Judgements on the cross-border insolvency cases

Cross-border insolvency: definition, basic model. The concept of the insolvency institute and its features. Recognition and enforcement of the legal judgments on the cross-border insolvency cases in the world. The problem of the practice of application.

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Federal State Autonomous Educational Institution of Higher Education "National Research University "Higher School of Economics”

DEPARTMENT: INTERNATIONAL PRIVATE LAW

SUBJECT: RECOGNITION AND ENFORCEMENT OF THE LEGAL

Judgements on the cross-border insolvency cases

Student: Mikhaleva Alisa

Faculty: International Economic Law

Academic supervisor: Associate professor,

PhD in Law Irina V. Getman-Pavlova

Moscow, 2016

Content

  • Introduction
  • Part 1. Cross-border insolvency: definition and basic models
  • §1. The concept of the insolvency institute and its features
  • §2. Basic models of legal regulation of cross-border insolvency in the world
  • Part 2. Recognition and enforcement of the legal judgments on the cross-border insolvency cases in the world
  • §1. The concept of recognition and enforcement of foreign judgments on the cross-border insolvency cases
  • §2. Models of recognition of foreign judgments on the cross-border insolvency cases
  • §3. Choice of law in cross-border insolvency cases
  • Part 3. Legal regulation of the recognition and enforcement of foreign judgments on the cross-border insolvency cases in the Russian
  • Federation
  • §1. Legal grounds for recognition and enforcement of foreign judgments on the cross-border insolvency cases in the Russian Federation
  • §2. Practice and problems of recognition and enforcement of the legal judgments on the cross-border insolvency cases in the Russian Federation
  • Conclusion
  • Literature

Introduction

The institute of cross-border insolvency is not new already but still developing sphere of international legislation. The topicality of this research caused by the rapid expansion of international corporations having assets and creditors worldwide. So the world's business sphere grows larger and as a result we see multiplication of international enterprises. It is fair to say that an international insolvency is an increasingly complicated and immensely topical issue.

It is obvious that the main problem arising from the international insolvency is a conflict of laws: every state court intends to apply its national rules. So there are three important questions in each insolvency case: legal rules of which state shall be applied, which court has an authority to conduct the case and what is the order of enforcement of the foreign court's decision. The author of the present paper will pay a special attention and will try to cover all problems arising from recognition and enforcement

It is important to mention that this variety of approaches of legal regulation commences from the history and based on peculiarities of development of each state in the economic, social and cultural spheres. The insolvency laws are also framed according to the political preferences of each state and all of them are directed to protect its citizens' benefits. So today we have a lot of practical difficulties with recognition and enforcement of insolvency judgments of foreign courts, which is a barrier for proper protection of legal interests as of the debtor, so of the creditors on the territory of the other state. There is also another problem, so-called "credibility crisis" which interferes to establish principle of unity proceeding on the insolvency cases within territory of few countries.

This topic covers not only legal sphere but also has an important meaning for economic relations and develops together with business relations between foreign entities all over the world. And it seems that the legal improvements shall be one step forward of the economic ones to organize an effective structure, but the international insolvency regulation is hardly the case. The reason why the chosen topic was poor scientifically elaborated, because the question of the transnational insolvency was beyond the scope of scientific research for a long time. As for today, a lot of scientists made research on the topic of cross-border insolvency itself and recognition and enforcement of foreign judgments in particular. Among them are the following: N. Erpyleva, Sobina L., Neshataeva V., Mokhova E., Popondopoulo V. and others from Russia; B. Vessels, J. L. Westbrook, P. R. Wood, A. T. Gouzman, L. M. LoPoucki, R. K. Rasmussen, F. Tang, H. Koh, U. Magnous, I. F. Fletcher and others.

Object of the present research consists of few elements: first of all it is an institute of the cross-border insolvency itself and relations of the subjects arisen from it; secondly it is recognition of the foreign judgments, as well as enforcement of them on the territory of the foreign state, where a parallel or main insolvency proceeding takes place.

The main purpose of the present paperwork is analysis of the international insolvency as a phenomenon of the international law; analysis of the relations, arising in the process of recognition and enforcement of the decisions of the foreign courts in the cross-border insolvency cases; and legal regulation of the recognition and enforcement of foreign insolvency judgments in the Russian Federation.

To achieve the goal, the author of the research appoints following main tasks:

Definition of the cross-border insolvency as a part of legal structure;

Examining of the basic models of legal regulation of the cross-border insolvency;

Definition and peculiarities of recognition and enforcement of the international insolvency judgments by the foreign courts;

Characteristics of the basic models of the recognition of the international insolvency judgments;

cross border insolvency

Investigation of the institute of recognition and enforcement of foreign judgments in the international insolvency cases.

