L Rev 713.
56 US Bankruptcy Code, s 548.
57 ibid s 548 (a) (1(b).
58 See Insolvency Act 1986, s 238.
59 [2010] EWCA Civ 895, [2011] Ch 133. See also Re New Cap Reinsurance Corp Ltd [2011] EWHC 677 and
[2011] EWCA Civ 971, [2012] 1 All ER 755 where the court considered the argument that Rubin was wrongly
decided. Lewison J at first instance said [22] that this question 'must be decided by someone above my pay
grade'. Rubin is currently under appeal to the Supreme Court. Rubin has also been considered by Proudman J in
Phoenix Kapitaldienst GmbH (n 3).

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summer 2012 Universalism in Insolvency Proceedings 337

universalism of bankruptcy proceedings in the debtor's 'home' jurisdiction

formed an essential building block of the decision. Bankruptcy proceedings
were held to include the provisions in the Insolvency Act 1986 and the US
equivalents that allowed an insolvency representative to bring actions against
third parties for the collective benefit of all creditors. These provisions were
said to be integral to the collective nature of the bankruptcy process and were
not merely incidental or procedural matters. Lord Hoffmann himself said in Re
HIH Casualty and General Insurance Ltd that the 'process of collection of assets
will include . . . the use of powers to set aside voidable dispositions, which may
differ very considerably from those in the English statutory scheme'.60 The
court concluded that the judgments handed down by the New York bankruptcy
court although they had 'the indicia of judgments in personam' were
nevertheless 'judgments in and for the purposes of the collective enforcement
regime of the bankruptcy proceedings and as such are governed by the sui
generis private international law rules relating to bankruptcy and are not subject
to the ordinary private international law rules'.61
The decision is controversial in a number of respects.62 Firstly, the United
States proceedings related to a 'business trust' - a debtor which, according to
English law, had no legal personality either as an individual or as a body
corporate. It was held that the US insolvency proceedings in respect of such a
debtor were entitled to recognition as foreign main proceedings under the
UNCITRAL Model Law and the Cross-Border Insolvency Regulations but
ultimately the case was decided as a matter of common law and not under the
Model Law or Regulations.63 There was no discussion of whether the common
law should recognize the foreign bankruptcies of business vehicles that were
not legal entities under English law. The court said that its decision represented
a desirable development of the common law founded on the principles of
modified universalism because it did not 'require the court to enforce anything
that it could not do, mutatis mutandis, in a domestic context'.64 Because
however, the judgment related to an entity that had no status under English
law it could not have been handed down in an English court.
Secondly, the judgment used background material in respect of the Model
Law and case law under the European Insolvency Regulation65 and also the
Jurisdiction and Judgments Regulation66 to conclude that the concept of
bankruptcy proceedings as a sui generis category of private international law
included transactional avoidance mechanisms. There was no real discussion,

60 HIH Insurance (n 1) [19].

61 Rubin (n 59) [611.
62 For criticism see Look Chan Ho, 'Recognition Born of Fiction' (2010) 25 TIBLR 579.
63 Rubin (n 59) [61], and see (n 6) and (n 80).
64 Rubin (n 59) [611.
65 Reg (EC) 1346/2000 (n 5).
66 EC Regulation 44/2001 on jurisdiction and the recognition and enforcement of judgments in civil and
commercial matters [2001] OJ LI 2/1.

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 338 Oxford Journal of Legal Studies vol. 32

