The UK Insolvency Law - Essay Example

appears here] appears here] appears here] appears here] UK Insolvency Law Although it is partly based upon the provision, formerly contained in section 122 of the Bankruptcy Act 1914, requiring mutual aid and assistance to be given between themselves by 'every British court' in 'all matters of bankruptcy', section 426 of the Insolvency Act 1986 is in many respects a new element in the English law of international insolvency. It embodies the substance of the recommendation that a suitably modernized version of section 122 should be enacted, applicable to corporate as well as to individual insolvency, to provide for reciprocal enlargement of the power to give international assistance, particularly within the Commonwealth. It should be noted that the international assistance for which provision is made by section 426(4) is limited not only in terms of the foreign countries from which requests for such assistance can be entertained, but also in terms of the authorities by which it may be requested and provided. The only form of assistance that can be obtained is on a 'court-to-court' basis: it is not open to an office holder appointed in foreign insolvency proceedings to make a direct, personal request for assistance to an English court, nor to any other person or authority, under the auspices of this statutory provision. Moreover, the ambit of the power to give assistance is narrowed still further, since it is expressed to be exercisable by 'the courts having jurisdiction in relation to insolvency law in any part of the United Kingdom', in response to requests for assistance submitted by 'the courts having the corresponding jurisdiction' in a country or territory which has been designated for this specific purpose. It is therefore necessary to determine which courts are qualified to participate in the process, a question whose resolution is partly dependent on the arrangements in force, in the United Kingdom and in the other country concerned, for the allocation of jurisdiction in relation to insolvency law. By combining the elements of subsection (10) with the rules for allocating jurisdiction, it is potentially possible for either the High Court or a County Court having an insolvency jurisdiction to be concerned in the giving of assistance under section 426. In most cases it is likely that a request for assistance will be addressed to the High Court, as the court endowed with a comprehensive jurisdiction covering both individual and corporate insolvency. However, it should be noted that where the debtor has a residential address, or carries on business, within a County Court insolvency district outside the London Insolvency District or (in the case of a company) has its registered office in such a district outside London, the County Court in question has a jurisdiction concurrent, and also co-extensive, with that of the High Court. In terms of speed, and also cost, there may sometimes be advantages in addressing a request for assistance to the appropriate County Court. (V. Markham Lester, 1995) A literal reading of subsection (4), taken in isolation, might therefore yield the conclusion that the English court has an unconditional duty to provide assistance to courts which meet the stated criteria rendering them eligible to request it. Such a conclusion would be premature however, because subsection (4) itself supplies no indication as to the nature of the assistance which the courts are required to provide. For this, it is necessary to refer to subsection (5), whose full provisions are as follows: For the purposes of subsection (4) a request made to a court in any part of the United Kingdom by a court in any other part of the United Kingdom or a relevant country or territory is authority for the court to which the request is made to apply, in relation to any matters specified in the request, the insolvency law which is applicable by either court in relation to comparable matters falling within its jurisdiction. In exercising its discretion under this subsection, a court shall have regard in particular to the rules of private international law. Subsection (5) is expressed in terms of empowerment, and in so doing it openly refers to the court having discretion with regard to the use of the powers conferred upon it. The concluding proviso also imposes a requirement upon the court to have regarded 'in particular' to the rules of private international law. Several further questions arise in consequence of the terms in which subsection (5) is drafted, including that of the interrelationship between it and subsection (4). These must be addressed in turn before it is possible to arrive at any conclusion about the nature and extent of the obligation to give assistance imposed by subsection (4). First, it is pertinent to observe the remarkable quality of the powers which the court is authorized to apply: the reference to 'the insolvency law which is applicable by either court' (emphasis added) means that the court, in responding to the request for assistance, may draw upon the provisions of two distinct legal systems, to the extent that their respective provisions are applicable to broadly identical situations which are to be determined, for the purpose in hand, by reference to such matters as are 'specified in the request'. The search agenda is thus established by the terms of the foreign court's request for assistance, and by the 'matters' specified therein. This necessarily requires the court entertaining the request-which we will here assume to be a court in England and Wales to undertake a process of characterization, to determine what the terms of the request signify and in particular what substantive issues are raised by them from the standpoint of a court operating within the English legal system. Having thus 'interpreted' the request, the court must then establish what provisions and remedies of its domestic 'insolvency law' are applicable in relation to the matters so specified. The court may next proceed to consider what substantive provisions of insolvency law are applicable by the court which made the request in relation to comparable matters falling within its own jurisdiction. Having assembled the necessary information, the English court must decide in what way it is to exercise its powers of 'ambidextrous' application of the laws of two separate systems. Thus, it may be expected that in exercising its discretion under subsection (5) a court will ultimately have regard to what will be most conducive to bringing about a fair, just and convenient outcome in the light of all the circumstances of which it is aware, and which it can properly take into consideration. It can therefore be appreciated that the judicial processes which are destined to take place whenever this provision of the Insolvency Act is invoked are both delicate and complex, and cannot