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Oxford Journal of Legal Studies, Vol. 32, No. 2 (2012), pp. 325–347doi:10.1093/ojls/gqs008Published Advance Access April 4, 2012

Universalism in Insolvency Proceedings

and the Common Law

Gerard McCormack*

Abstract—This article critically examines the principle, articulated by LordHoffmann in leading cases, that universalism in insolvency proceedings is thegolden thread of the common law. This principle suggests that there should be aunitary bankruptcy proceeding in a bankrupt’s ‘home’ jurisdiction that appliesuniversally 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 lawand should not influence the interpretation of the international insolvencyagreements to which the UK is a party. It suggests that the common law, insteadof reflecting a universalist ideal, has steered a pragmatic middle course that owesmore to realpolitik than to principle. This is not surprising given that vital nationalpolicies are often at stake in insolvency, and given the mishmash of sometimescompeting principles at the heart of the subject such as encouraging the promptpayment 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: [email protected] 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: [email protected]

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a disadvantage merely because he happens to live in a jurisdiction where there

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 Plc)[2006] UKPC 26, [2007] 1 AC 508 [16]–[17].

3 HIH Insurance (n 1) 7. Recently, support for Lord Hoffmann’s views has been voiced by Proudman J in RePhoenix Kapitaldienst GmbH [2012] EWHC 62 (Ch) [14], [62].

4 Much earlier in Barclays Bank plc v Homan [1992] BCC 757 (CA), 766, Hoffmann J said that ‘the onlysatisfactory solution to the possibility of jurisdictional conflicts in cross-border insolvencies would be aninternational convention’ while in Re Bank of Credit and Commerce International SA [1992] BCC 83 (Ch) 89Browne-Wilkinson V-C said it was ‘a matter of profound regret’ that there was no international conventionregulating international insolvency and Nicholls V-C in Re Paramount Airways Ltd [1993] Ch 223 (CA) 239spoke of ‘a crying need’ for such a convention.

5 Council Regulation (EC) 1346/2000 of 29 May 2000 on insolvency proceedings [2000] OJ L160/1.6 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 toFacilitate 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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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 Appealdecision 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 Rev2177–328. 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: AReview’ (2005) 11 ELJ 232.

10 It is basic to an English winding up that English creditors cannot be ring-fenced and treated morefavourably than foreign creditors – Scott VC in Re BCCI (No 10) [1997] Ch 213, 239–40.

11 See JL Westbrook, ‘Multinational Enterprises in General Default: Chapter 15, The ALI Principles and TheEU Insolvency Regulation’ (2002) 76 Am Bankr LJ 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, andancillary courts in other jurisdictions—typically in jurisdictions where the debtor has assets—defer to the foreignproceeding and in effect collaborate to facilitate the centralized liquidation of the debtor’s estate according to therules of the debtor’s home country.’

13 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 ofLaw and Choice of Forum’ (1991) 65 Am Bankr LJ 457.

SUMMER 2012 Universalism in Insolvency Proceedings 327

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convenient for debtors and their creditors to deal with one rather than many

insolvency representatives. Restructuring or the sale of a business should also

be easier to accomplish if the debtor’s assets are treated as one. Nevertheless,

universalism in its purest form has its disadvantages for creditors.14 Foreign

creditors may not know of the insolvency proceedings or have insufficient

notice of them. Language barriers may put them at a disadvantage. It may be

far easier to submit a proof in local proceedings rather than in a faraway land

where legal proceedings are transacted in a language that they may not readily

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 thecompany is incorporated but that may be some offshore island with which the company’s business has no realconnection. The Council Regulation on insolvency proceedings (Council Regulation (EC) No 1346/2000 of 29May 2000) uses the concept of the ‘‘centre of a debtor’s main interests’’ as a test, with a presumption that it isthe place where the registered office is situated . . . That may be more appropriate.’