however, of whether the bankruptcy exception to ordinar

international law should also operate where the transactional avoidance
provisions could also be activated outside bankruptcy. Thirdly, the court
made the rather large assumption that the orders made under the US
bankruptcy code provisions dealing with preferences, fraudulent conveyances
and transactions without a reasonably equivalent value were similar to orders
made under sections 238 and 239 of the UK Insolvency Act. The procedural
requirements under the two sets of provisions are very different and
transactions that could be impugned in the United States may not necessarily
be challengeable in the UK and vice versa. The judgment glosses over this
point. Fourthly, the case effectively decides that the common law discretion to
provide assistance in respect of foreign insolvency proceedings may be wider
than that under the Cross-Border Insolvency Regulations. This result appears
counter-intuitive and may not have been in the contemplation of the drafters of
the Regulations.
Fifthly, there was a relatively recent Irish case - Re Flightlease (Ireland) Ltd -
that takes a diametrically opposed view on the common law enforceability of
foreign bankruptcy judgments that order recipients of alleged 'preferences' to
repay the debtor.67 The case was about the enforceability in Ireland of a Swiss
judgment setting aside a fraudulent preference under Swiss insolvency law.
Clarke J pointed out that that the Swiss order could only have been made if the
company concerned was the subject of insolvency proceedings. Nevertheless,
he took the view that the order should properly be characterized as an in
personam order with its enforceability depending on the rules for the
recognition of in personam orders at common law. There was no bankruptcy
exception to the ordinary common law rules.
The Eurofinance decision begs the question whether, assuming that there is
an insolvency exception to standard private international law rules, how large
should that exception be?68 The insolvency laws of some countries may, to
English eyes, have a number of unusual provisions. Should judgments handed
down pursuant to such provisions be accorded recognition in the UK if one of
these 'outlying' countries is the debtor's home country? In the most extreme
cases, public policy may provide a basis for refusing recognition but public
policy may be an unruly horse to ride especially where national sensitivities are
concerned.69 In deciding what falls within the scope of insolvency proceedings,
should an English insolvency be the litmus test? Or should some quantitative or
qualitative criterion be employed? Should it be a test, for instance, of whether

67 [2006] IEHC 193.

6 See A Briggs, 'Recognition: Foreign Judgments or Insolvency Proceedings?' [2010] LMCLQ 523, 528 who
comments that 'if insolvency really is different, its boundaries will need to be surveyed and mapped'.
69 On public policy in an insolvency context see the comments of Hoffmann J in Re Brightlife Ltd [1987] Ch
200, 214-15 and on public policy precluding the recognition of foreign insolvency proceedings under the EC
Insolvency Regulation see the leading European Court judgment in Case C-341/04 Re Eurofood IFSC Ltd [2006]
ECR 1-03813, para 66.

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summer 2012 Universalism in Insolvency Proceedings 339

many (or most?) countries follow a particular insolvency practice, or should

more weight be given to the most important trading nations? These are all
issues that Eurofinance throws up.

4. Universalism and International Insolvency Instruments

A. EU Regulation on Insolvency Proceedings

In the early 1990's, leading judges, including Lord Hoffmann as well as Lords
Nicholls and Browne-Wilkinson, spoke of the need for international legal
agreements covering the insolvency field.70 Since then we have had the EU
Regulation on Insolvency Proceedings71 and the UNCITRAL Model Law on
Cross-Border Insolvency, which has been implemented in the UK by the
Cross-Border Insolvency Regulations 2006. 72 The question arises whether
these instruments implement the universalist vision and where they are silent,
or fail to do so, whether the common law can be prayed in aid to complete the
vision, at least in the UK.
The EU Regulation on Insolvency Proceedings applies in respect to
companies whose centre of main interests (or COMI) is in an EU Member
State and establishes uniform rules on jurisdiction and choice of law. The
country where a company has its COMI is given exclusive jurisdiction to open
main insolvency proceedings in respect of the company and the decision to
open such proceedings must be given immediate, full and unqualified
recognition throughout the EU. Under the Regulation, the law of the State
where insolvency proceedings are opened generally governs the conduct and
effect of the proceedings. Article 4 sets out a number of matters which are
specifically referred to the law governing the opening of the proceedings and
which are both substantive and procedural in nature. These include: against
which debtors insolvency proceedings may be brought, the assets which form
part of the estate, the powers of the liquidator, rules governing the lodging,
verification and admission of claims and priority ranking of creditors.
The EU Regulation has generally been regarded as reflecting a universalist
goal. For instance, recital 12 of the Preamble to the Regulation refers to main
insolvency proceedings in the debtor's COMI having universal scope and
aiming to encompass all the debtor's assets. There are, however, so many
exceptions in the EU Regulation eating away at the universalist principle that