readily be reduced to a standardized series of precepts. (V. Markham Lester, 1995) USA Insolvency Law Alongside the numerous innovations to the domestic bankruptcy law of the USA that were made by the Bankruptcy Reform Act of 1978, the provisions contained in section 304 of the Act can be credited with having brought about a transformation of the American approach in the field of international insolvency that was little short of revolutionary. Indeed, the section still represents a benchmark in terms of the liberal, universalist approach to the problems posed by multi-jurisdictional insolvencies. Although its provisions, and the manner in which they have sometimes been judicially interpreted and applied, have not entirely escaped critical censure, there is a broad consensus of scholarly acclaim for their inspired originality of vision. Prior to the reforms of 1978, there were no specific legislative provisions in force within the USA to enable the courts to deal with international cases in an effective way. Moreover, the legacy of past case law together with much of the doctrinal writings from the previous century showed a strong preference for a territorial approach and a resistance to the idea that the bankruptcy laws of foreign countries might produce effects within the USA, especially in terms of transfer of property or the discharge of obligations. By the latter half of the twentieth century however the tide of informed opinion had begun to flow ever more strongly in the direction of reform, reflecting the unsatisfactory experiences meted out to foreign creditors and their representatives in multinational bankruptcy proceedings. Sometimes, American judges were prepared to invoke the doctrine of comity and exercise discretion to award turnover of local assets to a foreign representative bold enough to pursue an application before them. Nevertheless, the lack of consistency and predictability made it almost impossible for foreign representatives to assess whether it would be worthwhile to commit resources to the pursuit or defence of proceedings in an American court. A new, essentially receptive, climate of cooperation was ushered into being with the enactment of section 304. Section 304 specifies the range of powers which the court is permitted to exercise in a case ancillary to a foreign proceeding. (V. Markham Lester, 1995) Section 304 in conjunctions with sections 305 and 306 amounts to a breakthrough in terms of empowering national courts to give international assistance in a spirit that is positively inclined towards the furtherance of the principle of universality. Although widely and publicly admired since their introduction, these provisions have only slowly begun to attract the sincerest, and more concrete, form of flattery on the part of national legislatures. It must be suspected that among the reasons for the apparent reluctance among other sovereign countries to join this new trend towards open embodiment of principles of cross-border assistance in their enacted laws is an apprehension on the part of those with knowledge and influence in such matters that the relaxation of barriers to entry by foreign representatives is not likely to be matched, for the foreseeable future, by comparable generosity in terms of the letter of the law, or the spirit of its application, on the part of many of the other foreign systems (America apart) from which such representatives may come. Fears that the actuality of international cooperation will prove to be one-sided, or at least uneven, furnish a powerful incentive to maintain the status quo until such time as it becomes clear that conditions elsewhere have also changed, or are in the process of changing, in a genuinely substantial way. Hence, it may be suspected that the surest method by which to accelerate the much needed revolution in international insolvency practice is by way of initiatives taken at international level among a significant number of States. One final matter to be noted is that there are no provisions within sections 304, 305 or 306 to give guidance on any questions of choice of law which may have to be considered by American courts when exercising their powers under any of those sections. It has therefore been left to the courts themselves to draw upon established and familiar principles when performing their functions under these provisions of the Code. (V. Markham Lester, 1995) Conclusion While recognizing the virtue of immediacy with regard to the resources offered under existing national law, it must also be acknowledged that the consequent diversity, when the laws of different States are set alongside each other, is calculated to confuse and perplex. Of particular concern, from the standpoint of United Kingdom law, are the relatively narrow terms of availability of assistance under section 426 of the Insolvency Act 1986, when compared to the essentially open-minded policy built into the provisions of section 304 of the United States Bankruptcy Code. In most instances, unfortunately, those contemplating an approach to the English courts in their quest for assistance must somehow inform themselves of the current law and practice, to the extent that these may be deduced from the reported precedents, some of which were decided more than two centuries ago. In their manifest desire to deal with all creditors in an even-handed way, without discrimination between domestic and foreign creditors, the English courts have generally shown themselves to be committed to an internationalist approach which is happily in keeping with the concepts of best practice that are prevalent today. On the other hand, the record is not entirely an unblemished one, and attention has already been drawn to some instances in which English law continues to embody unsatisfactory rules, based on precedents which have not been overturned and which are simply inconsistent with the creed of internationalism, as nowadays understood. As the foregoing comments are intended to suggest, the current state of English law concerning international insolvency is in need of a revision and restatement, so as to rectify the anomalies and inconsistencies which have arisen over the course of time. An authoritative statement of the relevant principles, matched to the conditions and requirements of the present day, would be of much value to those, both at home and abroad, who need an accurate and accessible account of the law in its current state. Such an exercise might be carried out by an expert committee specially constituted for the purpose, or it might be undertaken by the Law Commission as part of their mission to keep under review 'all the law, with a view to its systematic development and reform'. Reference V. Markham Lester, 1995. Victorian Insolvency: Bankruptcy, Imprisonment for Debt, and Company Winding-Up in Nineteenth-Century England; Oxford University Read More