Introduction Of Bankruptcy Law Of Multinational Enterprises

With the acceleration of the process of economic globalization, international trade and

international investment have developed rapidly. In 1962, Canadian scholar Marshall McLuhan

put forward the earliest concept of globalization, but globalization at this time was called the

global village. In Between Two Ages: America’s Role in the Technocratic Era, a book he

published in 1970 while a Professor of Political Science at Columbia University, Brzezinski

contextualized and laid down a new approach for US foreign policy. He envisioned the

emergence of a globalized society in which cultural values, knowledge, and economic

interdependence would be tightly interlinked. Subsequently, Theodore Levitt, an American

economist who advocated globalization in the economic field, used the term “globalization of

markets” to describe the great changes in the international economy. Market globalization means

the expansion of economic activities across national, national, and political boundaries, as well

as the increase in economic openness and the deepening of interdependence among countries in

the world economy, thereby realizing economic world integration. The force that drives us

towards that market capitalism is free market capitalism confined in the container of a

democratic system. An important factor in its progress is the formation of an international system

to manage the financial crisis, which is one of the inevitable consequences of the free market.

With the transnational development of investment and trade, especially since the middle of the

20th century, the prevalence of transnational mergers and acquisitions, the impact of financial

crisis and the intensification of enterprise operation risk have led to the expansion of

transnational bankruptcy in quantity and scale. Therefore, the occurrence of transnational

bankruptcy is the inevitable result of the gradual increase in the mobility of capital, technology

and personnel in various countries.

In the world, scholars' research on transnational bankruptcy has never stopped. The debate

on the scope of private international law in the academic circle of private international law was

linked to the debate on the nature of private international law. Scholars who advocated that

private international law is domestic law believed that private international law was only a

choice of law norm centered on conflicting norms, not including Unify the norms of civil and

commercial entities; scholars who advocate that private international law should ultimately be

international law believe that private international law should gradually develop from conflicting

norms to unifying civil and commercial entity norms. At present, both the international unified

conflict norm and the international unified substantive norm have become widely studied issues

in private international law. The view that private international law only includes conflict norms

has gradually diminished. Countries are trying to minimize conflicts between national

bankruptcy laws and promote cooperation between countries and the international community.

The most central issues concerning transnational bankruptcy are jurisdiction, legal application,

and recognition and assistance in transnational bankruptcy proceedings. Therefore, this paper

will draw international experience and put forward some suggestions to the world on

transnational bankruptcy law according to the basic situation and characteristics of different

countries in terms of social nature, politics, economy, culture and so on.

This paper will explore the theory of law application in different periods from the 13th

century to the present and will discuss the impact of the application of law in different periods on

economic development and transnational bankruptcy. This dissertation will also discuss periods

of financial crisis, such as the 2008 global financial crisis. Since countries do not have a unified

transnational bankruptcy law, the coordination and cooperation among countries in the field of

transnational bankruptcy is very limited. Under the influence of the international financial crisis,

the universality of transnational bankruptcy legislation should be considered. The core of this

paper will discuss the extraterritorial effect of adjudication of transnational bankruptcy, the

inconsistency between recognition and enforcement in different countries, and the rules of law

application. This dissertation will analyze and draw on the New York Convention when

discussing recognition and enforcement. In addition, from the perspective of private international

law, through the comparison of transnational bankruptcy laws between civil law and common

law, this paper points out the similarities and differences of transnational bankruptcy laws in

different legal systems. In conclusion, this paper will make suggestions on why there should be a

unified law for transnational bankruptcy, based on the experience of different countries in the

world, such as the United States, Britain, Germany, Japan, the European Union and the United

Nations (UNCITRAL).

This paper will be separated to 6 chapters: chapter 1 is an overview of transnational

bankruptcy laws. This chapter includes why the phenomenon of transnational bankruptcy

occurs in the world, the development theory of transnational bankruptcy law, and the impact

of the international financial crisis on the bankruptcy of multinational corporations; chapter 2

deals with the conflicts of transnational bankruptcy jurisdiction, including the initiation of

transnational bankruptcy proceedings, why transnational bankruptcy jurisdiction has

jurisdictional conflicts, and possible solutions to conflicts of jurisdiction; chapter 3 is about

the application of the law of transnational bankruptcy. The content of this chapter mainly

includes the differences between different countries and different legislative systems, the

regulations of different countries on the application of laws when multinational corporations

go bankrupt, and the possible legislative breakthroughs that different countries may make in

regulating the legislation of multinational corporations; chapter 4 deals with the recognition

and assistance of transnational bankruptcies. This chapter covers the recognition and

enforcement of transnational bankruptcy judgments in different countries and the necessity of

establishing recognition and enforcement of new transnational bankruptcy judgments;

Chapter 5 will discuss the options and methods of cross-border insolvency law in different

countries and legal systems to solve transnational bankruptcy legal issues. It is very important to

prove from the existing transnational bankruptcy legal system that there is a unified transnational

bankruptcy legal system; chapter 6 is the conclusion. This chapter will summarize the contents

mentioned in Chapters 1 to 5, so as to argue that the world should have a unified transnational

bankruptcy law or treaty in Private International Law.

1.1 The Concept of transnational bankruptcy

In China: “Transnational bankruptcy” refers to whether the composition of a country or

region's cross-border bankruptcy includes foreign-related elements. These components of

transnational bankruptcy include debtors, creditors, bankruptcy property and bankruptcy.

Japanese scholars define "transnational bankruptcy" as a process of bankruptcy which is

involving Japanese and foreign elements. For example, Japan classifies Japanese and foreign

creditors, debtors, or foreign property in a Japanese bankruptcy consortium as a cross-border

bankruptcy. Scholars in United States believe that when the debtor’s property or creditor’s

property is located in more than two countries, transnational bankruptcy may occur. British

lawyer William G Mackey talked about the types of transnational bankruptcy, which he divides

into four types: the first type is the recovery of the debtor's property located abroad; the second

type is that if the debtor has other assets overseas after bankruptcy, the issue of dealing with the

debtor's overseas subsidiaries or affiliates after bankruptcy is also a type of cross-border

bankruptcy because it involves other countries; the fourth type is the power of the bankruptcy

administrator appointed by the courts of other countries in the UK.

With the integration of the world economy, the relationship between creditor's rights and

debt in many bankruptcy cases not only exists in the same country, but are also diversified. Many

creditor debt relationships are complex, including creditors and debtors in many different

countries, as well as a large number of bankruptcy properties in different countries. Generally,

the legal issues in the normal operation of multinational corporations are less than those arising

from transnational bankruptcy. However, if these transnational corporations go bankrupt, the

legal problems arising from the structure of transnational groups will become very complex and

difficult to deal with.

Transnational bankruptcy law has its independent legal regulation object. These

transnational bankruptcy cases involve not only the insolvency laws and bankruptcy related laws

of different countries, but also the assistance and recognition of foreign bankruptcy proceedings.