Methodological basis of this paperwork is a complex of following methods: dialectical, historical, systematic, formal-legal, comparative legal and logical.

The structure of the text is stipulated by the subject, aims, objectives and methodological basis of the research. This paperwork is organized as follows: Part I provides an overview of cross-border insolvency institute and its legal regulation. Part II outlines the key provisions of recognition and enforcements of foreign cross-border insolvency judgments and it also discusses models of such recognition and enforcement in different states. Part III illustrates present situation in Russia regarding recognition and enforcement of foreign judicial decisions on international bankruptcy cases.

Part 1. Cross-border insolvency: definition and basic models

§1. The concept of the insolvency institute and its features

It seems appropriate in the first place to find a definition to the study institute. Cross-border insolvency is a relationship, which appears between debtor and creditors and has an important detail - so-called "foreign element”, which means that one of the objects operates beyond the boundaries of any particular jurisdiction or legal system. Ian Fletcher defines cross-border insolvency as the sphere, which regulates the treatment of financially distressed debtors, where such debtors have assets or creditors in more than one country. Ian Fletcher. Insolvency in Private International Law (2d. ed.) Oxford University Press. We can meet another terms, determining this event; among them are multinational bankruptcy, international insolvency, global insolvency and transnational bankruptcy.

Another definition given by the Russian scientist sounds as follows: the insolvency is the inability of the entity to repay its debt obligations, which is certified by the decision of the competent judicial authority. E. Vasiliev. Legal regulation of competitive proceedings in capitalist countries. 1989; . The above mentioned definition reveals the concept of insolvency from the side of inability to pay money, so it is necessary to underline the feature of an insolvent debtor - it is financial inability which is characterized by the excess of the total amount of debts and liabilities of the debtor over the value of its assets.

Bob Wessels, Hon. Bruce A. Markell and Jason Killborn describe the insolvency law as the heartbeat of a nation's economy. Bob Wessels, Hon. Bruce A. Markell, Jason Killborn. International Cooperation in Bankruptcy and Insolvency Matters. 2009

The United Nation Commission on International Trade Law gives the following description: "the insolvency - is a situation, when the debtor can not fully pay for its debts when they become due or when the liabilities of the debtor exceed the value of its assets" UNCITRALLegislative Guide on Insolvency Law United Nations. New-York. 2005. P. 5. http: //www.uncitral.org/pdf/english/texts/insolven/05-80722_Ebook. pdf.

E. Bruce Leonard and Christopher W. Besant state, that "in its origins, could be seen as the result or commercially inappropriate behavior by a debtor and, perhaps, even as evidence of moral deficiencies as well…With the shift to a reorganizational emphasis in the insolvency process, the core problem of insolvency is no longer the immoral debtor, but poor risk management by all of the affected parties, including creditors. ” E. B. Leonard, C. W. Besant Current issues in cross-border insolvency and reorganizations. 1994

In the event when the legal relations fall under legal regulation of more than one state, they become international or cross-border. The cross-border insolvency is complicated form of the insolvency, existing within the territory of one country, so it acquires exterritorial effect. According to the Practice guide of the UNCITRAL the cross-border insolvency is defined in a broad sense as the event, when an insolvent debtor has assets in few states or when there are creditors from other state among the creditors of the debtor, including choosing of the law applicable to the issues of validity and legal force of the rights regarding such assets. UNCITRAL Practice Guide on Cross-border Insolvency Cooperation. United Nations. New-York, 2010. P. 68. http: //www.uncitral.org/pdf/english/texts/insolven/Practice_Guide_Ebook_eng. pdf

Three basic models of determination of the international insolvency are distinguished in the science. First approach reflects international insolvency as a situation when the transnational company has not performed its obligations, but it is untenable due to the lack of legal status of transnational companies; thus the approach described above is very superficial. Second approach determines the international insolvency from procedural side as a national proceeding with a foreign element. This position is supported by the UNCITRAL Model Law of 1997, and the European Union Regulation 2015/848 of 20 May 2015 "On the insolvency proceedings" also highlights the procedural side of the studied relations. The most effective approach determines the cross-border insolvency as relationship complicated by a foreign element because it reflects a unity of substantive and procedural principles in legal relations between subjects.

The foreign element may be performed in following forms:

1) subject of the relations - a debtor or creditors are residents of different states;

2) object of the relations - property or assets of the debtor are located abroad;

3) judicial fact - commencement of proceedings on bankruptcy in different states in relation to one debtor and necessity of enforcement of an insolvency judgment abroad.

§2. Basic models of legal regulation of cross-border insolvency in the world

There are two main models of legal regulation of the cross-border insolvency: the first one is based on the universality principle and the second - on territoriality principle. On the basis of the models mentioned above there were worked out other approaches to the legal regulation of the international insolvency such as controlled universality and modified universalism.

