International Insolvency Symposium:
The Priority Dilemma
The Problem: The present financial crisis has accelerated the filing of multinational insolvencies from frequent to commonplace, dragging with them a host of unresolved difficulties of cooperation, fairness, and efficiency. Perhaps the greatest difficulty is the existence of widely different treatment of creditors from one country to the next, a problem often discussed under the heading of “priority” or “preference.” Today these terms must be understood as comprehending not only order of payment but other variations in treatment as well, including the fact that in some systems a particular category of creditor is subject to the control of the insolvency court or agency through imposition of a moratorium or stay, while another sort of creditor left free to enforce its rights. In a neighboring country, both kinds of creditors may be equally free of control or equally subject to it.
When a multinational corporation is subject to an insolvency proceeding in more than one jurisdiction, each court concerned must decide what system of priority to apply as to specific assets and creditors found in the various countries involved. Because these systems vary greatly from country to country, a court may be required to choose between its own domestic system of priorities and that of another jurisdiction. Such a choice may have great consequences for the litigants and for progress toward a system of international coordination.
Just such a situation was presented in the English case, McGrath v. Riddell, [2008] UKHL 21; [2008] 1 W.L.R. 852. The case is often called the “HIH” case. There the liquidators for an Australian insurance company sought to distribute in their proceeding the proceeds of valuable assets located in England. The Australian rules would prefer certain types of creditors in such a distribution, while applicable English law would distribute to the relevant classes of creditors pro rata, with no preference. The House of Lords directed that the English funds should be given to the Australians for distribution. The result was unanimous but the reasons given divided the court sharply, illustrating the problem which this symposium addresses.
The symposium is sponsored by the School of Law and the Texas International Law Journal, which will publish the final papers.
May 11, 2010 — The University of Texas School of Law
Sheffield Room, Room 2.111
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Morning I: 9:30 a.m.
The morning session begins with a discussion of the HIH case itself. Edward Jenger considers the difficulties of achieving the universalism that the judgment of Lord Hoffman found in English common law, while Jose Garrido offers a commentary that supports the universalist approach.
Morning II: 11:00 a.m.
The morning’s second session is devoted to the Great Priority, security interests in the debtor’s assets. Ian Fletcher considers the problem from the perspective of the secured creditor while Leif Clark presents a less traditional approach.
Afternoon: 1:30 p.m.
The afternoon session is devoted to possible solutions to the priority dilemma. Allan Gropper offers an approach which emphasizes that the debtors in a successful cross-border case may have to satisfy claims that are not entitled to priority (or secured status) in the primary jurisdiction of filing, but may be entitled to such treatment in the jurisdiction where the claims arose or where relevant property (or collateral) is located, and that domestic law in the jurisdiction of filing should permit this. John Pottow proposes a unique solution to the priority problem. Jay Westbrook provides a different slant including suggestions of new international initiatives that might be undertaken. Our Chair, Lord Hoffman, concludes the symposium with a summary and commentary.
Participants
The Rt. Hon. the Lord Hoffmann is a Visiting Professor, Faculty of Law, Oxford University. He recently retired as a senior member of the Appellate Committee of the House of Lords, which was the United Kingdom's equivalent of the United States Supreme Court. He served in this position from 1995. Born in South Africa, Lord Hoffmann studied at Cape Town University and then as a Rhodes Scholar at Queen's College, Oxford University. He taught law at University College, Oxford, and practiced law in London before becoming a member of the High Court in 1985. Of special relevance here, he authored widely regarded judgments in two international insolvency cases of unusual importance, McGrath v. Riddell (HIH), [2008] UKHL 21 and Cambridge Gas Transportation Corporation v Official Committee of Unsecured Creditors of Navigator Holdings plc, [2007] 1 AC 508. He also sat as the High Court judge in perhaps the most successful of all multinational insolvency cases, Maxwell Communication Corp.