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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. The

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 the

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 generallyRe A Company (No 00359 of 1987) [1988] Ch 210 where Peter Gibson J held that it was enough that there was asufficient connection with the jurisdiction and a reasonable possibility of benefit accruing to creditors as a resultof 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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The broad scope of the US automatic stay is illustrated by Re Lykes Bros SS

Co22 where it was held that a German company had wilfully violated the

automatic stay by causing the arrest in Belgium of a ship belonging to the

debtor so as to enforce pre-bankruptcy debts arising from the charter of two

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 11 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 2966.27 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 beneficialownership of its assets which cease to be applicable for its own benefit. They become instead subject to astatutory scheme for distribution among the creditors and members of the company’.


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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 to

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 [2009] 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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was not possible to have a winding up that was confined to domestic assets of

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 Plc[2006] UKPC 26, [2007] 1 AC 508.

35 See the comments of Vaughan Williams J in Re English, Scottish and Australian Chartered Bank [1893] 3 Ch385 (CA) 394: ‘One knows that where there is a liquidation of one concern the general principle is to ascertainwhat is the domicile of the company in liquidation: let the court of the country of domicile act as the principalcourt to govern the liquidation: and let the other courts act as ancillary, as far as they can, to the principalliquidation.’

36 See P Smart, ‘International Insolvency: Ancillary Winding Up and the Foreign Corporation’ (1990) 39ICLQ 827, 837.

37 Re BCCI (No 10) (n 10) 246.


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

between such debts or claims has been held to be automatic and self-executing

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 [1996] 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 thereorganization and winding up of insurance companies.


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to the distribution of all the assets was more likely to give effect to the expectations

of creditors as a whole than the distribution of some assets according to English

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 liquidation’. 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 ‘area 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 Societe 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 andSI 1998/2766. These consist of Commonwealth countries and territories with the addition of the Republic ofIreland and Hong Kong but excluding the United States.

45 HIH Insurance (n 1) 80.46 [2011] EWHC 15 (Ch), [2011] BPIR 308.47 (1890) 25 QBD 399 (CA), 406.


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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).50 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 [2011] EWHC 256 (Comm), [2011] 1

WLR 2038. For commentary on the case see Look Chan Ho, ‘Recognising Foreign Insolvency Discharge andStare Decisis’ (2011) 26 JIBLR 266.

52 Professor Fletcher in Insolvency in Private International Law (n 48) para 2.129 suggests that a modernreformulation of the relevant rules is required and ‘[i]n the case of a contractual obligation which happens to begoverned by English law, a . . . rule should be developed whereby, if one of the parties to the contract is the subjectof insolvency proceedings in a jurisdiction with which he has an established connection based on residence or tiesof 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 takeeffect under the applicable law.’ See also P Smart, Cross Border Insolvency (2nd edn, Butterworths 1998) 261–66.


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debtor’s creditors would have foreseen the possibility that the restructuring of

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’sassets should be distributed in accordance with the grab rule or universalist principle — a quintessentiallyinsolvency matter.’

54 s 547 of the Bankruptcy Code in the United States and s 239 of the Insolvency Act 1986 in the UK. TheScottish 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 fora US perspective see TH Jackson, ‘Avoiding Powers in Bankruptcy’ (1984) 36 Stanford L Rev 725; VCountryman, ‘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 wronglydecided. Lewison J at first instance said [22] that this question ‘must be decided by someone above my paygrade’. Rubin is currently under appeal to the Supreme Court. Rubin has also been considered by Proudman J inPhoenix Kapitaldienst GmbH (n 3).


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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) [61].62 For criticism see Look Chan Ho, ‘Recognition Born of Fiction’ (2010) 25 JIBLR 579.63 Rubin (n 59) [61], and see (n 6) and (n 80).64 Rubin (n 59) [61].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 L12/1.


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however, of whether the bankruptcy exception to ordinary rules of private

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 193.68 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 ECInsolvency Regulation see the leading European Court judgment in Case C–341/04 Re Eurofood IFSC Ltd [2006]ECR I–03813, para 66.


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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 plc v Homan (n 4) 766; Re Bank of Credit and Commerce International SA (n 4) 89; ReParamount Airways Ltd (n 4) 239.