I would like to commence with basic approaches. Territoriality approach is the most spread but the less effective approach where each country applies its national legal rules to the assets of the insolvent debtor and distributes the proceeds to local creditors. In this case multiplicity of proceedings appear and it causes inefficiency, non-coordination and diverse of the whole case. Paul Omar disclosed the content of this model as follows: "As many of the procedures and proceedings may take place, as many states have the authority and power to carry out the activities on recognition of the debtor insolvent" Paul J. Omar. International insolvency law: themes and perspectives. Aldershot. 2008. P. 43. . This model is attractive for the states because it allows to the state to keep its absolute sovereignty in the insolvency case, using just a national law and with the proceeding within this state. Legislators in this case try to protect their creditors, forbidding including the assets situated in their territory to the bankruptcy estate, created in the other jurisdiction relating the same debtor. Among disadvantages of the present approach are the following: partially satisfaction of the demand of the creditors caused by the lack of the assets; duplication of proceedings against the same debtor; absence of cooperation between state bodies of different states, which leads to unpredictable results.

The second approach is based on the universality principle and is about to initiate a universal proceeding against one particular debtor, this approach excludes any opportunity of parallel proceedings in few different countries. This principle appeared in the beginning of XXth century during Hague conferences on international law, as a result there was made a decision to work on the insolvency convention. A. Khrgian believes that the proceedings on cross-border insolvency should be unified, that is much better for performance of several parallel proceedings in different states Khrgian А.А. Harmonization of regulations on cross-border insolvency in the EU, 2007. . For sake of clarity it should be underlined, that this approach allows conducting the whole insolvency case within one insolvency proceeding, which combines all assets of the debtor from different countries and recognition by these countries all the consequences of such proceeding. But this universality way of proceedings also have few disadvantages. The most significant point is a complicated structure to the destination of the proceeding, as well as challenges arising from the implementation of the principle of reciprocity. There is an opinion that this model can not be popular among the states, because national judges would not like to recognize the judgments of foreign courts infringing rights of national creditors Goode. R. Principles of Corporate Insolvency Law. London. 2011. P. 783. .

There is also a more pragmatic approach, which is governed by the internationalist principle. This model is based on the combination of principle from traditional doctrines (universalism and territorialism) and the rules further mentioned. First of all, it states, that any proceeding which takes place under the legislation of one country can only produce effects within another country with the latter's approval. Secondly, it presumes sufficient coordination between all the administrating parts of insolvency proceedings; this notion is based on the extraterritorial effect. Third component is flexibility of application either of unity, or plurality principal, depending on the circumstances. For example, when it is obvious that multiple proceedings will lead to extra cost, then unitary proceeding should take place, maximizing the value for distribution. This approach shows that it is only through activism and initiative of each state, that the system can respond to the particular challenges posed by each live situation.

These basic models exposed synthesis and modification, and as a result we can see more approaches offered by the modern practitioners. Among them there is cooperative territoriality, modified universality, "contructualism” and others. Cooperative territoriality was introduced by Lynn LoPucki. He based this approach on the territoriality principle, which is added by cooperation between the states. The main peculiarities of the model are active cooperation, coordination and interaction between judicial bodies, while parallel territory proceedings on the international insolvency cases are started in the states where the assets are located. One of the most famous cases is the case of "Maxwell Communication Corporation" of 1995, when this approach was applied by the British and American courts. The case of subsidiaries "Eddie Bauer Canada, Inc.", "Eddie Bauer Customer Services Inc. "UNCITRAL Practice Guide on Cross-Border Insolvency Cooperation. New - York. 2010. P. 119. and the parent company "Eddie Bauer Holdings, Inc." also demonstrates a cooperation between judicial bodies of the USA and Canada. Proceedings against the subsidiaries have taken place in Canada, and the proceedings on insolvency of the parent company "Eddie Bauer Holdings, Inc. ” - in the United States. None of the American or the Canadian debtors did not appear as debtors, simultaneously participating in both proceedings. However, intercompany loan between each Canadian debtor and American debtors was the main loan of the Canadian debtors. Despite the fact that the above mentioned proceedings were not connected between each other, but the need of agreement on insolvency was still recognized in order to implement basic administrative procedures for the coordination and implementation of consistent and effective management of the insolvency proceedings. The agreement contained all the provisions of the "standard" insolvency agreement. It was also provided that the Canadian and U. S. debtors must provide the court with the copies of any orders, decisions, opinions or similar documents issued by other courts in the insolvency proceedings.