70 See Barclays Bank pic v Homan (n 4) 766; Re Bank of Credit and Commerce International SA (n 4) 89; Re
Paramount Airways Ltd (n 4) 239.
Reg (EC) 1346/2000 (n 5). See generally for commentary by those involved in the framing of the
Regulation M Virgos and F Garcimartin, The European Insolvency Regulation: Law & Practice (Kluwer 2004); M
Balz, 'The European Union Convention on Insolvency Proceedings' (1996) 70 Am Bankr LJ 485. See also G
Moss, IF Fletcher and S Issacs (eds), The EC Regulation on Insolvency Proceedings: A Commentary and Annotated
Guide (2nd edn, OUP 2009).
72 SI No 2006/1030.

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340 Oxford Journal of Legal Studies vol. 32
one US commentator has disparaged it as 'essentially a territo
universalist pretensions'.73 After all, other recitals to the Re
ledge 'the fact that as a result of widely differing substantiv
practical to introduce insolvency proceedings with universal sc
Community' and that ť[t]o protect legitimate expectations and
transactions in [other] Member States . . . provisions should b
number of exceptions to the general rule'.74 Notwithstanding
Article 4, the law of the insolvency forum does not regulate a
procedural matters pertaining to the insolvency proceedin
number of specific referrals to other legal systems set out in
Moreover, if a company has an 'establishment' within a part
that state may open secondary insolvency proceedings in
company. While the effect of secondary proceedings is limited
the state, local law applies to such proceedings. A liquidator i
proceedings is not a mere minion for the collection of assets th
transferred to the main proceedings for distribution accordi
governing those main proceedings. It is clear from Articles 4
law applicable in secondary proceedings is the law of the
emphasized in Re Alitalia where Newey J noted that the Reg
for assets within the scope of secondary proceedings to b
accordance with the law of the forum state.75 In his vie
cooperation under the Regulation between liquidators in main
proceedings could not extend to requiring liquidators to a
different manner, especially since the duty of cooperation was
to the rules applicable to each of the proceedings.76
Newey J considered an argument that the spirit of univers
animating the Regulation could be used to fill out the blanks i
the main insolvency proceedings. He saw the attractions o
stating that it would facilitate a sale of the company's entire un
liquidator in the main proceedings, thereby promoting the ov
company creditors as a whole.77 Nevertheless, in his view, ac
argument would undermine the structure of the Regulation.
clear from the Court of Justice of the European Union (CJEU
leading Eurofood case that the concepts contained in the EU R
autonomous meaning and must be interpreted independently
principles or legislation.78 It would be a case of the tail waggin

73 See F Tung, 'Is International Bankruptcy Possible' (2001) 23 Michigan J Intl L

Pottow, 'Greed and Pride in International Bankruptcy: The Problems of and Propo
Interests'" (2006) 104 Michigan L Rev 1899-1949; 'Procedural Incrementalism: A M
Bankruptcy' (2005) 45 Virginia J Intl L 936.
See recitals 11 and 24.
75 Re Alitalia (n 46) [431 .
76 ibid.
77 ibid [561.
78 Case C-341/04 Re Eurofood IFSC Ltd (n 69).

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summer 2012 Universalism in Insolvency Proceedings 341
universalist ambitions of the common law were allowed to prevail over the
more territorialist traditions of certain civil law jurisdictions.