Therefore, the transnational bankruptcy law has become an important sector in the field of

private international law.

1.2 The Influence of bankruptcy or economic theory on transnational

bankruptcy in different historical

periods

Two or more countries are always involved in legal relations and commercial transactions

formed in international civil affairs. Compared with the long history of bankruptcy law, the

history of transnational bankruptcy law is relatively short. Up to now there is no unified

transnational insolvency code in the world, but it cannot be denied that each country has relevant

provisions on transnational bankruptcy law. There is no unified cross-border bankruptcy law in

various countries because they have different legal theories and legislative systems, and each

country has its own independent jurisdiction, which is also the core issue of the conflict of civil

and commercial laws in various countries. As an important part of international civil and

commercial conflict of laws, cross-border bankruptcy involves issues such as the extraterritorial

effect of bankruptcy, the jurisdiction of bankruptcy cases, the application of law, and the

recognition and enforcement of foreign bankruptcy judgments, which need to be resolved by

private international law. Traditional private international law first appeared in continental

European countries in the form of theories. Studying these theories in different periods will have

important guiding significance to solve the legal problems of transnational bankruptcy.

The theory of resolving conflicts of laws in civil and commercial matters began in the

medieval Italian city-state. In the 13th century, many autonomous urban republics formed in

northern Italy. At the time, in addition to the Roman law as the common law, there were also the

special laws of each city. These special laws were called city-state laws. Regarding the

relationship between Roman law and city-state law rules, it is governed by the principle of

“special law over common law” inherent in Roman law. Thus, the principles, norms and rules of

general law conflict with Lex specialis, Lex specialis takes precedence. Roman Law would only

apply if there was no stipulation in the law of the city state. As for the relationship between

various city-state laws as special laws, there is no solution in Roman law. In the process of civil

communication between city states, transnational city-state civil and commercial cases would

inevitably occur. If the city-state's own laws were blindly applied to solve problems according to

traditional practices and the principle of territoriality, it would hinder the development of

intercity trade. Therefore, it became necessary to consider the application of the laws of other

city states.

In order to resolve the conflict between the laws of various city-states, the famous Italian

jurist Bartolo da Sassoferratoin in the 14th century created the “theory of statue”. This theory

postulates that the laws of the city-state should be classified according to the nature of the laws

themselves. These classifications include statuta realia, statuta personalia and statuta mixta.

Statuta realia is the law of territories, and the laws of a city-state concerning things can only be

applied within the city-state, but not outside the city-state. This means that the effectiveness of

statuta realia has no extraterritorial effect. Statuta personalia is a personal law that applies not

only to its subjects within the city-state, but also to its outside citizens. This means that statuta

personalia has extraterritorial effect. Statuta mixta is the law of behavior which involves both

human beings and objects. This theory reveals the fundamental issue of the conflict of laws, the

intra-territorial and extra-territorial effects of law. It also studies the application of law on the

basis of the equality of civil law and domestic and foreign laws, which provides a theoretical

basis for the application of foreign law.

Bartolo's theory of statue solved the problem of choosing methods for conflicting laws in

different jurisdictions, but Bartolo does not explain why a country’s courts can apply foreign law

when dealing with foreign-related cases. The birth of "international comity theory" represented

by Dutch scholar Ulicus Huber in the 17th century.27 The concept of "sovereignty" has been

introduced into private international law, which examines the recognition of the extraterritorial

effect of foreign law on the basis of national relations and national interests. The extraterritorial

effects of foreign laws can only be recognized on the grounds of comity if they do not violate

domestic’s national interests. Ulicus Huber’s view was later accepted by Joseph Story of the

United States and Dicey of the United Kingdom, which constitute the main theoretical origin of

traditional private international law in Britain and the United States..

With the advancement of legal theory, more and more scholars advocated that the effect of

domestic laws and foreign laws should be equal and pursued fairness and coordination in the

application of laws. The famous German jurist Friedrich Carl von Savigny elaborated his own

conflict of laws theory in the eighth volume of his published System des heutigen römischen

Rechts. Savigny proposed the Theory of the Seat of Legal Relation. Under Savigny’s approach to

private international law, a judge should look for the “local seat” of the dispute, which today

might be the equivalent of looking for the geographic location most closely connected to the

dispute. To find the “local seat” of the legal relationship, Savigny classified disputes and

identified various factors that might connect them to a particular legal system. For example, a

dispute concerning real property should be decided according to the law of the geographic

location of the property. Similarly, a contract dispute would be decided according to the law of

the geographic location where the obligation was to be performed. Savigny hoped that this

dispassionate and scientific approach would deter forum shopping and allow for the more

effective and uniform disposition of private legal disputes.

Savigny advocated paying attention to the consistency of the judgment. In other words, the

goal of Savigny's theory is to obtain the same judgment in different countries for the same legal

relationship. Italian politician and jurist Pasquale Stanislao Mancini worked on the unification

movement of European conflict laws, and regarded the application of foreign law as an

obligation in international law, arguing that the development of international economic

exchanges produced a unified law society. Mancini believed that the development of

international economic exchanges had resulted in a unified legal society. These legal theories

show that private international law scholars at that time began to hope to fundamentally resolve

the conflict of civil and commercial law from the perspective of equality and coordination of

legal status of various countries.

If the traditional private international law originated in Europe, then the theory of private

international law is mainly put forward by American private international law scholars. The most

influential theory is the “in most significant relationship” proposed by Professor Wills L.M.

Reese . This concept survives today. The implementation of the “most significant relationship”

theory is provided by the provisions of Article 6 of the Restatement (Second) of Conflict of Laws

of the United States. In summary, the theory of the most significant relationship provides a more

complete solution to legal conflicts. In the process of concrete applying the law choice, it

depends on the judicial practice experience of the judge. The judge makes a trade-off on the basis

of the parties’ meanings, local policies, the nature of the case, and different legal areas. “The

Doctrine of the Most Significant Relationship” is one of the most influential theories at present.

Private international law legislation in most countries has absorbed and adopted “the Doctrine of

the Most Significant Relationship” in varying degrees.

At the same time “the Doctrine of the Most Significant Relationship”, represented by the

theory of modern international private law in the United States, pursues the values of legal

fairness and justice. In the late 1970s and 1980s, European private international law scholars also

began to improve the traditional private international law theory. The French scholar Bafol’s

congruity theory has become the most influential doctrine in European private international law.

Badfol put forward the view that the task of private international law is to act as coordinator of

different legal systems. He advocated that on the basis of a systematic review of the legal

systems and private law precedents of various countries, empirical, current politics and

comparative methods should be adopted to harmonize different legal systems.