71 Reg (EC) 1346/2000 (n 5). See generally for commentary by those involved in the framing of theRegulation M Virgos and F Garcimartın, The European Insolvency Regulation: Law & Practice (Kluwer 2004); MBalz, ‘The European Union Convention on Insolvency Proceedings’ (1996) 70 Am Bankr LJ 485. See also GMoss, IF Fletcher and S Issacs (eds), The EC Regulation on Insolvency Proceedings: A Commentary and AnnotatedGuide (2nd edn, OUP 2009).

72 SI No 2006/1030.


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one US commentator has disparaged it as ‘essentially a territorial system with

universalist pretensions’.73 After all, other recitals to the Regulation acknow-

ledge ‘the fact that as a result of widely differing substantive laws it is not

practical to introduce insolvency proceedings with universal scope in the entire

Community’ and that ‘[t]o protect legitimate expectations and the certainty of

transactions in [other] Member States . . . provisions should be made for a

number of exceptions to the general rule’.74 Notwithstanding the terms of

Article 4, the law of the insolvency forum does not regulate all substantive and

procedural matters pertaining to the insolvency proceedings. There are a

number of specific referrals to other legal systems set out in Articles 5–15.

Moreover, if a company has an ‘establishment’ within a particular EU state

that state may open secondary insolvency proceedings in respect of the

company. While the effect of secondary proceedings is limited to assets within

the state, local law applies to such proceedings. A liquidator in the secondary

proceedings is not a mere minion for the collection of assets that are then to be

transferred to the main proceedings for distribution according to the law

governing those main proceedings. It is clear from Articles 4 and 28 that the

law applicable in secondary proceedings is the law of the forum. This was

emphasized in Re Alitalia where Newey J noted that the Regulation provided

for assets within the scope of secondary proceedings to be disposed of in

accordance with the law of the forum state.75 In his view, the duty of

cooperation under the Regulation between liquidators in main and secondary

proceedings could not extend to requiring liquidators to apply assets in a

different manner, especially since the duty of cooperation was expressly subject

to the rules applicable to each of the proceedings.76

Newey J considered an argument that the spirit of universalism supposedly

animating the Regulation could be used to fill out the blanks in the primacy of

the main insolvency proceedings. He saw the attractions of this approach,

stating that it would facilitate a sale of the company’s entire undertaking by the

liquidator in the main proceedings, thereby promoting the overall interests of

company creditors as a whole.77 Nevertheless, in his view, acceptance of the

argument would undermine the structure of the Regulation. Moreover, it is

clear from the Court of Justice of the European Union (CJEU) judgment in the

leading Eurofood case that the concepts contained in the EU Regulation have an

autonomous meaning and must be interpreted independently of national laws,

principles or legislation.78 It would be a case of the tail wagging the dog if the

73 See F Tung, ‘Is International Bankruptcy Possible’ (2001) 23 Michigan J Intl L 31, 77 and see also JPottow, ‘Greed and Pride in International Bankruptcy: The Problems of and Proposed Solutions to ‘‘LocalInterests’’ ’ (2006) 104 Michigan L Rev 1899–1949; ‘Procedural Incrementalism: A Model for InternationalBankruptcy’ (2005) 45 Virginia J Intl L 936.

74 See recitals 11 and 24.75 Re Alitalia (n 46) [43].76 ibid.77 ibid [56].78 Case C–341/04 Re Eurofood IFSC Ltd (n 69).


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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 onCross-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 anever 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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consistent interpretation with that in other countries.83 The main difference

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 ‘a 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 itseems 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 byJudge Sweet’ (2008) 21 Insolvency Intelligence 118.

85 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 Intelligence56.

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 forrecognition under Chapter 15 in the first place.