B. Cross-Border Insolvency Regulations and the UNCITRAL Model Law on

Cross-Border Insolvency

There are some similarities between the EU Regulation on Insolvency

Proceedings and the UNCITRAL Model Law on Cross Border Insolvency,
not least because the two instruments use the same concept of 'centre of main
interests' as the basis for recognizing main insolvency proceedings. The Model
Law, however, is a much more modest instrument than the EU Regulation.
The latter emanates from a political community, the European Union, whose
member states have agreed to pool sovereignty and work towards an ever closer
Union.79 The Regulation contains mandatory uniform rules on jurisdiction and
choice of law whereas the Model Law does not purport to say which law
should govern insolvency proceedings that are opened in a particular country.
Under the Regulation, the recognition of insolvency proceedings that are
opened in another EU Member State is automatic throughout the EU whereas,
under the Model Law, recognition is dependent upon court application. Under
the Regulation, insolvency proceedings have the same effect in other EU States
as they have in the law of the insolvency forum but under the Model Law the
consequences of recognition depend in part at least on the law of the
recognizing State.
Given its more modest scope and looser exhortatory tone there would seem
to be some force in the argument that the universalist spirit of the common law
should be allowed to influence and expand the Model Law. This argument
gains support from the manner in which the Model Law has been implemented
in the UK through the Cross-Border Insolvency Regulations (CBIR) 2006. 80
The Model Law is not a self-executing instrument and States that implement it
may do so in different ways. In the United States, the Model Law was
implemented by a new Chapter 15 of the US Bankruptcy Code. Chapter 15
contains some divergences from the terms of the Model Law - a point
highlighted by Lewison J in Re Stanford International Bank Ltd.81 A US
Congressional report that preceded the enactment of Chapter 15 refers to
'alteration to tie into United States procedural terminology' and the expression
of concepts 'more clearly in United States vernacular'82 though the report also
stresses the international origins of the Model Law and the need to promote

79 See Article 1 of the Treaty of Lisbon refers to the Treaty marking 'a new stage in the process of creating an
ever closer union among the peoples of Europe'.
80 Cross-Border Insolvency Regulations 2006, SI 2006/1030.
81 [2009] EWHC 1441 (Ch), [2009] BPIR 1157. But see however the US House of Representatives report on
Chapter 15, House Report No 109-31 (2005) s 106.
82 House Report No 109-31 (2005) ss 106, 107 and 109.

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 342 Oxford Journal of Legal Studies vol. 32

consistent interpretation with that in other countries.83 T

between the United States and the UK lies in the fact that Chapter 15 has
been held to be the sole gateway for a US court to provide assistance to a
foreign insolvency representative. There is no residual common law discretion
in the United States according to the leading case - Bear Stearns .84 The court
in Bear Stearns suggested that Chapter 15 heralded a shift from a subjective
comity-based process under earlier bankruptcy law to a more rigid recognition
standard. Other observers have spoken of Chapter 15 as ťa series of carefully
crafted compromises' and the existence of a residual common law discretion
would upset the legislative balance.85 On the other hand, it has been argued
that the Bear Stearns decision is not consistent with the goals of the Model
Law, which is designed to provide a minimum level of assistance to foreign
courts and proceedings and not to preclude more extensive modes of assistance
under existing national laws.86 States are free to supplement the Model Law by
offering additional assistance to a foreign representative.87
In the UK, the legislative history shows that an attempt was made to try to
stay as close as possible to the language of the Model Law in the CBIR.88
Article 7 of the Model Law, stating that the Model Law does not preclude
additional relief under other laws, was also translated verbatim into the
CBIR,89 and the possibility of repealing section 426 of the Insolvency Act 1986
was considered and rejected. Moreover, no attempt was made to supersede or
replace common law principles, which continue to sit alongside the CBIR.
Therefore, the argument can be made that the universalist common law can be
used to fill out and expand the reach of the CBIR. This argument has been
advanced in the context of Rubin v Eurofinance SA,90 and bypassing standard
English private international law rules for the enforcement of foreign
judgments. There are three responses to this argument although the first
response does not seem very convincing.
The first response is to say unlike the European Insolvency Regulation,
which embodies a notion of modified universalism, the UNCITRAL Model
Law on Cross-Border Insolvency represents a form of cooperative territorialism