From the point of view of the formulation and revision of the legislation on transnational

bankruptcy in domestic and international societies, its theoretical basis is changed with the

development of the practice of transnational bankruptcy. Bankruptcy legislation under the

background of globalization should consider the nature of national sovereign interests from the

perspective of the interests of the international community, and seek to coordinate the interests of

the country and the whole international society. The purpose of transnational bankruptcy

legislation is to achieve fair distribution of the debtor's property to all creditors, which is also the

goal of bankruptcy proceedings.

1.3 The Theoretical Basis of Transnational Bankruptcy Law

1.3.1 The Generation of Extraterritorial Effectiveness of Bankruptcy

According to the concept of private international law, the legal conflict should not only have

the foreign-related reasons in legal relations and the differences in the provisions of national laws

on the same issue, but also have a condition that the law has extraterritorial effect and countries

recognize the extraterritorial effect of foreign laws. Therefore, conflicts of laws cannot be

resolved if countries compete to apply their own domestic laws.

The issue of the extraterritorial effect of cross-border insolvency is whether the bankruptcy

liquidation proceedings of the debtor by the courts of one country are binding on the property of

the debtor located in another country or the creditor residing in another country. This is the

extraterritorial effect of transnational bankruptcy. There are always two basic theories of the

extraterritorial effects of bankruptcy, namely universalism and territorialism. Due to the obvious

difference between them, their respective applications will have completely different results.

Therefore, the conflict of laws between countries' cross-border insolvency laws needs to be

supplemented by other legal methods to deal with this series of legal issues.

1.3.2 Universalism and Territorialism of Bankruptcy

The debate between universal bankruptcy and territorial bankruptcy has a long history. The

general bankruptcy doctrine advocates that the effect of bankruptcy liquidation is not limited to

the property of the declaring country, but also includes the property of the debtor in other

countries. In order to implement the bankruptcy system to pay off debtors’ debts fairly at one

time so that creditors can be more fully protected, universal jurisdiction advocates that a single

court should exercise jurisdiction over the debtor’s property and give the bankruptcy procedure

universal effect. In contrast, territorial bankruptcy advocates that the effect of bankruptcy should

be consistent with the judicial sovereignty of the state. Bankruptcy liquidation only has an effect

on the domestic property of the declaring country, and the property of the debtor located in other

countries is not affected by the procedure of the declaring country.

1.3.2.1 Universalism of Transnational Bankruptcy

Universal bankruptcy originated from the “faillite sur faillite ne vaut” theory advocated by

French scholars and this theory was adopted by the Bustamante Code in 1928. Under this theory,

once the domestic court has declared the debtor bankrupt, its validity extends to all the debtor's

property at home and abroad. In other words, when the debtor is declared bankrupt in a country,

its property, wherever it is located, should be included in the scope of the bankruptcy property.

Other countries should assist the bankruptcy administrator to collect local property and prevent

the self-distraint of individual creditors.

There are six basic theories of universal bankruptcy. First, the effectiveness of the

bankruptcy property. No matter how many countries the debtor's property is located in, it is

regarded as a unified whole in law. Bankruptcy aims to distribute all the debtor's property to

creditors. Therefore, the debtor's property abroad should also be classified into the bankruptcy

property for distribution. However, there are also reasons to question this statement. It is

impossible to hold the debtor’s property as a whole. Whether the property located in another

country can be removed from the country for uniform distribution is not subject to the domestic

law of a certain country, but depends on whether the foreign court recognizes and enforces it.

Second, the legal mutual assistance obligations of each country. A bankruptcy declaration is

made by a country that has jurisdiction over the bankruptcy case.53 The jurisdiction to determine

a bankruptcy case is determined by the domestic bankruptcy law, relevant international treaties,

relevant international conventions, or by the relevant countries. In order to make a universal

phenomenon of transnational bankruptcy, countries have an obligation to help each other in

transnational bankruptcy cases. Third, the bankruptcy property naturally forms a “legal person”.

After the debtor’s bankruptcy declaration, all of its bankrupt property is regarded as a “legal

person” and the creditor has full ownership. Fourthly, there is an agency relationship between

bankruptcy administrator, debtor and creditor. The bankruptcy administrator is the creditor and

the administrator of the debtor. Fifth, after the bankruptcy judgment is made, the judgment

automatically acquires the effect of extraterritorial jurisdiction.57 Bankruptcy adjudication has its

particularity different from other adjudications. After the bankruptcy adjudication is made, it

automatically gains extraterritorial effect, which should be respected by other countries. Sixth,

the declaration of bankruptcy is a confirmation of the fact that the debtor is bankrupt.60 However,

there are some problems in this statement. At this time, it is unrealistic to emphasize unilaterally

the universality of the validity of bankruptcy declaration without the specific provisions of a

country's law.

The various theories of universal bankruptcy have influenced scholars' understanding and

evaluation of the theories.

Universal bankruptcy has four main functions. First, universal bankruptcy helps to realize

the expectation of equal distribution of creditors due to bankruptcy events. Since this doctrine

applies to a debtor who does not need to declare bankruptcy in another country after it declares

bankruptcy in the first country, it can affect the debtor’s property in each country and prevent

individual seizure or fraudulent transfer of property located in bankruptcy abroad, in bankruptcy

proceedings. The orders issued and the sanctions imposed are valid in all countries. Second, all

of the debtor’s property is transferred to the court of the bankruptcy declaration states. It is

distributed according to the law of the country where the bankruptcy declaration is made.

Therefore, universalism makes the procedural and substantive laws applicable to the country

where the bankruptcy proceedings commence. Third, universal bankruptcy gives the bankruptcy

declaration a universally applicable effect, achieving the ideal goal of “faillite sur faillite ne

vaut”. Therefore, the bankruptcy procedure is simplified and the bankruptcy expenses are

reduced. Fourth, universal bankruptcy is conducive to ensuring fair compensation for bankruptcy

creditors. Universalism requires that all creditors be convened into a unified bankruptcy

proceeding, and claims should be declared in accordance with the nature of the claims and the

order of settlement determined by the domestic bankruptcy law of one country. This overcomes

the injustice caused by creditors due to differences in national bankruptcy laws.

However, it is very difficult to incorporate universal bankruptcy into practice and to make

bankruptcy procedures in a country’s courts and property of the debtor worldwide. Because the

bankrupt's property is dispersed in different countries, it is under the jurisdiction of different

legal entities and different sovereign states. Therefore, no matter which country’s bankruptcy

procedural law is used for the bankrupt, there may be conflicts. In addition, from a domestic

practical or legal point of view, it may be unfair to keep domestic creditors away from countries

where the debtor's domicile may not be known to participate in insolvency proceedings and not

allow creditors to recover from the debtor's local property through seizure or through local

insolvency proceedings. When the debtor goes bankrupt, the bankruptcy law is a type of private

law. In the absence of uniform rules in private law, the close connection between private law and

bankruptcy law is an obstacle to universalism. Moreover, in practice, when the country where the

property is located is required to give up control of the local property, this is not acceptable to all

countries. Eventually, the bankruptcy judgment and the adjudication may be

rejected by other countries involved. Since the theory of universal bankruptcy can only be

implemented through international treaties, it is difficult for countries to accept the general

bankruptcy theory treaties.

