The Model Law adopts the concept of COMI as the mechanism for determining main and non-main proceedings.519 It establishes the importance of the main proceeding over other proceedings. For example, after a foreign main proceeding has been opened, a local proceeding will generally govern only local assets, although most insolvency laws provide for implicitly worldwide jurisdiction over a debtor’s assets.520 A secondary insolvency proceeding can be opened only where there is a connection between the debtor and the jurisdiction.521 The aim of a secondary proceeding is to ‘allow local creditors of a foreign debtor the opportunity to open an insolvency case in their native country, chiefly to enjoy the benefit of local insolvency law’.522
The Model Law provides legal authority for insolvency representatives in different jurisdictions to cooperate and coordinate concurrent insolvency proceedings. Where there are secondary or ancillary proceedings (proceedings that are not opened in the forum of the debtor’s COMI), in practice, they are subordinated to the principal bankruptcy proceeding when seeking assistance from another jurisdiction. These secondary proceedings can be opened only where the condition of a special connection between the debtor and the
518 Zeller, above n513. 519
Practical Law Company, above n506.
520 Westbrook, above n505, 189-190.
521 United Nations Commission on International Trade Law, UNCITRAL Model Law on Cross-Border
Insolvency with Guide to Enactment, (30 May 1997), Article 28.
522
John A. E. Pottow, ‘A New Role for Secondary Proceedings in International Bankruptcies’, 46 (2011) Texas International Law Journal 579, 580.
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jurisdiction is satisfied.523 In the framework of the Model Law and the EU Regulation,524 the special connection is defined by the term “establishment.”525
In the Model Law, Article 2(f) defines an establishment as ‘any place of operations where the debtor carries out a non-transitory economic activity with human means and goods and services’.526 An establishment implies a permanent place of operations. However, this concept is as elusive as COMI in spite of its long-standing usage by courts and legislators in various countries.527
Under the Model Law, a foreign main proceeding is ‘a foreign proceeding taking place in the State where the debtor has its center of main interests’,528 whereas a non-main proceeding is ‘a foreign proceeding, other than a foreign main proceeding, taking place in a State where the debtor has an establishment within the meaning of subparagraph (f)’ of Article 2.529 Subparagraph (f) states that an establishment ‘means any place where the debtor carries out a non-transitory non-economic activity with human means and goods and services’.530
As indicated in Chapter 4, the EU Insolvency Regulation permits the national court to open main proceedings only if the company’s COMI is located in that jurisdiction.531 While the Model Law has the same concept of COMI as the EU Insolvency Regulation to determine the jurisdiction of the main proceeding,532 it states that the recognizing court should apply
523 Garrido, above n130, 473. 524
Jenny Clift, ‘The UNCITRAL Model Law on Cross-Border Insolvency-A Legislative Framework to Facilitate Coordination and Cooperation in Cross-Border Insolvency’, (2004) 12 Tulane Journal of International and Comparative Law 307, 325-6.
525 United Nations Commission on International Trade Law, UNCITRAL Model Law on Cross-Border
Insolvency with Guide to Enactment, (30 May 1997), Article 2(f).
526 United Nations Commission on International Trade Law, UNCITRAL Model Law on Cross-Border
Insolvency with Guide to Enactment, Article 2(f).
527 Garrido, above n130, 473. 528
United Nations Commission on International Trade Law, UNCITRAL Model Law on Cross-Border Insolvency with Guide to Enactment, Article 2(b).
529 United Nations Commission on International Trade Law, UNCITRAL Model Law on Cross-Border
Insolvency with Guide to Enactment, Article 2(c).
530
United Nations Commission on International Trade Law, UNCITRAL Model Law on Cross-Border Insolvency with Guide to Enactment, Article 2(f).
531European Union Insolvency Regulation, European Union Insolvency Regulation No. 1346/2000 of 19 May
2000 on Insolvency Proceedings, (entered into force on 31 May 2002), Article 3(1).
532
United Nations Commission of International Trade Law, Guide to Enactment of the UNCITRAL Model Law on Cross-border Insolvency, Chapter IV, Main features of the Model Law, (31).
