The interaction between international arbitration and insolvency law is frequently perceived as an irreconcilable conflict. The onset of insolvency frequently interferes with private agreements for the arbitration of disputes between an insolvent company and its creditors and other stakeholders. This is particularly exacerbated in the cross-border insolvency law context where different national insolvency and conflict of laws rules may apply within the same subject matter. This interaction is presented as a ‘confrontational encounter’, ‘when two worlds collide’, ‘a collision of spheres’, ‘a conflict of near polar extremes’ and the ‘the irresistible force meeting the immovable object’. Viewed in these terms alone, the autonomy-driven and consent-based framework of arbitration is frequently pitched as being conceptually at odds with the compulsory and collective nature of insolvency proceedings. Can arbitration and insolvency law be friends? Or are these two fields of law destined forever to be foes? This part of my doctoral research is an invitation to radically rethink the place of arbitration in cross-border insolvency management and co-operation by proposing arbitration as a forum for the full management of insolvencies. I offer a framework I call ‘arbitral modified universalism’ (AMU) to achieve this objective.
My doctoral research
In broader terms, my doctoral research investigates whether it is feasible to reconcile arbitration’s autonomy-driven and consent-based framework with insolvency’s compulsory and collective nature in adopting arbitration as a forum for resolving corporate cross-border insolvencies which are subject to English law. in a way which appropriately responds to public policy concerns and promotes access to justice among the insolvency stakeholders. My research adopts a doctrinal approach with both inductive and deductive elements.
Currently suggested approaches to cross-border insolvency co-operation
There are several recommended approaches for cross-border insolvency co-operation. Territorialism and universalism occupy the two ends of this spectrum of proposals. In territorialism in its strict form, a state’s control over assets of an insolvent company is limited to those assets which are in or controlled from that jurisdiction. In that sense, there is no co-operation at all between states in a cross-border insolvency. Universalism advocates that in a cross-border insolvency, one law and one court only must govern all assets of the insolvent entity on a global basis. Modified universalism, a less absolutist form of universalism and co-operative territoriality, a more co-operative form of territorialism have both been advanced as potential compromises. Other less well-known models for insolvency co-operation include universal proceduralism and co-operative charter contractualism which are focused on unifying the procedure and permitting insolvent companies to choose the laws that will govern their potential cross-border insolvency, respectively. Each of these models are built around supervision by national courts.
It is however acknowledged that universalism, where only one law applies and one court supervises, has the potential in theory to increase efficiencies and reduce time and value destroying litigation in cross- border insolvencies. Universalism is however frequently deprecated as being politically infeasible or unattainable in the short term due to states unwillingness to yield sovereignty to that extent. Modified universalism, built on universalist foundations but with the potential to co-operate with territorialist holdouts has been promoted as ‘the short term solution’ on the journey towards universalism. I offer arbitral modified universalism as an alternative pathway to the management and resolution of cross- border insolvencies.
Arbitral modified universalism
Arbitral modified universalism (AMU) is in my view, a framework which potentially brings cross-border insolvency closer to reaping the benefits of (modified) universalism. Part of the problem with the inability to realise the universalist goal of cross-border insolvency co-operation is the reliance on national courts’ supervision and the absence of a globally applicable treaty on cross-border insolvency co-operation. AMU is offered as an alternative to the current courts-based framework for insolvency co-operation. Two decades ago, Diamantis offered Arbitral Contactualism as a proposal for cross-border insolvency dispute resolution which is selected and shaped by parties to a cross-border insolvency. Its foundations, underlying principles and its integration into the current framework for co-operation were not however fully articulated.
AMU is also a contractualist model. AMU is built on the now well accepted modified universalist foundations for cross-border insolvency co-operation. The difference is that AMU adopts arbitration as its primary forum for the full management of a cross-border insolvency in the main proceedings. It does not relegate arbitration to an ancillary tool to resolving only disputes arising from the cross-border insolvency. It proposes arbitration as the forum itself much in the same way as national courts currently do. AMU permits co-ordination with national courts, where the circumstances so require. The preference in AMU is to create one forum into which all global claims may be brought; a truly international forum unlike main national court proceedings under the Model Law. Efficiency and flexibility are inherently built into the framework of AMU. AMU responds appropriately to concerns about yielding national sovereignty in cross- border insolvency proceedings by making room for the application of the substantive law of the location of the assets in the distribution in this near global proceeding. AMU therefore takes account of the existing differences in national substantive law and public policy. The greatest practical impediment to the implementation of AMU is the current inarbitrability of cross-border insolvencies.
AMU will replicate the advantages of the current national courts’-based co-operation framework under the UNCITRAL Model Law and yet remove some of the aspects of duplication which are still inherent in modified universalism by centralising the proceedings even further than is currently possible.
*This research blog was written by Kenneth Ghartey, PhD Law Researcher at the Royal Holloway, University of London.
About BWILC and the PhD Workshop
This research was presented and discussed at the last PhD Workshop on European and International Insolvency law, organised by the Stichting Bob Wessels Insolvency Law Collection (BWILC). Since 2018, BWILC maintains the private insolvency law book collections of Prof. em. Bob Wessels, extended with the collections of the late Prof. Ian Fletcher and the late Gabriel Moss QC, in addition to books that have been kindly donated by scholars and practitioners from around the world. To browse or visit this unique collection, click here.
Since 2019, BWILC organises an annual PhD Workshop for PhD students from Europe and beyond. At this workshop, PhD candidates can present their ideas, but also the challenges and questions they are confronted with in a two-day workshop attended by their peers and senior academics. At the end of the workshop, organised alternately in Leiden and another city, prizes are awarded for the best presentations.