1.3.2.2 Territorialism of Transnational Bankruptcy

The territorial bankruptcy theory asserted that the bankruptcy procedure of the domestic

court does not directly affect the property of the debtor located in the foreign country. Similarly,

the bankruptcy proceedings of a foreign court does not directly affect the debtor’s property in the

country. In other words, the bankruptcy declaration made by a court of a country is only valid for

the debtor’s property in the country, while the debtor's property located in a foreign country

continues to be retained to the debtor

There are three main theoretical foundations of territorial bankruptcy doctrine. First, from

the nature of bankruptcy proceedings, it is an exercise of jurisdiction over things, which is

“bankruptcy property.” The Anglo-American legal system has traditionally divided the

jurisdiction of the court into human jurisdiction and object jurisdiction. The exercise of

jurisdiction is based on the principle of validity. According to the Anglo-American law theory,

when the court exercises strict jurisdiction over the object, the object should be within its

jurisdiction.76 Second, from the perspective of the implementation of bankruptcy cases, it is a

comprehensive enforcement procedure, that is, a special debt settlement using state power.

This kind of execution is a public law act. In addition, the effect of execution can only be within

the territory of one country, so the effect of bankruptcy cannot be attributed to the property

located in another country. Adopting territorialism, the purpose is to protect the interests of

domestic creditors and the domestic economic order. Third, the transaction is based only on

domestic property as a credit basis. When a creditor conducts a transaction with a debtor, it uses

its property in the country as a credit basis, and the legal effect of the bankruptcy declaration is

not related to the debtor's foreign property.

At present, the international community generally accepts territorial bankruptcy based on

sovereignty. According to this theory, bankruptcy proceedings have legal effect only in the

country where the proceedings are initiated. Therefore, each country or region where the

property is located can initiate bankruptcy proceedings in accordance with its own laws. The

purpose of territorial bankruptcy is to protect the interests of domestic creditors. Due to some

significant differences between the bankruptcy laws of different countries, in order to protect

domestic creditors from discrimination and unfair treatment in foreign bankruptcy proceedings,

the courts of the countries in which the debtor’s property is located should manage and distribute

the debtor’s property. The territorial bankruptcy doctrine regards bankruptcy as a kind of

compulsory enforcement procedure, which is closely related to a country's public order.

Bankruptcy law is a law relating to the security of transactions and economic order in the

country.84 In short, territorial bankruptcy is a realistic choice for countries to actually maintain

their economic order in transnational bankruptcy.

However, there are also four defects of territorial bankruptcy. First, territorial bankruptcy

denies the integrity of the bankruptcy property. Because the debtor’s property is controlled and

managed by the court of the country in which it is located, it is difficult to price and distribute the

debtor’s property. Secondly, territorial bankruptcy makes creditors of different countries

encounter unequal consequences, which is easy to form “national protectionism”.

Territorialism allows foreign creditors to declare their claims through their national courts and

obtain the right to compensation. However, the bankruptcy of the territory is only the bankruptcy

property of the debtor's property located in the territory of the country and the bankruptcy

declaration made by the domestic court does not take effect in the foreign country. Therefore, it

is often difficult for the foreign creditor to obtain the litigation status equal to the domestic

creditor in the bankruptcy proceedings. National courts will always find various reasons and

excuses to actually restrict foreign creditors from getting paid. Third, the bankruptcy of the

territory is not conducive to the reconstruction of debt companies. Under territorialism

legislation, it is difficult to focus on saving debtors who are in dire straits and rebuilding debt

companies. Fourth, territorial bankruptcy cannot ensure the security of transactions. Transaction

security is an important guarantee for the development of international civil and commercial

affairs.95 It is to ensure that when creditors conduct transactions with debtors, they can accurately

predict how they will defend their rights when

debtors are unable to pay their debts due. Based on territorialism, it is difficult for creditors to

predict whether a transaction is safe.

1.3.3 Practice of Extraterritorial Effectiveness of Bankruptcy in Different

Countries

There are both advantages and disadvantages of universal bankruptcy doctrine and territorial

bankruptcy doctrine. Under the situation that international economic exchanges and cooperation

are developing and strengthening, in theory, it is untimely to adhere to strict territorial

bankruptcy. Therefore, a series of reforms have been carried out in the legislation, judicial

practice and bankruptcy law of various countries. In practice, few countries adhere to only one

theoretical principle. Many countries adopt two different methods from the perspective of

protecting their creditors. On the one hand, the state hopes that the effectiveness of bankruptcy in

the country can be recognized abroad; on the other hand, the state strictly examines the

effectiveness of bankruptcy in foreign countries. Thus, there are two important solutions: one is

eclecticism and the other is new pragmatism.

1.3.3.1 Eclecticism

Because both universalism and territorialism have some drawbacks, there is an eclectic

theory that takes the middle of the road. Eclecticism refers to determining the extraterritorial

effect of a bankruptcy declaration based on different circumstances. In practice, it is mainly to

distinguish the nature of debtor's property or the difference between domestic and foreign

bankruptcy declarations to choose regionalism or universalism.99 This kind of eclecticism is more

suitable for the development trend of the theory of extraterritorial effectiveness of bankruptcy.

The United States first adopted eclecticism on the extraterritorial effects of bankruptcy in

domestic legislation in 1978. In the same year, the United States amended and supplemented the

U.S. Bankruptcy Code. The provisions of the Code concerning the extraterritorial effects of

bankruptcy are mainly embodied in Sections 304 and 541.

According to Section 541 of the US Bankruptcy Code, from the date of the commencement

of the bankruptcy case, all non-exempt property of the debtor, regardless of where it is located,

constitutes the “estate of the property” and the case is heard. The local court hearing the case has

exclusive jurisdiction over all property of the debtor. All creditors of the US debtor are prohibited

from conducting any action against the US debtor and debtor’s bankruptcy estate when the

bankruptcy process is not finished. This prohibition is intended to provide an orderly liquidation

process in which all creditors will be treated fairly.

The United States’ attitude towards the effectiveness of foreign bankruptcy in the country is

reflected in Section 304 of the U.S. Bankruptcy Law of 1978. Section 304 stipulates that main

proceeding and ancillary proceeding of bankruptcy are specifically used to solve the problem of

the validity of foreign bankruptcy declarations in the United States. In addition, section304

embodies the combination of universalism and territorialism. According to the historical

development of the US bankruptcy law, the US court adopted territorialism in the 19th century

on the issue of the extraterritorial effect of bankruptcy. However, in the practice of the case law,

universalism was reflected Canada Southern Railway Co. v Gebhard and First National Bank of

Boston v. Bellotti, which led the US Congress to pass Section 304 of the 1978 Bankruptcy Law.