The next improved model is a so-called modified universality, introduced by Jay Westbrook. Goode R. Op. cit. P. 785, Westbrook. J. L. A global view of business insolvency systems. Washington D. C. 2010. A distinctive feature of this model is the possibility of opening of additional proceedings, which are limited to the assets of the debtor situated in the territory of the state, where such proceedings are opened. The important thing is that in this case the additional proceedings are subordinate to the main and can not claim universality. It should be noted that to make this model effective there is one necessary condition - to define judicial bodies of which state would be entitled to initiate main insolvency proceeding. All the strategically important decisions are taken in accordance with the law of the state where the main proceeding is opened. But decisions relating to the development and satisfaction of requirements of creditors are carried out in accordance with the laws of additional proceedings. Primary proceeding affects all the assets of the debtor, but secondary proceedings may affect only the assets situated on the territory of that state and support the primary proceeding. This flexible approach is based on the cooperation between the states regardless their diversity in law. Opposite to this approach is parallel bankruptcy, where few parallel proceedings can exist at the same time in few different countries, which is absolutely ineffective, because it causes extra-costs and double resources to reach the destination stage of the insolvency, and even makes it impossible in some cases. Some authors have an opinion, that the most effective way to regulate the cross-border insolvency relations could be international agreements, which contain particular solution for competition between national laws and jurisdictions. It is a vivid and practical example of application of this approach. In practice this model is implemented through the conclusion of multilateral or bilateral international treaties such as the Treaties of Montevideo of 1889 and 1940, the Bustamante Code of 1928, the EU Regulation 2015/848 of 20 May 2015 and UNCITRAL Model Law of May 30, 1997Goode R. Op. cit. P. 587. .

The special attention should be paid to the Model Law on Cross-Border Insolvency adopted by UNCITRAL in May 1997. This legal act sets out following conditions: for access to local courts for persons administering a foreign insolvency; for recognition of a foreign insolvency proceeding; for participation of foreign creditors in local insolvency proceedings; for cooperation between foreign courts and insolvency practitioners; for coordination of insolvency proceedings from different countries. The countries such as the USA, Canada, Great Britain, Japan Australia have adopted this Model Law.

Now we will look at so-called contractual universality or "contructualism”. The developers of this theory are the lawyers Schwarts and Block-Lieb. The main idea of this doctrine is the subject's ability to choose applicable law to the relations that may arise in connection with the insolvency, liquidation or reorganization of one of them. Such information should be reflected in its founding documents and all the subsequent changes can be made only upon the consent of its creditors. Robert Ramussen has been also supporting this approach, but he also paid attention to downsides of it. The main one is - a less advantageous position of creditors in contract to the situation of the company and its owners.

Back to the history of creation of legal regulation: the first step in European Union was made on the 25th of September 1995, when the European Convention of Insolvency proceedings appeared, and the text was tabled for approval by the EU Council of Ministers. After that the content of this Convention was transferred to the Insolvency Regulation, which is regularly updated and acts as a community law instrument binding and directly applicable in Member States. This Regulation applies to all insolvency proceedings involving natural or legal persons, traders, merchants or individuals, except those concerning insurance undertakings, credit institutions, investment undertakings holding funds or securities for third parties and collective investment undertakings. On May 1997 the United Nations Commission on International Trade Law (UNCITRAL) accepted a Model Law on Cross-border Insolvency. This Model Law aimed to create a framework, which can be voluntary implemented by the countries into their national legal systems. The UNCITRAL Model Law strategy is the most likely way forward. That Regime does not seek to impose a comprehensive solution to issues of jurisdiction, recognition of foreign orders or choice of law but to create minimum conditions which will allow the development of workable solutions to the problems of international insolvency Ian Fletcher. Insolvency in Private International Law: national and International Approaches by Ian Fletcher. The Cambridge Law Journal, Vol. 58, №3 (Nov. 1999), pp 653-655. This set of rules establishes conditions "under which persons administering a foreign insolvency proceeding have access to local courts” Professor Sandeep Gopalan and Michael Guihot. Recognition and Enforcement in Cross-Border Insolvency Law: A proposal for Judicial Gap-Filling. Professor Sandeep Gopalan and Michael Guihot. and conditions for recognition of a foreign insolvency proceeding and for granting relief to the representatives of such a proceeding. It also gives opportunity to foreign creditors to take part in local insolvency proceedings; it improves communication between courts and insolvency administrators. This law follows an internationalist approach, which leads to partial loss of sovereignty, because all the states adopting this law will have an obligation to fall it instead of its national rules. The Model law was adopted by United States, Canada, Great Britain, Japan, Australia and other developed and economically powerful countries.

