Anthony Casey and Colleagues Write About Cross-Border Insolvency

How a Commitment Rule Would Improve the Choice of Cross-Border Insolvency Forum

In a recent article, we propose a new rule for determining the proper forum for insolvency proceedings. Currently, the Model Law on Cross-Border Insolvency, promulgated by the United Nations Commission on International Trade Law (“UNCITRAL”), looks to a debtor’s center of main interest (“COMI”) to determine the proper forum for a foreign main-insolvency proceeding. This rule is flawed. It is both inflexible and manipulable. It is also indeterminate and neither requires nor allows advance commitment by debtors. As a result, it leads to uncertainty, increases litigation costs, and opens the door to opportunistic manipulation by debtors. These costs, in turn, raise the cost of credit for all companies.

We propose a better approach – the “Commitment Rule” – for determining the proper insolvency forum. The rule allows debtors to signal an advance their commitment to a particular insolvency forum. To make this commitment public and binding, the debtor must put it in its company’s constitution. This upfront and observable commitment eliminates uncertainty and opportunistic manipulation.

Read more at The CLS Blue Sky Blog