According to Articles 283 and 306 of the UK Bankruptcy Law of 1986, the British

bankruptcy proceedings have full extraterritorial effect as an order to transfer property. Creditors

of all countries in the world have the right to participate in bankruptcy proceedings in the UK, to

declare, prove and realize their claims in the liquidation process. Therefore, the England

bankruptcy procedure is considered to have universal effect as an order for property transfer. On

the issue of the extraterritorial effect of bankruptcy, British courts have adopted a dual approach.

On the one hand, British courts claim that bankruptcy adjudication has complete extraterritorial

effect. At the same time, whether the bankruptcy judgment made by the English court has

extraterritorial effect depends on whether the court of the country where the property is located

recognizes the bankruptcy proceedings carried out by the United Kingdom; on the other hand,

whether British courts recognize the validity of foreign bankruptcy declaration in the UK or not,

England courts often consider the interests of all parties carefully and recognize the validity of

foreign bankruptcy proceedings conditionally from the pragmatism point of view. With regard to

the extraterritorial effect of bankruptcy, Germany has adopted two approaches to protect the

interests of its creditors. On the one hand, Germany extends the effectiveness of its bankruptcy

proceedings abroad as much as possible; on the other hand, German courts refuse to recognize

the universal validity of other foreign countries’ bankruptcy proceedings in their own countries.

Section 237 of the Bankruptcy Law promulgated in 1889 stipulates that bankruptcy declared in a

foreign country shall not affect property in Germany.113 Where the debtor has business premises

or ordinary jurisdiction in Germany, debtor has to be declared bankrupt in Germany even though

he has been declared bankrupt in a foreign country. Section 238 stipulates that if the debtor has

neither a place of residence nor a principal place of business in Germany, but only one business

office or certain real estate property, the bankruptcy declared in Germany is only valid for

property in Germany. In other words, if there is a place of residence or main place of business in

Germany, the declaration of bankruptcy in Germany is also valid for the debtor's property in

other countries. There is obvious dualism in Germany.

1.3.3.2 New Pragmatism

Due to the differences in bankruptcy legislation in various countries, a new pragmatic

attitude is needed, which is to seek the coordination of national judicial systems as much as

possible when dealing with the extraterritorial effects of bankruptcy. In 2000, the Council of the

European Union adopted new pragmatism to some extent in EU insolvency proceeding.

paragraph 1 of article 16 of the European Union's Rules of Insolvency Procedures embodies the

principle of immediate and automatic recognition and guarantees that insolvency proceedings

initiated in member states have certain general effect. However, because of the differences in

bankruptcy laws of EU member states, the general effectiveness of insolvency proceedings is

limited by two aspects. First, the EU Rule of Insolvency proceedings stipulates that the law of

the country where the procedure is started is not applicable, such as property rights and

employment relationships. Second, the EU allows territorial insolvency proceedings. Article 16,

paragraph 2, of the European Union's Rules of Insolvency Procedures, states that after the

commencement of the insolvency proceedings, another Member State may commence

subordinate insolvency proceedings against the property of the debtor in its territory in

accordance with its domestic law, but subordinate insolvency proceedings also hinder the

effectiveness of insolvency proceedings. European Union's Rules of Insolvency Procedures

Article 3, paragraph 2, and Article 17, paragraph 2, both provide for the effect of territorial

insolvency proceedings. Moreover, the validity of the territorial bankruptcy proceedings must not

be challenged or defended in other member states.

In other words, the Council of the European Union's 2000 Insolvency Rules seeks a balance

between universal bankruptcy and territorial bankruptcy. In the end, the Council of the European

Union adopted a new pragmatic attitude. The EU hopes to establish an institutional arrangement

that will protect the interests of its creditors and achieve international cooperation in a broader

field. The EU insolvency law emphasizes recognition of major insolvency proceedings without

prejudice to the commencement of subordinate insolvency proceedings by courts of other

member States. While advancing toward the goal of universalism, it also leaves a certain space

for territorialism.

1.4 The Impact of International Financial Crisis on the Bankruptcy of

Multinational Enterprises

Historically, every major international financial crisis has been accompanied by reforms,

which have led to major changes in the international economy, financial system, legal system and

world pattern. The international financial crisis not only led to the emergence of a large number

of multinational companies, but also exposed the two major shortcomings in the transnational

bankruptcy legal system. First, there is no international regulation on the bankruptcy of

multinational corporations. The existing transnational bankruptcy legal system framework is

aimed at the individual bankruptcy of multinational corporations. It does not make special

provisions on how bankruptcy procedures can be carried out under the mutual control and mutual

influence of corporate groups. Secondly, there are few transnational bankruptcies of financial

institutions such as bank bankruptcies.123 As the most active international financial service

institution in the world, financial institutions have a significant impact on the stability and

security of financial market order in various countries.

1.4.1 The Bankruptcy of Multinational Corporation

Multinational corporations have become an important part of the internationalization and

globalization of the world economy. Multinational companies can connect their branches

scattered around the world into a single entity and achieve global integration. The relationship

between the multinational parent company and the subsidiary company is mainly the control and

domination across national borders. This special identity poses a great challenge to the fair

protection of legitimate interests of creditors in transnational bankruptcy. It is difficult for

multinational corporation creditors to seek effective legal remedies. Creditors’ interests are often

overlooked in complicated legal relationships. When the interests of creditors in bankruptcy of

transnational corporations are infringed, it not only affects the individual interests, but also

relates to the economy, finance, taxation, employment, and even involves the normal trade and

investment relationship between the investor and the host country. Moreover, if there is no

unified transnational bankruptcy law, the same debtor can start bankruptcy procedures in several

countries, which will cause serious waste of judicial resources. On the other hand, the dispersal

of bankruptcy also makes it impossible for creditors around the world to get a fair

distribution.

Although the countries of the world have made a lot of efforts in international cooperation,

they have not changed the idea of narrow national interests in the field of transnational

bankruptcy. The biggest challenge for creditors involved in transnational bankruptcy comes

from the court's discriminatory treatment of foreign creditors. In addition, since countries have

great differences in the definition of priority order in bankruptcy, even if a creditor is recognized

in a foreign proceeding as having the same or equivalent status in its home country, the income

of foreign creditors may be less due to the different provisions of insolvency laws in different

countries.

1.4.2 Financial Institution Bankruptcy

Due to the differences in the financial systems of various countries, the coordination and

cooperation of financial institutions’ regulatory systems are seldom stipulated. Moreover,

countries lack a unified bankruptcy law to deal with the bankruptcy of financial institutions such

as multinational banks. A country’s bankruptcy liquidation procedures for financial institutions

will face more resistance to recognition by other countries.