83 ibid, s 109. It may be that Lewison J overplayed the extent of these divergences for in the United States it
seems that the legislative intent was to stay loyal at least to the spirit of the Model Law.
84 374 BR 122 (Bankr SDNY 2007) aff'd 389 BR 325 (SDNY 2008). See G Moss, 'Bitter Pill Delivered by
Judge Sweet' (2008) 21 Insolvency Intelligence 118.
Judge Leif Clark, 'Centre of Main Interests' Finally Becomes the Center of Main Interest in the Case Law'
(2008) 43 Texas Intl LJ Forum 14, 17.
86 See eg G Moss, 'Beyond the Sphinx - Is Chapter 15 the Sole Gateway?' (2007) 20 Insolvency Intelligence
56.
87 art 7 of the Model Law.
88 In the United States the new s 1507 of the Bankruptcy Code clearly makes the provision of any additional
assistance to a foreign insolvency representative contingent on the foreign proceedings satisfying the criteria for
recognition under Chapter 15 in the first place.
See UK Insolvency Service, 'Implementation of UNCITRAL Model Law on Cross-Border Insolvency in
Great Britain' (August 2005) para 7 <www.insolvencydirect.bis.gov.uk/insolvencyprofessionandlegislation/con_
doc_register/registerindex.htm > accessed 17 February 2012.
90 Rubin (n 59).

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summer 2012 Universalism in Insolvency Proceedings 343

running in a different direction to the modified universalism of the commo

law.91 Therefore, it would be inappropriate to interpret the CBIR by reference
to the common law. While taxonomy is an important part of legal discourse,92
this response does not take the discussion very far. It would be unduly
simplistic to put the EU regulation into a box marked 'modified universalism'
and the Model Law into a box marked 'modified universalism' and then to say
that certain consequences should automatically follow.
The second response is somewhat more convincing and to some extent the
converse of the first. It is to say that the Model Law is actually more
internationalist than the common law and therefore should not be interpreted
by reference to the common law. Certainly, in at least two respects the Model
Law gives expression to an internationalist spirit absent from the common law.
At common law it was not possible to have an English ancillary liquidation
limited to the local assets of the debtor even though main insolvency
proceedings were taking place simultaneously in the debtor's home jurisdic-
tion.93 The English ancillary proceedings in theory extended to all the debtor's
assets wherever in the world. Now, under the CBIR, once foreign main
insolvency proceedings have been recognized in the UK, then any subsequent
proceedings opened in the UK are limited to the UK assets of the debtor.
Moreover, under the common law, foreign revenue claims were not admitted to
proof in English insolvency proceedings.94 Article 39 of the EU Regulation
abolished this blanket ban as far as other EU Member States are concerned,
but the CBIR eliminates the rule entirely.95 It should be noted, however, that
while foreign revenue claims may be treated as preferential under the relevant
foreign law, as far as English law is concerned they are strictly non-preferential,
and so the foreign revenue authorities swell the army of unsecured creditors.
The third response is to say that the detailed provisions of the Model Law
and CBIR do not generally require common law supplementation in their
application. This argument is considered in the context of two important
aspects of the Model Law - cooperation between courts which is dealt with in
Articles 25-27, and additional relief that may be granted to a foreign

91 But see L LoPucki, 'Universalism Unravels' (2005) 79 Am Bankr LJ 143, 166: 'Universalists are trying to
bring their system in through the back door. The UNCITRAL Model law was negotiated by a delegation led by
universalist Jay L Westbrook, and then sold to Congress as not really universalist.'
92 'Taxonomy allows lawyers to communicate with each other, to discuss homogeneous problems, and to
propose so-called 'principled' solutions. Taxonomy is the grammar of the legal discourse' - see U Mattei, 'Three
Patterns of Law: Taxonomy and Change in the World's Legal Systems' (1997) 45 Am J Comp L, 5, 5. For a
general discussion of this legal technique and the use of categories in legal reasoning see S Waddams, Dimensions
of Private Law Categories and Concepts in Anglo-American Legal Reasoning (CUP 2003) and for a critical review see
A Beever and C Rickett, 'Interpretive Legal Theory and the Academic Lawyer' (2005) 68 MLR 320. See also E
Sherwin 'Legal Taxonomy' (2009) 15 Legal Theory 25, 26: 'Perhaps the best known legal taxonomer is Oxford's
late Regius Professor Peter Birks'.
See Banco Nacional de Cuba v Cosmos Trading Corp (n 17) 915. See also Lord Hoffmann in Re HIH
Insurance (n 1) [19] and Lord Neuberger [75].
Government of India v Taylor [1955] AC 491 (HL).
95 Cross-Border Insolvency Regulations 2006, SI 2006/1030, sch 1, art 13(3) of the Model Law as applied in
the UK.

