UNCITRAL Model Law on Cross-Border Insolvency

The UNCITRAL Model Law on Cross-Border Insolvency was a model law issued by the secretariat of UNCITRAL on 30 May 1997 to assist states in relation to the regulation of corporate insolvency and financial distress involving companies which have assets or creditors in more than one state.

At present 23 jurisdictions have substantially adopted the Model Law.

The preamble to the Model Law provides:

(a) Cooperation between the courts and other competent authorities of this State and foreign States involved in cases of cross-border insolvency;
(b) Greater legal certainty for trade and investment;
(c) Fair and efficient administration of cross-border insolvencies that protects the interests of all creditors and other interested persons, including the debtor;
(d) Protection and maximization of the value of the debtor’s assets; and
(e) Facilitation of the rescue of financially troubled businesses, thereby protecting investment and preserving employment.

The Model Law is designed to provide a model framework to encourage cooperation and coordination between jurisdictions. Despite earlier proposals to do so, it does not attempt to unify substantive insolvency laws, and the Model Law respects the differences among the substantive and procedural laws of states.

The Model Law defines a cross-border insolvency is one where the insolvent debtor has assets in more than one state, or where some of the creditors of the debtor are not from the state where the insolvency proceeding is taking place.

UNCITRAL published the Model Law in response to concerns that the number of cross-border insolvency cases had increased significantly during the 1990s, but national and international legal regimes equipped to address the issues raised by those cases has not evolved at a similar pace. The absence of effective cross-border insolvency regimes was thought to have resulted in inadequate and uncoordinated approaches to cross-border insolvency which were both unpredictable and time-consuming in their application, lacking both transparency and the tools necessary to address the disparities between different national laws. As a result, it had become difficult to protect the residual value of the assets of financially troubled businesses, and impeded corporate rescue culture for cross-border entities.

Rather than prescribing a single set of rules for all states to adopt, the Model Law focuses on trying to:

In order to identify the principal jurisdiction the Model Law utilises the "centre of main interest" (or COMI) concept. The working assumption is that any international business will nonetheless have a centre of main interest, where the principal insolvency should take place. As far as possible the assets and claims should be channeled back to that main jurisdiction, and all other jurisdictions should seek to limit the exercise of their insolvency regimes to assisting with the liquidation of assets in their countries, the staying of claims, the redirecting of claims back to the principal jurisdiction. The basis of the Model Law is sometimes referred to as modified universalism.

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