Nowadays Asian Development Bank, the World Bank, the IMF, the European Bank of Reconstruction and Development, the United Nations Committee on International Trade Law (UNCITRAL), and experts of other international bodies still try to create the most effective and versatile order for international insolvency proceedings. As a result of their work we can see new "principles”, "guidelines”, "good practice standards" or "recommendations”. These texts amount to a striking demonstration of the globalization of commercial activity in the insolvency era, and the raised awareness internationally of the need to address the issues associated with insolvency in a cross-border context. R. Tomasic, "Insolvency Law Reform in Asia and Emerging Insolvency Norms”, 15 Insolvency Law Journal 2007, p. 229-242

Back to 2000 European Union Insolvency Convention had a rather more important impact. There was no any uniform concept of insolvency in Europe. All the countries interpreted the notion of insolvency differently. The preliminary draft convention on Insolvency Proceedings provided solutions that are simple and flexible in such complicated legal areas. The purpose of that Convention was not a creation of so-called European type of bankruptcy or harmonization of the legal rules of EC states, it was aimed to "construct legal conditions for handling cross-border bankruptcies in EC by settling conflicts of laws and jurisdictions. ” E. B. Leonard, C. W. Besant. Current issues in Cross-Border Insolvency and Reorganizations. International Bar Association; pub. Graham & Trotman/ 1994. The main principle of the convention is a "controlled universality”, which means that proceeding opened in one EC state would be recognized by other EC states without any further formalities in other EC states. This system divides the insolvency cases into two groups: main proceeding and secondary ones. According to the conditions of that Convention there could be only one main proceeding opened within the EC, where the debtor's main interests are located. The first step of such proceeding is to appoint a liquidator, who is permitted "to exercise throughout the EC the powers conferred on him by the law of the State in which the proceedings are opened”. European Community Insolvency Convention, 31 May 2002. Article 10, p. 1 Talking about secondary proceedings, they can be opened in all EC states where establishments or assets of the debtor are situated. There can be any number of sets of secondary proceeding in different states, but in each state there is only one court, which has jurisdiction to open a secondary bankruptcy. Without this Convention the picture looks like this: firstly, all the claims of creditors of secondary proceedings are satisfied and only after that the surplus assets (if any) goes to the satisfaction of the main proceeding's creditors. This construction is directed to improve several details: it gives more effective powers to the liquidator.

On the 12 of December 2012 there was issued proposal for a regulation of the European Parliament and of the Council amending Council Regulation (EC) №1346/2000 of 29 May 200 on insolvency proceedings. The need of amending of this act appeared after ten years of application of it in practice and finding out of its weaknesses. The Regulation of 2000 does not properly reflect current situation and national experience of EU states in insolvency proceedings. Firstly, old EU Regulation does not provide any conditions for such national pre-insolvency procedures as restricting or hybrid proceedings, when the existing management leaves in place. Secondly, there was no any sufficient order to determine the state, which is competent to open insolvency proceedings. The problem was caused by difficulty to apply COMI concept in practice. Thirdly, lots of problems arisen in relation to publicity of the proceedings, namely - absence of mandatory publication of the decision opening insolvency, and problems with lodging claims as well. And finally, the Insolvency Regulation of 2000 did not have rules for insolvency of multi-national enterprises and presumed opening of separate proceedings in each state. So the main idea of this proposal is to improve the efficiency of the European approach to cross-border insolvency cases, with the direction to smooth functioning of the internal market and its resilience in economic crises.

According to Article 3 of the EU Regulation on insolvency proceedings of 2015 "The courts of the Member State within the territory of which the centre of the debtor's main interests is situated shall have jurisdiction to open insolvency proceedings ("main insolvency proceedings”). The centre of main interests shall be the place where the debtor conducts the administration of its interests on a regular basis and which is ascertainable by third parties”. Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings. It is stated that the insolvency proceedings shall be governed by the law of the Member State, where proceedings are opened.

Part 2. Recognition and enforcement of the legal judgments on the cross-border insolvency cases in the world

§1. The concept of recognition and enforcement of foreign judgments on the cross-border insolvency cases

It is a really complicated task to determine a unified legal structure of cross-border recognition proceedings because of such a variety of approaches to this legal area listed above. The interest to the recognition and enforcement of cross-border insolvency judgments is growing rapidly today. It was noted by UNCITRAL that there are lots of difficulties arisen from absence of specific legal rules: "Approaches based purely on the doctrine of comity or on exequatur do not provide the same degree of predictability and reliability…For example, in a given legal system general legislation on reciprocal recognition of judgments, including exequatur, might be confined to enforcement of specific money judgments or injunctive orders in two-party disputes, thus excluding decisions opening collective insolvency proceedings. Furthermore, recognition of foreign insolvency proceedings might not be considered as a matter of recognizing a foreign "judgment”, for example, if the foreign bankruptcy order is considered to be merely a declaration of status of the debtor or if the order is considered not to be final”. UNCITRAL,Model Law on Cross-Border Insolvency with Guide to Enactment and Interpretation (2014).

There were made lots of efforts to harmonize rules of recognition and enforcement of foreign judgments, but insolvency cases have been usually excluded from this list. Meanwhile, the concept of recognition and enforcement of foreign insolvency judgments plays a key role in solving of many problems arising from the implementation of foreign judicial decisions. It is impossible to solve many important tasks, among which is a common approach to the objects of recognition and enforcement, without giving a definition to this concept.