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 344 Oxford Journal of Legal Studies vol. 32
insolvency representative under Article 21. Article 25(1)
mandatory duty on courts to cooperate cto the maximum
with foreign courts and foreign representatives though in th
'may' is substituted for 'shall'. The Insolvency Service suggest
'preferable to give the court some discretion as to whether t
believe that the court will only refuse co-operation in respon
request where it has good reasons for doing so'.96 The use of '
'shall' encouraged cooperation but at the same time gave the
to deal with the particular circumstances. Article 27 provides
of the forms that cooperation may take including the appoint
or body to act at the direction of the courts and the coordinat
proceedings. In Rubin v Eurofinance SA the Court of Appeal
possibility that 'co-operation to the maximum extent possible
enforcement though it was acknowledged that Article 27 did not list
enforcement among the forms of cooperation.97 The court declined to express
a concluded view on the matter. The possibility had also been rejected by the
judge at first instance and it is submitted that his analysis is convincing. The
language of the provisions themselves focuses on practical measures of
cooperation and communication but does not require that 'one State should
disregard important provisions of its own legal system'.98 Clearer words were
necessary if that was the intention behind the provisions. Moreover, the court
had a discretion and the discretion should not be exercised to overturn a
long-standing and 'fundamental principle of English private international law
that the judgment of a foreign court is not enforceable unless the defendant
was present within the jurisdiction, or in some way submitted himself to the
jurisdiction, of the foreign court'.99
Under the Model Law and CBIR, the recognition of foreign insolvency
proceedings as main proceedings has three prima facie consequences - a stay on
proceedings against the debtor, a stay on executions against the debtor's assets,
and suspension of the debtor's right to transfer or encumber assets. Under
Article 21, additional relief may be given as a matter of discretion and this can
take the form, inter alia , of:

(1) 'entrusting the administration or realization of all or part of the debtor's

assets ... to the foreign representative or another person designated by
the court'; and
(2) 'granting any further additional relief that might be available to a British
insolvency officeholder under the law of Great Britain'.100

96 The UK Insolvency Service, 'Implementation of UNCITRAL Model Law on Cross-Border Insolvency in

Great Britain: Summary of Responses and Government Reply' (March 2006) para 149 <www.insolvencydirect.
bis.gov.uk/insolvencyprofessionandlegislation/con_doc_register/registerindex.htm > accessed 17 February 2012.
97 Rubin (n 59) [221.
98 Rubin v Eurofinance SA [20091 EWHC 2129 (Ch), [20101 1 All ER (Comm) 81 [71].
99 ibid [721.
100 See n 6.

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summer 2012 Universalism in Insolvency Proceedings 345

In granting or denying relief, the court must be satisfied that the interests o
the creditors and other interested persons, including the debtor, are adequatel
protected. An attempt was made in Rubin v Eurofinance at first instance to rel
on Article 21, in particular on the provision enabling the debtor's assets to b
entrusted to a foreign representative. The court said, however, that the debtor
assets, to the extent that they were represented by a judgment against alleged
third recipients of the debtor's funds, were located in the United States rathe
than the UK. Therefore, the provision was inapplicable. It has been argued
that the 'further relief' provision in Article 21 could permit enforcement of th
US judgment but this argument is very difficult to support.101 Not only is
Article 21 inherently discretionary, but also the further relief provision is
essentially about giving a foreign representative the same powers that a UK
insolvency office holder has under UK law. The latter has no power to
disregard rules on the enforcement of foreign judgments in the absence of
specific statutory authorization.102

