Protocols as a possible solution to jurisdiction problems in cross-border insolvencies
Stroebel, Louise Daniel Marthinus
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Cross-border insolvency law primarily deals with the situation where an insolvency procedure is initiated in one jurisdiction, in relation to the property of a debtor who is situated in another jurisdiction. The liquidator then has to consider which procedures to follow and which system of law would apply in the administration of the debtor's property, wherever situated, for the benefit of local and foreign creditors. To regulate cross-border insolvency procedures more effectively, South Africa has assented to the Cross-Border Insolvency Act 42 of 2000 (hereafter the CBA). This act is based on the UNCITRAL Model Law on Cross-Border Insolvency. The CBA is still not operational, mainly because of the failure of the Minister of Justice to designate certain states and will only be applicable to cross-border insolvency proceedings once a state is designated. This has the effect that the CBA will assist insolvency agents and creditors of the foreign designated states when they institute insolvency proceedings against a debtor who also has assets or a business in South Africa. The CBA does, however, not assist a South African insolvency agent or South African creditors when instituting insolvency proceedings against a debtor who also has assets or a business in a foreign country. To achieve such reciprocity the foreign state would need a similar act in which South Africa is a designated state. Company N, for example, is situated in the Netherlands, which has not incorporated the UNICTRAL Model Law on Cross-Border Insolvencies. Company S, its creditor, is situated in South Africa. Suppose company A has movable and immovable property in South Africa and the Netherlands. If company N goes bankrupt, a number of problematic questions arise: Where should company S institute insolvency proceedings? Which system of law would apply to the insolvency proceedings and would the courts in the Netherlands recognise a South African court order for the winding-up of company N? In the absence of a binding international insolvency act that applies universally, states have to turn to their own domestic laws for guidance to regulate these proceedings. The sovereignty of states and the protection of national interests contribute to the inefficiency of these proceedings. The question of the appropriate jurisdiction is further complicated by the different insolvency approaches states follow. Some states follow the territorial approach while others follow the universal approach which leads to great conflicts in the determination of the proper forum to institute cross-border insolvency proceedings. With the universal approach two further complications arise, namely forum-shopping and COMI. With forum shopping creditors seek the forum that will provide the greatest advantage to their interests, while COMI (centre of main interest) as a means to determine the appropriate forum under the universal approach is very vague and increases uncertainty rather than clarity. Multinational treaties or conventions prove to be less effective in an effort to increase co-operation between states than expected. Few examples of functional multinational treaties on insolvency exist. Bilateral treaties between countries are another option and easier to negotiate, but just as few examples of functional bilateral treaties exist. The question that will henceforth be discussed in this dissertation, is whether a protocol between South Africa and foreign countries would contribute to a more workable and effective solution to jurisdiction problems in cross-border insolvency proceedings between these states? In order to address the above mentioned question, the jurisdiction problem, together with the occurrence of the territorial and universal approach in cross-border insolvencies will be discussed in chapter 2. In chapter 3 the South African position in relation to cross-border insolvency jurisdiction will be discussed. Thereafter a discussion on cross-border insolvency protocols will follow in chapter 4. A conclusion and recommendation will then follow in chapter 5.
- Law