In the background of the international financial crisis, financial institutions as enterprises are

inevitably bankrupt because of operating difficulties or debt crisis. Solving the problem of

financial stability has become a difficult problem all over the world. Taking practical methods to

allow financial institutions to exit the market orderly can avoid the spread of financial crisis and

maintain the security of the financial system. Efforts to solve the problem of transnational

bankruptcy of financial institutions and to establish coordination and cooperation mechanisms

have become the trend of international legislation in recent years.

The financial crisis that swept the world in 2008 led to the crisis of many famous

multinational corporations and large financial institutions. For example, the financial crisis

caused Fortis Bank and Royal Bank of Scotland to be in trouble. The strength of Morgan Stanley

and Citibank was greatly weakened. Lehman Brothers, which has a history of 158 years, fell to

the ground. The Bank of Merrill was acquired, the US Federal Reserve provided assistance to

America International Group, the UK's Lloyds TSB Bank merged with HSBC, and a large

number of UK banks were nationalized. 134 The Icelandic government went bankrupt precisely

because of the 2008 financial, the Icelandic banking sector was 10 times more indebted than the

entire country's GDP. The fact that the Iceland bank’s collapse eventually led to the bankruptcy

of the country made us know the serious consequences of bankruptcy of multinational banks.

In the long run, it is very necessary to establish a unified standard for the supervision of

financial institutions worldwide to effectively deal with the bankruptcy of financial institutions

and maintain the stability of the financial institutions system.

Chapter 2: Conflict of Jurisdiction Over Transnational Bankruptcy

As with all international civil or commercial cases, after the occurrence of a transnational

bankruptcy case, the first legal issue to be resolved is to confirm jurisdiction. Jurisdiction is a

prerequisite for a country’s courts to hear bankruptcy cases. The determination of jurisdiction

directly affects the application of substantive law. Therefore, jurisdiction will affect the outcome

of the case and ultimately affect the interests of the parties. Since there is no uniform conflict of

laws in the world, when jurisdiction conflict law is inconsistent, which conflict law is adopted

depends on which country the case is accepted. The conflict of laws of different countries

determines the application of different applicable laws, which will affect the substantive rights of

the parties. Many rules of the application of law are rules of jurisdiction. For example, the

principle of the forum is adopted in the application of law for certain issues. Therefore, the

determination of the applicable law in such cases depends on the determination of jurisdiction.

The determination of jurisdiction also directly affects the recognition and enforcement of

transnational bankruptcy judgments. Many countries stipulate that the prerequisite for their

recognition of foreign bankruptcy judgments is that the court that made the judgment has

jurisdiction. Therefore, the determination of jurisdiction is extremely important in cross-border

insolvency. For example, in the United Kingdom, whether cross-border bankruptcy cases are

under the jurisdiction of the debtor’s domicile or the main place of business of the company. In

the eyes of foreign courts, this bankruptcy jurisdiction is appropriate as the first condition for

recognizing foreign bankruptcy proceedings. It can be seen that the determination of jurisdiction

in cross-border bankruptcy cases has an important significance.

For transnational bankruptcy cases, the courts of a country can claim jurisdiction based on a

variety of reasons, such as the location of the debtor, the location of the property, the location of

the business organization, the existence of local individuals, and the nationality or residence of

the creditor who made the application.

In theory, the court with the most jurisdiction over bankruptcy cases should be the court that

has the closest relationship with the debtor in the economic sense. A single connecting factor

cannot prompt the court to exercise jurisdiction over bankruptcy cases, so multiple connecting

factors are usually required as a jurisdictional consideration.

2.1 Initiation of Transnational Bankruptcy Proceedings

Under the transnational insolvency legal framework of the United Nations and the Council

of the European Union, the bankruptcy of any debtor can initiate a major insolvency proceeding,

the procedure is universally effective, and the rights of the appointed insolvency administrator

should also be recognized by other countries. Because of the international or foreign factors

involved in transnational bankruptcy, conflicts of jurisdiction between countries are inevitable. In

practice, courts in various countries can initiate insolvency proceedings for a variety of reasons.

If the courts of each country have ruling jurisdiction, it will lead to conflict of jurisdiction. There

are five reasons why a country may have bankruptcy jurisdiction.

2.1.1 The debtor has the headquarters location in the country, the place of

residence or the location of the business office

In the transnational bankruptcy cases, it is an international practice to determine whether a

debtor has a headquarters location, domicile and place of business in this country. In 1997,

UNCITRAL Model Law on Cross-Border Insolvency introduced the concept of place of

business, which refers to any place of business where the debtor carries out some kind of

nontemporary economic activities by means of labor, goods or services. In 2000, the EU

Regulation On Insolvency Proceedings defined the place of business as any place where the

debtor used human or material resources for non-temporary economic activities. At present, the

determination of jurisdiction over the location of the debtor’s headquarters, the place of

residence and the place of business is reflected in the bankruptcy laws and bankruptcy cases in

many countries. For example, in 1986, United Kingdom insolvency law stipulated that an

English court has jurisdiction to make a personal bankruptcy order against anyone who is

domiciled in England, who is present in England when the order is made, who has been

ordinarily resident there, or who has carried on business there at any time within the previous

three years. In 1994, German Insolvency Law stipulates that if the debtor is a natural person, the

jurisdiction is determined on the basis of the debtor's domicile; if the debtor is a corporation, the

jurisdiction is determined based on the location of the management headquarters. For the debtor

engaged in business activities, if the place of business is inconsistent with the place of residence,

the location of the place of business is used as the basis for determining jurisdiction. When the

debtor has multiple establishments, the location of the main business office is the independent

economic activity center. The economic activity center here refers to the location of the debtor's

economic activity center when filing a bankruptcy application. The change of the place of

business or residence after the application for commencement of bankruptcy proceedings is filed

does not affect the exercise of jurisdiction. On the contrary, if the place of business or residence

is changed before the application is filed, the basis for the court to exercise jurisdiction is

affected.13 In Japan, in 2001, the Bankruptcy Act and the Civil Rehabilitation Act stipulated that

when the debtor is an individual, a person has a domicile, residence or business office in

Japan; when the debtor is a legal person, a person has a firm or a business office in Japan. The

Japanese courts have jurisdiction over bankruptcy and regeneration procedures. Article 5,

paragraph 2, of the Corporate Reorganization Act also stipulates that when a debtor has a place

of business in Japan, the Japanese court has jurisdiction over the rehabilitative procedure.

In summary, although the bankruptcy laws of various countries have made legal provisions

based on the debtor’s headquarters location, residence and the jurisdictional standards of the

place of business. However, due to the different transnational insolvency provisions of national

bankruptcy laws, investors cannot accurately predict the outcome of a multinational company’s

bankruptcy, so it will affect the global economy in the long run.

