Volume 42 | Number 3 Summer 2007
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I. General Observations
It is remarkable that one phenomenon within insolvency law has caught relatively little attention in the past among academics and legislators when put in relation to its practical importance and to the dramatically increased attention towards insolvency law in general. This increase reaches back roughly ten years—it began when the bubble of the so called tiger states’ economies in East Asia began to burst, spread to Japan and Russia, and came finally to a stand-still in Brazil. In those days, in the middle of the 90s of the last century the globe came irritatingly close to a world economy crisis. The G-7 States reacted and established the Financial Stability Forum whose task was—and still is—to build up safeguards against a repetition of such a risky development. This Forum spotted twelve topics that it sees as critical for the financial stability of an economy—one of them being insolvency law.1 It entrusted its observation and assessment to the World Bank, which in turn is supported by the United Nations Commission on International Trade Law (UNCITRAL) with respect to insolvency laws’ implementation.2
However, the increased importance of insolvency laws is best documented through the published papers of the three big Multilaterals, which give legislators more or less detailed advice on how to draft a modern and effective insolvency law. The International Monetary Fund (IMF) was the first to publish in 1999,3 followed by the World Bank in 2001,4 and finally by UNCITRAL5 in 2004. During this time the American Law Institute was tackling how to better coordinate cross-border insolvencies resulting from an increased number of bankruptcies where creditors and assets were located in more than one North American Free Trade Agreement (NAFTA) country.6 Within those five years insolvency law mutated from an area of law reserved for centuries to a rather isolated circle of specialists, to one of practical global importance.
Irrespective of this development, astonishingly little work was put into deliberations about how to deal with the insolvency of not only a single legal entity but with that of a group of such entities as a whole. This neglect is reflected in the previously mentioned papers—the UNCITRAL Legislative Guide is the only one that even touches on this topic, and still devotes only a chapter to it. The substance of this chapter is to bring attention to the important role this issue plays in practice, and to illustrate the need for further consideration and research. Such consideration is being undertaken by a Working Group, which has recently (Dec. 2006) been established. It is generally well known that the insolvency of a company, which is a member of a group of companies, will often initiate a domino effect, leading to the subsequent downfall of the other group members. The consequence is that there are as many insolvent companies (and insolvency proceedings) as there are group members; the rule is “one company, one insolvency, one proceeding.” This phenomenon is particularly prevalent when cross-border issues are at stake. It is therefore not surprising that, at least in continental Europe, the need and necessity for intensified deliberations has been recognized in the wake of the European Insolvency Regulation enactment in mid-2002.