5. Conclusion

Grand statements of general principle tend to grab the imagination and act as a
springboard for future developments.103 Lord Hoffmann's statements in the
Cambridge Gas and HIH Insurance cases about universalism being the golden
thread of the common law are such statements. Grand statements of general
principle are also apt to disguise a lot of inconsistency and nuance.104 Lord
Hoffmann's pronouncements are no exceptions in this regard. In fairness
though to Lord Hoffmann he did acknowledge that the common law was
pragmatic, and recognition of the principle of universalism in the formative
period of the 19th century furthered the position of the UK as a global
economic power and the position of the UK creditors. The UK companies
were apt to have assets scattered across the globe. If one recognized the UK
insolvency proceedings as having universal scope then this gave the UK
creditors the authority to access these assets wherever the assets happened to
be located. This would not have been the case if the UK proceedings were
considered to have purely territorial effects. The UK creditors were also
protected by the fact that foreign revenue claims were not admitted to proof in
a UK liquidation, even though this refusal was at variance with the universalist
notion that a UK liquidation should encompass and administer all the debtor's

101 See generally Look Chan Ho 'Applying Foreign Law - Realising the Model Law's Potential' (2010) 25
JIBLR 552.
This is the case even after acknowledging the view put forward by Norris J in the Atlas Bulk Shipping case,
Larsen v Navios International [2011] EWHC 878 (Ch), [2012] 1 BCLC 151 [23], that Article 21 should be given
a wide interpretation since it is a discretionary power 'only exercisable after all relevant interests have been taken
into account'.
See generally J Benjamin 'The Narratives of Financial Law' (2010) 30 OJLS 787.
See Smart, Cross Border Insolvency (n 52) 6 who suggests that the English courts have taken a middle
course rather than any doctrinaire position.

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 346 Oxford Journal of Legal Studies vol. 32

assets and debts, irrespective of location. Lord Hoffmann no

of pragmatism by use of the word 'modified' as a qualifyin
universalist ideal.
Can Lord Hoffmann's smooth generalizations be the springboard for future
developments? Certainly, they have been extensively cited and have the
potential to effect far-reaching change but they have not done so yet, save for
Rubin v Eurofinance and the recognition of foreign bankruptcy transaction
avoidance judgments. The HIH Insurance case was ultimately decided on the
basis of statute and not on the supposed universalism of the common law. The
discharge of a contractual liability is still considered to be governed by the
proper law of the contract and not by insolvency law. Contract law has resisted
insolvency's law imperialist and universalist sweep.105 Lord Hoffmann's words
are notable for bringing to light a general principle that is perceived to lie
beneath a mass of single instances. His words are clearly not words of sound
and fury signifying nothing but it may be that they are words signifying less
than they seem. General principle may lurk beneath the interstices of statute
but the statutory overlay in the insolvency law field penetrates deeply. The
statutory framework is redolent of political compromise even if these
compromises are not always perfectly coordinated. This is shown by the
recent controversy about whether potential liabilities under the Pensions Act to
make good pension fund deficiencies count as 'administrator's expenses' under
the Insolvency Act and are therefore entitled to priority over other corporate
liabilities.106
Lord Hoffmann acknowledged that full achievement of the universalist goal
can only come about by international treaty107 and certainly the past 20 years
have witnessed far-reaching international insolvency initiatives in the form of
the EU Regulation on Insolvency Proceedings and the UNCITRAL Model
Law on Cross-Border Insolvency. The Model Law responds to the perceived
need for a more formal process of cross-border cooperation that is aimed at
managing international insolvencies.
It would be unwise, however, to assume that trends in international
insolvency law are uni-directional and one-dimensional. The Model Law has
been implemented in different ways by different countries, including the
United States and the UK,108 and this generates its own set of divergences.
Secondly, even the far-reaching instrument that is the EU Insolvency
Regulation sits alongside national insolvency codes. While the European