For example, the location of a company's registered business office may be just a place of

registration, not the actual location of the company's headquarters. In practice, multinational

companies invest in many countries, but their registration may be due to the use of tax incentives

and incentives to invest in registration, the company's main office location, major business

activities and the location of the property are in other countries. For the natural person

bankruptcy, the natural person's place of residence and the main place of work may also be

different. Therefore, due to the different bankruptcy laws of different countries, the jurisdiction

dispute will be caused. Moreover, the company's operations are usually distributed in different

countries, and there is no uniform standard for determining the place of business. Thus, it is often

difficult to determine which country's place of business is the main place of business.

2.1.2 The debtor has a centre of main interests in the country

The 1997 United Nations Commission on International Trade Law Model Law on

Transnational Insolvency and the 2000 EU Bankruptcy Rules were based on whether the debtor

had a centre of main interests in the country as the basis for determining the main insolvency

proceedings. The most important feature is that the main insolvency proceedings have universal

validity, in other Member States should get immediate, universally recognized.

According to article 16, paragraph 3, of the 1997 United Nations Commission on

International Trade Law Model Law on Cross-border Insolvency and article 3, paragraph 1, of

the 2000 Rules of Insolvency of the European Union, the beginning of the insolvency

proceedings is at the centre of the debtor’s main interests. The courts of the member states

exercise their jurisdiction.18 In the absence of evidence to the contrary, the debtor’s registered

Id.

office or the place of residence of the individual shall be presumed to be its main centre of

interest. In the event of a positive conflict of jurisdiction, Article 3 of the Council Regulation on

Insolvency Proceedings that, based on the time of commencement of insolvency proceedings,

any proceedings that commence after the main insolvency proceeding are insolvent proceedings.

Article 3, paragraph 2, of the Rules further states that only the courts of the Member State in

which the debtor’s place of business is located have the right to commence subordinate

insolvency proceedings and to apply the law of the country in which the subordinate insolvency

proceeding is applied. It is not limited to domestic creditors and is open to all creditors, but the

procedure The effect is only on the debtor’s property in the country.22 When the domestic

bankruptcy property pays the creditor with priority over the property, the administrator appointed

by the subordinate bankruptcy proceedings should transfer the remaining property to the main

insolvency proceeding, and the domestic creditor may still need to participate in the bankruptcy

allocation of the main foreign insolvency proceedings.

2.1.3 The debtor owns the property in the country

The determination of jurisdiction is based on whether the debtor has property in that country

as a basis for determining jurisdiction which is reflected in the insolvency law and insolvency

jurisprudence of a number of countries in the civil law system and a very small number of

common law countries. For example, according to the Spanish Civil procedure Law, even if a

foreign enterprise is established in accordance with foreign law and its principal place of

business is abroad, as long as it has property in Spain, Spanish courts may declare the enterprise

bankrupt; Switzerland's Federal Code on Private International Article 167 stipulates that a

request for recognition of a foreign declaration made abroad shall be filed in the Swiss court of

Id.

the place where the property is located;24 article 23 of the German Civil Procedure Law stipulates

that the court may exercise jurisdiction as long as the parties have property in one country.

According to the jurisdiction criteria of the location of property, it is regarded as a realistic

choice for countries to effectively safeguard the interests of their creditors and their own

economy in transnational bankruptcy. In each country or territory where the property is located,

insolvency proceedings may be initiated in accordance with its own law. The location of the

debtor’s property becomes an important connecting factor in the exercise of the jurisdiction of

the bankruptcy case. By implementing the debtor’s property in the country, it can effectively

prevent the debtor from transferring the property to other countries and provide actual relief to

the domestic creditor; or let the domestic creditor seek help from the foreign country. In the event

that bankruptcy proceedings may result in delays in the distribution of property, in order to

protect domestic creditors from discrimination and unfair treatment in foreign proceedings, it is

necessary to exercise such jurisdiction and to protect them under the protection of domestic

bankruptcy laws.28

Id.

2.1.4 The debtor pays taxes in the country

Depending on whether the debtor pays taxes in the country as the basis for determining

jurisdiction, it is one of the important contents of national sovereignty. Since the state's taxation

is often published and implemented in the form of national tax laws, international economic

exchange activities are caused by transnational economic relations. In the case of transnational

cross-border, the relevant income and income are derived from tax payment. The legal fact of the

place of business of the paragraph is that the jurisdiction of the debtor can be exercised.

According to the link factor of the nature of the territories, the taxing country must first identify

and determine the source of the income, and determine whether the debtor's income is derived

from the territory of the country, generally adopting the principle of the place where the business

activity takes place. Business activities are not carried out through fixed locations. Some

countries use the place where the transaction contract is signed. Some countries use the place

where the goods are delivered as the place where the business activity occurs to determine the

source of business income.

However, some problems also arise when proceedings against the debtor are initiated

according to the place where the tax is paid. For example transfer pricing prevents the State

concerned from exercising jurisdiction and from initiating insolvency proceedings against the

debtor. Transfer pricing is that multinational corporations, in order to achieve the purpose of

reducing or evading taxes, through accounting and tax operations that violate the rules of the

market, The artificial distribution of the price of a product among its affiliated companies results

in the evasion of taxes or the transfer of benefits from tax collection. Specifically reflected in the

sale of products, the purchase of raw materials, the company's profit income, as well as the

company's operating expenses and other aspects of artificial distribution. As a result in practice it

is often difficult to determine in which country where the business activity takes place is the

place where the tax is paid. Therefore, how to correct transfer pricing is a key issue in the fight

against tax avoidance and the determination of jurisdiction.

2.1.5 The debtor has commercial interests in the country

Some States are of the view that as long as the debtor has business activities in the country

and the commercial interests arising from it are within the scope of the national territory the

insolvency proceedings may begin namely the so-called commercial interest jurisdiction. In

accordance with the provisions of the French Civil Code relating to the principle of public order,

creditors may apply to the French courts for the commencement of bankruptcy proceedings

against branches of foreign enterprises that do not have independent legal personality and are

located in France. From the point of view of protecting the economic order of the country,

bankruptcy is often regarded as an enforcement procedure and is closely related to the public

order of a country. The bankruptcy law is the law related to the transaction security and

economic order of the country, but the bankruptcy judgment made on this basis in practice is not

easy to be recognized.

2.1.6 Conflict of jurisdiction: Taking who has the right to start major

insolvency proceedings as an example

Under the legal framework of transnational bankruptcy of the United Nations and the

Council of the European Union, any debtor's bankruptcy can only start one main bankruptcy

procedure, which has universal effect. The powers of insolvency representatives appointed by

insolvency proceedings should also be recognized in other countries. Under this system design,

who has the right to start the main bankruptcy proceedings has become a key issue. Although the

1997 United Nations Commission on International Trade Law Model Law on Transnational

Insolvency and the 2000 EU Rules for Insolvency Proceedings have consistently stipulated that

an insolvency proceeding initiated by the country where the debtor's center of main interests is

located is a main insolvency proceeding. Unfortunately, neither of the above-mentioned two

legislations has made a clear definition of this important concept. Either the place of registration

or the location of the office may be just a formal interest center. The actual interest center of the

debtor is often difficult to determine, and cannot be judged only by the place of registration of

the legal person or the habitual residence of the individual. Although the 2000 EU Rules of

Insolvency Proceedings states “The "centre of main interests" should correspond to the place

where the debtor conducts the administration of his interests on a regular basis and is therefore

ascertainable by third parties” in the thirteenth preamble, there are many conflicts and

uncertainties in the definition of the center of main interests in judicial practice. The bankruptcy

case of Eurofood in the European Court of Justice in 2006 is a typical case in this regard.