Judge Leif Clark has been a United States Bankruptcy Judge for the Western District of Texas for over 22 years and has authored several decisions important to the development of international insolvency law in the United States. He has taught as an adjunct professor for both the International Law LLM program of the McGeorge School of Law and the University of Texas School of Law. He also helped to design, and then to participate as an instructor for judicial training programs sponsored by USAID for insolvency judges in central and eastern Europe. Judge Clark has participated in the international insolvency law projects of the International Bar Association, the American Bar Association, the National Bankruptcy Conference, the International Insolvency Institute, INSOL International, and UNCITRAL.
Professor Ian Fletcher is Professor of International Commercial Law at University College London. He is a Bencher of Lincoln’s Inn and practices from 3-4 South Square, Gray’s Inn. He is the author of numerous works including The Law of Insolvency (4th Edition 2009) and Insolvency in Private International Law (2nd Edition 2005; Supplement to Second Edition 2007). He is Editor-in-Chief of the INSOL International Insolvency Review, and a contributing editor to Palmer’s Company Law. He is also a joint editor of Moss, Fletcher and Isaacs, The EC Regulation on Insolvency Proceedings: A Commentary and Annotated Guide (2nd Edition 2009).
Professor Jose M. Garrido: Senior Counsel and Head of the Insolvency Initiative of the World Bank. He is a Professor of Commercial and Corporate Law in Spain, and was General Counsel of the Spanish Securities Commission (2001-2005), as well as advisor in corporate governance matters to the European Union (2001-2009). Professor Garrido has written extensively on insolvency priorities and his work has been a major influence in the treatment of priorities and secured credit in the Spanish insolvency legislation.
Judge Allan Gropper has been a United States Bankruptcy Judge for the Southern District of New York since 2000, following a career as head of the bankruptcy and reorganization practice group at White & Case. Judge Gropper was active in international insolvencies and restructurings and was located in the White & Case Hong Kong office during the year 1999-2000. He has lectured in several foreign countries on insolvency matters and is a co-editor of a two-volume text entitled International Insolvency published in 2000. He is adjunct professor of law at Fordham Law School, as well as a member of the National Bankruptcy Conference and the American College of Bankruptcy.
Professor Edward Janger is the David M. Barse Professor of Law, Brooklyn Law School. Professor Janger is a well-known authority on commercial transactions and bankruptcy law. He has taught courses on international insolvency at Harvard Law School, New York University Law School and Brooklyn Law School. His recent articles on international bankruptcy have appeared in the Brooklyn Journal of International Law and, shortly, in the Columbia Journal of Transnational Law. He is the past-chair of the Association of American Law Schools’ Section on Commercial and Consumer Law, and he has served as consultant to the Business Bankruptcy Subcommittee of the Federal Bankruptcy Rules Advisory Committee. He has held positions as a visiting professor at Harvard Law School and the University of Pennsylvania Law School, and as Scholar-in-Residence at the American Bankruptcy Institute.
Professor John A. E. Pottow, University of Michigan Law School, is an internationally recognized expert in the field of bankruptcy and commercial law. His award-winning scholarship concentrates on the issues involved in the regulation of cross-border insolvencies as well as consumer financial distress. He has published in prominent legal journals in the United States and Canada and testified before Congress. An oft-invited lecturer, he has presented his works at academic conferences around the world and frequently provides commentary for national and international media outlets such as NPR, CNBC, CNN, C-SPAN and the BBC.
Professor Jay Westbrook, Benno C. Schmidt Chair of Business Law, University of Texas Law School, has written extensively about international and comparative insolvency law, most recently as senior author of A Global View of Business Insolvency Systems (Brill 2010). He has taught at Harvard Law School, the University of London, Humboldt University-Berlin, and University College London. He served as the United States Reporter, American Law Institute Transnational Insolvency Project; as Co-chair, U.S. Delegation to the UNICITRAL Conference on Transnational Insolvency; as President of the International Academy of Commercial and Consumer Law; and as a Senior Advisor, United States National Bankruptcy Review Commission.
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