There are different views on defining of this event. Jonathan Hill indicates that the recognition of a foreign judgment is a passive phenomenon, because it does not require any active action. But the enforcement requires proactive steps from the court, where such enforcement shall be exercised, to permit the execution of a foreign judgment against assets of the debtor Jonathan Hill. The Law relating to international commercial disputes. Lloyd's of London press ltd., 1994. p. 4. .

Peter Stone notes that the enforcement of a foreign judgment means that the judgment issued by the court of one country (the country of origin of the decision), which imposes on a party a duty to perform certain actions or to refrain from performing of a specific action, would be the act, according to which the courts and authorities of other countries (country of recognition of the decision) will act in order to ensure consistency of their actions with the commitments set out by foreign decision. Peter Stone The conflict of laws. London and New York, Longman, 1995. p. 306.

Christopher Wadlow determines recognition of a foreign judgment as an action, when the foreign judgment becomes lawful and which you can be followed by certain legal effects Christopher Wadlow. Enforcement of intellectual property in European and international law. The new Private International Law of Intellectual Property in the United Kingdom and the European Community. London, Sweet & Maxwell, 1998. p. 483. .

The European Court of Justice expresses the view that a foreign judgment issued in one of the contracting states should have the same effect in the state, where it should be officially recognized. It is stated by the EU Regulation on Insolvency Proceedings 2015, that the court, where the center of main interests (COMI) is situated, will have the primacy to open the proceedings. Still the Regulation does not define the concept of COMI, but it is meant that only economic interests shall be taken into consideration. The approach of the European Court of Justice is reflected in the case of Eurofood of 2006, which is important for the interpretation of COMI. Eurofood IFSC Ltd. was registered in Ireland in 1997, having its office in Dublin. It is wholly owned subsidiary of Parmalat SpA incorporated in Italy. On December 2003, in accordance with Decree-Law №347 of 23 December 2003, Parmalat SpA was admitted to extraordinary administration proceedings by the Italian Ministry of Production Activities, who appointed Mr. Bondi as the extraordinary insolvency practitioner of Parmalat. On 27 January 2004, the Bank of America applied to the High Court (Ireland) for compulsory winding up proceedings to be commenced against Eurofood because of its insolvency and for the nomination of a provisional liquidator. Mr. Farell was appointed as the provisional liquidator by the Irish High Court with powers to take possession of all the company's assets, manage its affairs, open a bank account in its name, and instruct lawyers on its behalf. On February 2004, the Italian Minister for Production Activities admitted Eurofood to the extraordinary administration procedure and appointed Mr. Bondi as the extraordinary insolvency practitioner. On February 10 2004, the District Court of Parma (Italy) has received an application for declaration that Eurofood was insolvent. On 20 February the District Court of Parma, taking the view that Eurofood's COMI was in Italy, held that it had international jurisdiction in the meaning of Article 3 (1) of the Insolvency Regulation to determine whether Eurofood was in a state of insolvency. At the same time in Ireland there were opened insolvency proceeding in respect of Eurofood according to Irish Law on the day of application submitted by the Bank of America. Ireland court decided that the COMI of Eurofood was in Ireland and opened main proceedings. It also held that the circumstances in which the proceedings were conducted before the District Court in Parma were such as to justify the refusal of the Irish courts to recognize the decision of that court. Finding that Eurofood was insolvent, the High Court made an order for winding up and appointed Mr. Farrell as the liquidator. Mr. Bondi appeals against that judgment and the Irish Supreme Court considered it necessary to stay the proceedings and to examine several questions, including the one concerning COMI, to the Court of Justice for a preliminary ruling. On 2 May 2006 the ECJ decides that the judgment based on application before the High Court of Ireland must be recognized, because insolvency proceedings opened by a court of a Member State must be recognized by the courts of the other Member States without the latter being able to review the jurisdiction of the court of the opening State. Prof. Bob Wessels European Union Regulation on Insolvency Proceedings. An Introductory Analysis. October 2006

Thus, as a summary to the above definitions of the recognition and enforcement of foreign courts' decisions, we can distinguish the main features of the studied concept. First of all, the recognition of foreign judgments is a legal act, whereby a sovereign state expresses its attitude to foreign act of justice, spreading its legal force on national legal space.

But, as the experience shows, many states still prefer to adhere to the principle of territorial validity of foreign judgments. Thus, the decisions of the courts have full legal force within the sovereignty of the state that issued the decision. For the execution of court's decision in the area of jurisdiction of another state it is usually necessary to obtain the consent of this state by having a proper authorization (exequatur), the next step is the issuance of an enforcement order.

