Volume 42 | Number 3 Summer 2007
Page 2 of 8
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From the perspective of planning commercial transactions, the application of the avoiding powers may be the single most important aspect of multinational insolvency/bankruptcy cases.1 Yet there have been remarkably few reported cases dealing with those issues. The present author was guilty of an article on the subject some fifteen years ago.2 Very few cases have been reported since that time, until the three fraudulent conveyance cases I discuss in this article. The French case is a Court of Appeals case that applies United States law to avoid a pre-bankruptcy transfer of real estate in Bermuda.3 In the Midland Euro Exchange case, the Los Angeles bankruptcy court comes to the opposite conclusion about a transnational payment in the context of a Ponzi scheme. 4 In the third case, Al Sabah, the Privy Council applied Cayman Islands law to permit a Bahamian trustee in bankruptcy to undo two Cayman Islands trusts.5 Relatively speaking, our cup runneth over.
I. Background
As I have noted in a prior paper for the Academy, many issues in a multinational bankruptcy case require two distinct choice-of-law analyses: one to determine the proper nonbankruptcy law and the other to choose the applicable bankruptcy law.6 Thus, for example, nonbankruptcy law might determine if a party has a valid contract claim against the debtor in bankruptcy, while bankruptcy law would determine the priority, if any, that claim would receive in a bankruptcy distribution. The contract law would be chosen by “the proper law of the contract”7 in most cases, while the choice of applicable bankruptcy law would depend on whether the jurisdiction followed a more territorial or a more universalist approach in multinational bankruptcy cases.8