105 See on classification Raiffeisen Zentralbank v Five Star Trading [2001] EWCA Civ 68, [2001] QB 825 [26]-
[29] and see also Wight v Eckhardt Manne [2003] UKPC 37, [2004] 1 AC 147 [12] (Lord Hoffmann): 'The
purpose of the conflicts taxonomy is to identify the most appropriate law. This meant that one has to look at the
substance of the issue rather than the formal clothes in which it may be dressed/
106 Bloom v Pensions Regulator (n 8).
107 Re HIH Insurance (n 1) 7.
108 See Re Stanford International Bank Ltd and the comments by Lewison at first instance (n 81) [45] and
Chancellor Morritt in the Court of Appeal ([2010] EWCA Civ 137, [2011] Ch 33 [54]).

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 summer 2012 Universalism in Insolvency Proceedings 347
Court of Justice has said that concepts contained in the Regulation have an
autonomous meaning and must be interpreted independently of national
legislation,109 nevertheless the Regulation leaves plenty of room for national
insolvency laws to operate, not least through the possibility of opening
secondary insolvency proceedings in countries where the debtor has an
'establishment'. These secondary proceedings are governed by a different
substantive law than the main proceedings. Thirdly, the clearest example of
jurisdictional divergence compromising the ideal of universal insolvency
proceedings applying to all the debtor's assets on a global basis is provided
by the Lehman Brothers litigation.110 There have been conflicting decisions
from the UK Supreme Court and the US Bankruptcy Courts about
entitlements to the same pool of assets. Unlike in the Maxwell litigation 20
years before,111 it has not proved possible to massage away these conflicts by a
process of cross-Atlantic judicial cooperation.112
These comments point to a paradox of greater diversity in a world ostensibly
committed to a centralizing ideal. A universalist aspiration has had to give way
to pragmatic realities.113 In short, there is no 'end of history' for international
insolvency law.114

109 Case C-341/04 Re Eurofood IFSC Ltd (n 69). For the argument that legal concepts behave differently in
different jurisdictions, and the importation of a concept may have unintended consequences for the rest of the
body of law in the recipient jurisdiction see G Teubner, 'Legal Irritants: Good Faith in British Law or How
Unifying Law Ends up in New Divergences' (1998) 61 MLR 11.
110 [2009] EWCA Civ 1160, [2010] Ch 347 (CA) and [2011] UKSC 38, [2011] 3 WLR 521 where the
relevant case is reported under the name Belmont Park Investments v BNY Corporate Trustee , and for the United
States proceedings see Re Lehman Brothers Holdings Ine 422 BR 407 (Bankr SDNY 2010).
For the UK proceedings see Barclays Bank pic v Homan (n 4) 767 ff and for the United States proceedings
see Re Maxwell Communication Corporation 170 BR 800 (Bankr SDNY 1994) aff'd 186 BR 807 (SDNY 1995);
aff'd 93 F 3d 1036 (2d Cir 1996).
112 See generally JL Westbrook, 'The Lessons of Maxwell Communication' (1996) 64 Fordham L Rev 2531
and for an account of the case with considerable extra-legal colour see John Pottow, 'The Maxwell Case' in R
Rasmussen (ed), Bankruptcy Law Stories (Foundation Press 2007).
113 See M Balz, 'The European Union Convention on Insolvency Proceedings' (1996) 70 Am Bankr LJ 485,
531: 'The barren choice of either universality or territoriality of bankruptcy has almost lost its meaning.
Intermediate principles and a functional outlook will rule the future of international insolvency.'
114 For a somewhat premature prediction in an analogous field see H Hansmann and R Kraakman 'The End
of History for Corporate Law' (2001) 89 Georgetown LJ 439. The title of this article consciously and
provocatively echoes Francis Fukuyama's The End of History and the Last Man (Free Press 1992).

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