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objective criteria in deciding whether to recognize the foreign proceedings.533 Under the EU Insolvency Regulation, ‘insolvency proceedings have the same effect in other EU states as they have in the law of the insolvency forum’.534 In contrast, the Model Law requires a decision from a relevant national court to recognize the foreign proceeding.535 The consequences of the recognition depend on the law of the relevant state. The law of the relevant state in which the national court has recognized the foreign proceeding determines the effects of the proceeding.536
For the purposes of the Model Law, a deliberate decision was taken not to define COMI. Under both the Model Law and the EU Regulation, once the court determines the main proceeding, actions taken in relation to the non-main proceedings are to be made consistent with remedies granted in the main proceedings.537 These rules help support the coordination goals of the Model Law by focusing resolution efforts on the main proceeding and provides for coordination of concurrent proceedings in multiple jurisdictions.538 Clift writes,
‘The basic principle of the Model Law with regard to relief is that recognition of foreign proceedings by the court of the enacting State grants effects that are considered necessary for the orderly and fair conduct of cross-border insolvency. The Model Law…adopts a neutral middle ground that specifies the effects, in terms of relief, that should automatically apply on recognition. At the same time, it defers to local law, providing that the scope, modification, or termination of the relief upon recognition are subject to provisions of the law of the enacting State that applies to such exceptions, limitations, modifications, or terminations.’539
533
United Nations Commission of International Trade Law Model Law on Cross-border Insolvency, Guide to Enactment of the UNCITRAL Model Law on Cross-border Insolvency, Chapter IV, Main features of the Model Law, (30).
534European Union Insolvency Regulation, European Union Insolvency Regulation,No. 1346/2000 of 19 May
2000 on Insolvency Proceedings, (entered into force on 31 May 2002), Article 17(1).
535 United Nations Commission on International Trade Law, UNCITRAL Model Law on Cross-Border
Insolvency with Guide to Enactment, Article 17.
536 United Nations Commission on International Trade Law, UNCITRAL Model Law on Cross-Border
Insolvency with Guide to Enactment, Article 20.
537 Paul H. Zumbro, ‘Cross-Border Insolvencies and International Protocols- An Imperfect but Effective Tool’,
(2010) 11 Business Law International 157, 159.
538 Michael H. Krimminger, Deposit Insurance and Bank Insolvency in a Changing World: Synergies and
Challenges, International Monetary Fund Conference (May 28, 2004).
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The philosophy behind the Model Law is that if there is any rule in the laws of the enacting state that is less restrictive or more flexible than the Model Law, that specific rule prevails.540 This was illustrated in the case of In Re Betcorp (in liquidation) which is discussed further in this chapter, and was the first time that an Australian voluntary winding up had been recognized in the US and internationally as a ‘foreign main proceeding’.541
Article 16 of the Model Law establishes presumptions on which a court is entitled to rely in determining COMI. It creates presumptions that allow the court to expedite evidentiary processes.542 In the absence of proof to the contrary, Paragraph 3 provides that the debtor’s registered office is presumed to be the centre of the main interests.543 The presumption is rebuttable where a debtor has its registered office in one jurisdiction but its head office functions are conducted in another jurisdiction.544 The determination of COMI is complicated where head office functionality spans across multiple jurisdictions545 as with international banks. The UNCITRAL Legislative Guide defines COMI as ‘the place where the debtor conducts the administration of its interests on a regular basis, and that is therefore ascertainable by third parties.’546 Although there can be only one COMI, the practical effect is that a corporate entity can be registered in one jurisdiction while its COMI is in another jurisdiction.547 Arguably, several COMIs can also be located for a business enterprise group entity although entities of the business enterprise group548 are in a number of jurisdictions.549
540
André J. Berends, 'The UNCITRAL Model Law on Cross-Border Insolvency: A Comprehensive Overview', 6 (1998) Tulane Journal of International and Comparative Law 309, 321.
541In re Betcorp Limited (in Liquidation) 400 BR 266 (Bankr D Nev 2009).
542 See Ackers v Saad Investment Company Ltd (in liq) (2010) 190 FCR 285; Williams v Simpson [2011] 2
NZLR 380; In re Stanford International Bank Ltd [2011] Ch 33.
543United Nations Commission of International Trade Law, Working Group V (Insolvency Law), Thirty-ninth
session, Vienna, 6-10 December 2010, UN Doc. No. A/CN.9/WG.V/WP.95/Add.1.
544 See In re Stanford International Bank Ltd [2011] Ch 33, In re Sphinx 351 BR 103;In Re Bear Stearns
High-Grade Structured Credit Strategies Master Fund Ltd. 374 BR 122 & 389 BR 325; Re Collins & Aikman Corporation [2005] EWHC 1754 (Ch); In Re Ci4net.com Inc. [2005] BCC 277.
545 Sean Gollin, Heath & Whale on Insolvency (LexisNexis New Zealand Ltd, 2011), 105.
546 United Nations Commission on International Trade Law, UNCITRAL Legislative Guide on Insolvency Law,
(25 June 2004).
547 See In re Stanford International Bank Ltd [2011] Ch 33, In re Sphinx 351 BR 103;In Re Bear Stearns High-
Grade Structured Credit Strategies Master Fund Ltd 374 BR 122 & 389 BR 325; Re Daisytek [2003] BCC 562.
548 See the case of Wagon Automative Group where there was more than one COMI for different parts of the
group.
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5.4 The Application of the Model Law to Banks and Financial Institutions: Reasons for