Volume 4, Number 34, Page 4

Global: International Insolvency: UNCITRAL's New Model Law

by Ricardo Sandoval L. and Javier Ahumada Jegó

During last May's sessions in Vienna, UNCITRAL (the United Nations Commission for International Trade Law) approved the Model Law of International Insolvency. This new international document evolved out of many projects and conventions that were previously abandoned for various reasons.

Elements of the new Model Law

As stated in the preamble, the purpose of the new Model Law is "to establish effective mechanisms to solve the international insolvency and to promote the cooperation between courts and the competent authorities of the States that are linked by the insolvency."

Chapter I contains the law's general rules and includes a list of cases to which the Model Law should be applied. The document omits from its application field bankruptcies of banks and financial institutions, as did the Istanbul Convention and its subsequent international documents, because of the intangible character of their assets.

Chapter II regulates representatives' access to the courts of the adhering States.

Chapter III regulates a court's recognition of an international procedure,and the effects thereof. Because this is the principal subject of the Model Law, Chapter III is one of the most important chapters. The procedural measures that courts might recognize and concede to are quite interesting and represent a change from the previous international texts.

All of the measures are transitory and destined to prevent individual executions against debtors. The measures will serve to entrust the foreign representative, or another person appointed by the court, with administering the debtor’s assets, including the possibility of selling those assets.

Of particular interest is the fact that most of these measures are not contained in the legal systems of most countries; this gives rise to the potentiality of foreign creditors being able to request measures that national creditors will not be able to request.

Chapter III also regulates those measures that can be conceded after recognition and which are established to give protection to national and international creditors.

Chapter IV regulates the direct cooperation between courts linked by the same bankruptcy and direct cooperation between the foreign trustee, trustees, or representatives and the courts.

These rules evidence the evolutionary degree of this Model Law. As aresult of these rules, many delays associated with official communications and international official cooperation are avoided. This result was not achieved by the Istanbul Convention, the European Project, or other international documents.

Finally, Chapter V regulates one of the most important matters: secondary insolvency procedures. These can apply whenever a debtor has assets inthe country in which the procedures are requested. The significant difference between the main bankruptcy and secondary procedure or procedures is premised on the concept of "principal center of the debtor’s interests." This concept is defined as "the one that took place in the territory where the debtor does exercise a non-transitory financial activity."

The secondary procedure is an institution which is included in every international approach to solve the international insolvency question. It makes possible the initiation of a bankruptcy procedure with respect to a debtor’s assets that are located in the territory of an adhering State which is not the principal center of the debtor’s interests. To request the initiation of this procedure, it is not necessary to probe the insolvency of the debtor through a national law procedure. Rather, the procedure can be initiated simply by reason of being in bankruptcy in the State of the principal center of the debtor’s interests.

Conclusion

The new Model Law may have more theoretical value than practical usefulness because this international instrument does not have linking force for the nations involved. Nevertheless, it is a significant contribution to the effort to solve the international problem of insolvencies.

Ricardo Sandoval L. is a partner of Estudio Jurídico de Ricardo Sandoval y Cía Ltda. in Concepción, Chile. Javier Ahumada Jegó is an associate at the firm.