Generally, the regime of recognition and enforcement of foreign judgments determines the direction of legal policy of the state in relation to foreign acts of judgments, including bankruptcy cases. Thus, regime of recognition of foreign bankruptcies is a complex of rules, established by the state in relation to foreign bankruptcies, in particular to the acts issued by the foreign courts relation bankruptcy cases, the authority of foreign administrator, other legal consequences of initiation, conduction and completion of bankruptcy proceedings, arisen on the territory of the foreign country.

The next interesting and important question in terms of cross-border insolvency is function of principle of reciprocity. There are a lot of views on this principle. For example, legislation of Switzerland, Austria, Russia and others has an opinion, that the principle of reciprocity is vital in case of recognition of foreign judgment. But the legislation of the USA, England and others have different views. Traditionally, there are two kinds of this principle: in broad and narrow sense. "Narrow reciprocity" takes place, when the state A refuses to recognize the judgment of the state B, until state B starts to recognize judgments of the state A. So it is necessary to prove, that the judgments of the state A were ever recognized and enforced in the territory of the state A. In the broad sense: both states recognize and enforce the judgments of each other until any failure to recognize a judicial act appear in one of them. So for recognition in broad sense it is enough when there is no any denial of enforcement of decisions in that foreign country.

It is well-known fact, that each country creates laws in response to particular political needs and preferences of its citizens due to maximize private benefit of its creditors and debtors. Presence of differences in legal systems of the states causes difficulties in detection of the signs, which express the reciprocity. Absence of such discrepancies would lead in practice to disappearance of necessity to conclude international treaties, which govern order of execution and recognition of foreign judgment. However today the development of legislation is still on the way of creation of uniform acts, international treaties that govern the relations on recognition and enforcement of foreign judicial decisions. To sum up, we may say that reciprocity is more legal fact, than legal principle, because it leads to appearance, changing and termination of respective legal relations in the field of recognition and enforcement of judicial decisions.

In many states the legislation, adopted on the basis of the Model Law, helped to create an effective regime of recognition of foreign bankruptcies, as evidenced by the practice of these states, such as the United States of America.

Initially, American courts were hostile to foreign bankruptcy judgments, which tried to include US assets into their proceedings or to suspend proceedings, initiated in the USA. In particular, the case Harrison v. Sterry, where the partnership, having business at the same time on the USA and in the Great Britain, has satisfied in the preferential order the requirements of some of its creditors at the expense of the property located in the States. The Supreme Court has denied to recognize English bankruptcy and didn't allow English creditors to dispute these transactions, considering that they had no rights in respect of the property located in the United States and could not challenge these transactions.

The US Constitution gives to the Congress the exclusive right to the adoption of the Federal laws, constituting a single legislation on the reorganization and bankruptcy. The main source of law for the bankruptcy proceeding in the USA is Bankruptcy Code 1978. From the moment of its adoption and the inclusion of §304 American courts began to change their attitude to foreign bankruptcies: the main trend was an increasing of cooperation and recognition of effects of foreign proceedings on bankruptcy cases concerning debtors' property in the USA. Chapter 15 of the Code, 1978 consisting the terms of the Model Law, the tendency mentioned above was legally approved. Nowadays the States recognize foreign bankruptcies, if they meet certain requirements, such as: proof of existence of foreign bankruptcy, the jurisdiction compliance, conformity of public policy. While the property rights of the debtor and creditors are regulated by legislation of the state, the validity of the transactions made by the debtor prior to the bankruptcy and the federal law governs order of satisfaction of creditors' claims at the expense of the debtor. The Code determines the order of commencement of bankruptcy proceedings; it also contains rules that determine the rights and obligations of the debtor, creditors and management bodies, claims procedures and other. The Code provides with opportunity of development and approval of reorganization plan, which is effectively a contract between the debtor and the creditor.

Since 2006 American Law Institute has been working on the Global Principles for Cooperation in International Insolvency Cases, consisting of 37 Global Principles for Cooperation in Global Insolvency Cases and 18 Global Guidelines for Court-to-Court Communications in International Insolvency Cases. These principles and guidelines are primarily focused on USA, Canada and Mexico and they are non-binding codified customs and norms that may assist in preparing legal advice, interpretation and drafting contracts. This act underlines few new important principles, which also have a positive impact on the recognition and enforcement of decisions on the territory of different states, namely: language in cross-border cooperation as the most important channel of communication; independent intermediary as a new professional function to create direct communication between the courts or through respective insolvency administrators and others.

As for England, the order of recognition of foreign judgments was worked out within long precedential practice on the basis of universality principle. Perhaps, England is the first example of the country with the effective and detailed regulation of recognition of foreign bankruptcies. There have to be a legal basis for such recognition. According to the rules of English law the following legal acts can be applied in case of recognition of a foreign insolvency: the Cross-Border Insolvency Regulation 2006; the EC Regulation on Insolvency Proceedings; s426 of the Insolvency Act 2000 and the common law.

