Stephan Madaus (Professor at Martin-Luther-University Halle Wittenberg) has made available on SSRN an interesting paper under the title The Cross-Border Effects of Restructurings. Principles for Improved Cross-Border Restructuring Laws. The paper explores latest developments in insolvency and restructuring procedures in several countries and their cross-border effects in order to inform policymakers on possible considerations to be made when modernizing existing restructuring legislation.
The abstract reads as follows:
The laws in many countries have added (preventive) restructuring options in recent years, sometimes as part of pandemic relief measures as in Germany or the United Kingdom. The cross-border effects of such options, especially when they take the shape of court decisions and proceedings, are rarely ever regulated specifically. Often the cross-border insolvency framework is assumed to apply where a Gibbs Rule or the availability of secondary proceedings threaten to frustrate the effort and limit the use of the new option to domestic cases.
The approach of this paper is to take a fresh doctrinal and conceptual look at the matter. By disassembling the functions and effects of insolvency and restructuring proceedings, it opens the path for a fresh look and a new differentiated conceptual design for cross-border restructuring frameworks based on the established principles and connecting factors of Private International Law.
First, a taxonomy is established in the paper. The term ‘restructuring’ is taken from the pure insolvency law context and explained as a general phenomenon in the management of any business at any time. This includes any cross-border effects of restructuring measures like workouts, which are secured either by general choice of law rules or, if a court is involved, by means of judgment recognition if available.
Second, the paper explains that the general principles of Private International Law have been modified in the realm of insolvency, for good cause. Their court-based and debtor-centred nature made it necessary and easy to agree on a system based on judgment recognition for traditional liquidation-oriented bankruptcy procedures, which encompass both winding-ups and (prepacked) going-concern sales.
Third, the paper argues that these principles and assumption cannot work well for restructurings because these are not asset-oriented but debt-oriented procedures and thus trigger the weak spots in today’s cross-border insolvency framework.
Finally, the paper argues that an ideal cross-border restructuring regime should take the following shape: (1) Debt restructurings under the restructuring (and insolvency) law of the lex causae would be effective globally due to the principles of Private International Law for modifications of substantive rights. When such a debt restructuring is also confirmed by a court, the recognition of such judgments abroad should be facilitated (‘automatic recognition based on the closest connection’). (2) Any debt restructuring under other rules than the lex causae, in particular under a lex fori (concursus), should require a degree of connection to the lex causae. If only a sufficient connection is established between the state of proceedings and the state of the lex causae, jurisdiction is an option and recognition may be conditional (‘controlled recognition based on sufficient connection’). (3) Without even a sufficient connection, debt-oriented proceedings shall not commence and any debt modification cannot assume to be recognised.
The paper does not propose any specific legal reform. Its taxonomy aims at describing an ideal state of cross-border law for a global restructuring practice. The paper intents to inform policymakers when considering the introduction or modernisation of a cross-border restructuring framework, potentially as part of a general restructuring and insolvency law reform. The paper would particularly suggest that there should be more flexibility in a cross-border restructuring framework as it is not at all structurally bound to a COMI concept.