89 See UK Insolvency Service, ‘Implementation of UNCITRAL Model Law on Cross-Border Insolvency inGreat 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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running in a different direction to the modified universalism of the common

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 tobring their system in through the back door. The UNCITRAL Model law was negotiated by a delegation led byuniversalist 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 topropose so-called ‘principled’ solutions. Taxonomy is the grammar of the legal discourse’—see U Mattei, ‘ThreePatterns of Law: Taxonomy and Change in the World’s Legal Systems’ (1997) 45 Am J Comp L, 5, 5. For ageneral discussion of this legal technique and the use of categories in legal reasoning see S Waddams, Dimensionsof Private Law Categories and Concepts in Anglo-American Legal Reasoning (CUP 2003) and for a critical review seeA Beever and C Rickett, ‘Interpretive Legal Theory and the Academic Lawyer’ (2005) 68 MLR 320. See also ESherwin ‘Legal Taxonomy’ (2009) 15 Legal Theory 25, 26: ‘Perhaps the best known legal taxonomer is Oxford’slate Regius Professor Peter Birks’.

93 See Banco Nacional de Cuba v Cosmos Trading Corp (n 17) 915. See also Lord Hoffmann in Re HIHInsurance (n 1) [19] and Lord Neuberger [75].

94 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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insolvency representative under Article 21. Article 25(1) lays down a

mandatory duty on courts to cooperate ‘to the maximum extent possible’

with foreign courts and foreign representatives though in the CBIR the word

‘may’ is substituted for ‘shall’. The Insolvency Service suggested that it was

‘preferable to give the court some discretion as to whether to co-operate and

believe that the court will only refuse co-operation in response to an actual

request where it has good reasons for doing so’.96 The use of ‘may’ rather than

‘shall’ encouraged cooperation but at the same time gave the courts flexibility

to deal with the particular circumstances. Article 27 provides an illustrative list

of the forms that cooperation may take including the appointment of a person

or body to act at the direction of the court, and the coordination of concurrent

proceedings. In Rubin v Eurofinance SA the Court of Appeal considered the

possibility that ‘co-operation to the maximum extent possible’ should include

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’sassets . . . to the foreign representative or another person designated bythe court’; and

(2) ‘granting any further additional relief that might be available to a Britishinsolvency officeholder under the law of Great Britain’.100

96 The UK Insolvency Service, ‘Implementation of UNCITRAL Model Law on Cross-Border Insolvency inGreat 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) [22].98 Rubin v Eurofinance SA [2009] EWHC 2129 (Ch), [2010] 1 All ER (Comm) 81 [71].99 ibid [72].

100 See n 6.


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In granting or denying relief, the court must be satisfied that the interests of

the creditors and other interested persons, including the debtor, are adequately

protected. An attempt was made in Rubin v Eurofinance at first instance to rely

on Article 21, in particular on the provision enabling the debtor’s assets to be

entrusted to a foreign representative. The court said, however, that the debtor’s

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 rather

than the UK. Therefore, the provision was inapplicable. It has been argued

that the ‘further relief ’ provision in Article 21 could permit enforcement of the

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) 25JIBLR 552.

102 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 givena wide interpretation since it is a discretionary power ‘only exercisable after all relevant interests have been takeninto account’.

103 See generally J Benjamin ‘The Narratives of Financial Law’ (2010) 30 OJLS 787.104 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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assets and debts, irrespective of location. Lord Hoffmann nods in the direction

of pragmatism by use of the word ‘modified’ as a qualifying adjective to his

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 Marine [2003] UKPC 37, [2004] 1 AC 147 [12] (Lord Hoffmann): ‘Thepurpose of the conflicts taxonomy is to identify the most appropriate law. This meant that one has to look at thesubstance 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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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 indifferent jurisdictions, and the importation of a concept may have unintended consequences for the rest of thebody of law in the recipient jurisdiction see G Teubner, ‘Legal Irritants: Good Faith in British Law or HowUnifying 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 therelevant case is reported under the name Belmont Park Investments v BNY Corporate Trustee, and for the UnitedStates proceedings see Re Lehman Brothers Holdings Inc 422 BR 407 (Bankr SDNY 2010).

111 For the UK proceedings see Barclays Bank plc v Homan (n 4) 767 ff and for the United States proceedingssee 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 2531and for an account of the case with considerable extra-legal colour see John Pottow, ‘The Maxwell Case’ in RRasmussen (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 Endof History for Corporate Law’ (2001) 89 Georgetown LJ 439. The title of this article consciously andprovocatively echoes Francis Fukuyama’s The End of History and the Last Man (Free Press 1992).


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