It is mainly assumed by the English courts that on the basis of the foreign judgment and under certain circumstances the movable property located in England shall be immediately transferred to the foreign administrator appointed in the bankruptcy case. This right of the foreign administrator is named as "title" in the English legislation. Moreover, if the person, who keeps this property, prevents the transfer of the assets to a foreign administrator, this person may be fined. But there is no any exhaustive list of such circumstances in English law, but judicial precedents help to identify them. Usually, English court examines the extraterritoriality of a foreign law first and then jurisdiction of the foreign court, which leads foreign proceeding. According to English law, it can not authorize foreign administrator in relation to property situated in England, but it can recognize the powers, which were conferred on him under the law of a foreign state. This is the reason why English court examines extraterritoriality issue. Thus, extraterritoriality of foreign law has to be proven for recognition of foreign bankruptcy under English law, in other words it shall be proven that foreign law is applicable to assets located abroad, and foreign administrator has authority in respect of this property. There were cases when a foreign bankruptcy was not recognized, because foreign administrator did not have extraterritoriality quality. From the point of view of English legislator a foreign court has the right to consider case on bankruptcy in following cases:

1) bankruptcy is instituted or recognized in domicile (place of incorporation) of the debtor;

2) the debtor applied to a foreign court by himself;

3) the debtor was doing business in the state, the court of which claims jurisdiction over the debtor. But English courts never recognized the jurisdiction of the foreign courts on the basis of the fact, that the property is located on that foreign territory. In addition to the grounds of recognition of foreign insolvency, English law has developed a number of restrictions on such recognition, such as contradiction to a public order and the violation of the principles of fairness and natural justice. It is also prohibited to recognize and enforce foreign decisions that have a fiscal nature. Another important issue is the consequences of such recognition in England. Recognizing foreign judgment, English court clearly distinguishes between the recognition and the consequences of such recognition. If the foreign bankruptcy in recognized by English court, it still does not mean, that in all cases the property located in England will be transferred to the foreign administrator. English law contains rules in case of conflict between English and foreign bankruptcy in relation to the property acquired later. If the English procedure is not started, such property can be transferred to the foreign administrator, if the extraterritoriality of a foreign law is proven. Thus, English court must consider only the question of title, if the property is located on the territory of England. If the property is acquired after the initiation of the foreign procedure, but before opening of such procedure in England, the property shall not be considered as acquired after commencement of bankruptcy under English law and should be transferred to a foreign administrator. Last thing to mention about English law on recognition and enforcement of foreign bankruptcy judgments is that there are rules of correlation between foreign and English bankruptcies. The commencement of foreign bankruptcy proceedings does not automatically terminate English proceedings, being commenced against the debtor. However, this fact influences the decision of the court regarding the opening or continuation of English procedure.

Talking about Canadian law, it should be noted that it is based on the common law traditions and approaches to recognition and enforcement of foreign decisions are based on English law, described above. The only exception is law of Quebec province, which follows Roman legal traditions, i. e. French civil law. The General approach of Canadian courts to cooperation with the foreign courts and recognition of foreign judgments is based on universalism as well.

The legal order of recognition and enforcement of the bankruptcy judgments of three countries is reflected here, namely: England, Canada and the USA. The comparison of the legal regimes of the recognition and enforcement of the judgments of foreign courts can be based on three criteria: legal regulation of the relations, the model (doctrine) applied by the state, legal basis for recognition of a foreign judgment, the grounds for refusal to recognize the judgment, regulation of the administrator's authority, interrelation between foreign and national proceedings.

To conclude this chapter, it is necessary to express the recognition of the foreign judgment through the following definition. It is a legal act of a sovereign state, which can be expressed not only through judicial act, but also in other ways, for example, by establishing a standard automatic order of recognition in national law.

§2. Models of recognition of foreign judgments on the cross-border insolvency cases

One of the most sensitive issues of cross-border insolvency is the question of willingness of states to sacrifice part of their sovereignty for the efficient regulation of the proceedings. Any state has a policy of patronage in bankruptcy and creates the best conditions for national debtors and creditors.

There are four the most common models of recognition and enforcement of foreign judgments on cross-border insolvency:

a) recognition of foreign judicial act shall be recognized without compliance with certain special procedures;

b) recognition of foreign judicial act is allowed with appropriate prerequisites, but without any special procedure of recognition;

c) recognition of foreign judicial act is permissible with appropriate prerequisites and with special procedure of recognition;

d) some states do not recognize foreign judicial acts at all. Martiny D. Handbuch des Internationalen Zivilverfahrensrechts. Bd. 3., 1984. S. 117 - 118


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