Eurofood is a company incorporated in Dublin, Ireland, which is a wholly owned subsidiary

of Parmalat (S.P.A.). The main purpose of Eurofood companies is to finance the Parmalat Group.

On December 24, 2003, the Italian government's Ministry of Production Conduct

(Ministero delle attivita Produttive) started an interim management procedure (Amministrazione

Straordinaria) for Parmalat. On January 27, 2004, the High Court of Ireland in Dublin, Ireland,

on the application of the creditor Bank of America, terminated the business activities of the

Eurofood company. On February 9, 2004, the Ministry of production behavior of the Italian

government began the temporary management procedure for Eurofood company. The Italian

court issued an order announcing that the court had received a request to declare the Eurofood

company bankrupt. On February 20, 2004, the Italian court declared that Eurofood had officially

gone bankrupt and ruled to start bankruptcy proceedings against Eurofood. Italian court handled

insolvency case on the basis that Eurofood company had centres of main interests in Italy. On

March 23, 2004, the Dublin Court of Ireland ruled that bankruptcy proceedings under Irish law

for Eurofood had commenced in Ireland on January 27, 2004, that is, the date when Bank of

America filed for bankruptcy proceedings. The Irish courts held that the Eurofood Company's

centre of main interests was located in Ireland, so the insolvency proceedings initiated by the

Irish courts were the main insolvency proceedings. As a result, the Dublin High Court in Ireland

declared the European Foods company bankrupt.41 The focus of the dispute is that Ireland and

Italy have different understandings of the centre of main interests under the 2000 EU Rules of

Insolvency Procedure.

The Italian court held that the centre of main interests of the subsidiary Eurofood was

located in Italy. There are five reasons why Italian courts decide on the center of main interests.

First, although the Eurofood company was incorporated abroad, the parent company located in

Italy was the decision maker for the entire company group. The subsidiary had no independent

decision-making power. And all major decisions were made by Parmalat's executive officers at

its headquarters in Italy.44 Second, Eurofood was a wholly-owned subsidiary of Parmalat. The

tasks of Eurofood was only to fulfill the parent company's instructions, participated in financial

transactions, and provided financing services. The real beneficiary of these deals and services for

European food companies was the parent company.47 Third, Eurofood company did not employ

employees in Ireland. Fourth, Eurofood only executed the orders of the parent company and its

debts were guaranteed by the parent company Parmalat. Fifth, these circumstances were known

to a third party and fully complied with (13) of the 2000 EU Rules for Insolvency Procedure.

However, the High Court of Dublin, Ireland held that under Article 3(1) of the 2000 EU

Rules for Insolvency Procedures, the centre of main interests of the Eurofood company should be

presumed to be Ireland because the European food company has always had its registered office

in Ireland and the center of main interest was usually the debtor's registered office.51 In addition,

all evidence indicated that the actual creditors believed that Eurofood was an Irish-based

company and was bound by Irish law.

On 27 July 2004, the Supreme Court of Ireland petitioned the Court of Justice of the

European Union to deal with the issue. On May 2, 2006, the Court of Justice of the European

Union published its judgment that Ireland is the location of the Eurofood company's center of

main interests and pointed out that when the parent company and the subsidiary company are

registered in different member states, the subsidiary company's center of main interests should be

presumed. For its registered location, this presumption can only be overturned when the

following conditions are met. There are objective factors known to a third party that can prove

that the actual center of main interests of the subsidiary is not consistent with the presumed

registered office. Conversely, if the subsidiary operates in the state at its registered office, the fact

that the economic decision of the subsidiary has been or can be controlled by the parent company

in another member state alone is not enough to overturn the presumed center of main interests in

the 2000 EU Rules of Insolvency Proceedings.

This judgment of the Court of Justice of the European Union was of great significance in

dealing with the judicial practice of EU transnational insolvency. Prior to this case, EU member

states had been inconsistent in applying the 2000 EU Insolvency Proceeding Rules' centre of

main interest standard. Following the Eurofood Company bankruptcy judgment, Member States

must apply the above mentioned interpretation of the Court of Justice of the European Union to

the question of how the center of main interests was judged and under what circumstances the

presumption of the center of main interests can be overturned. To a certain extent, this solves the

problem of vague legislation on determining the actual center of main interests of the debtor in

the EU region. However, on the whole, the judgment of the European Court of justice did not

involve some other important aspects and its result would inevitably lead to difficulties in

implementing the specific operation in judicial practice. For example, how much evidence is

required to rebut the presumption that the center of main interests is at the place of incorporation

and the legal consequences of submitting such evidence? How should the corresponding burden

of proof be shared once evidence to the contrary arises? When there is no objection in the office,

how should the court accepting the case handle it? And is it necessary to review the center of

main interests?61 These are very real problems. The possibility of these questions appearing in

practice is also very large. The EU Rules of Insolvency Proceeding 2000 does not legislate for

the treatment of these issues.

In the United States, on September 6, 2006, in the bankruptcy judgment of SPhinX Ltd by

the United State Bankruptcy Court for the Southern District of New York, Judge Robert D. Drain

proposed that he believes that four factors should be considered when determining the center of

main interests. These factors are the location of the debtor's headquarters; the location of the

operator who actually manages the debtor; the location of the debtor's principal property; the

location of the majority of the creditors or the majority of the creditors who may be affected by

the case.63 In many subsequent cases, other U.S. judges have referenced this standard in

examining centers of main interests. Even so, in practice, there are still many problems to be

resolved in regard to the determination of the main insolvency proceedings by the debtor's center

of main interests.

2.2 Reasons for the Conflict of Jurisdiction in Transnational Bankruptcy

Id.

In theory, the conflict of jurisdiction of foreign-related civil and commercial litigation

should include that all countries associated with an international civil and commercial case claim

jurisdiction or refuse to govern. The first situation is called the active conflict of jurisdiction, the

second situation is called Negative conflicts for jurisdiction. In transnational bankruptcy cases,

there are few cases of negative conflicts of jurisdiction. The most general and complex in

practice is the active conflict of jurisdiction.66

In transnational bankruptcy cases, there is a problem of positive conflict of jurisdiction, that

is, in the same bankruptcy case, there are two or more national courts that have jurisdiction and

require the exercise of their power to cause conflicts, which may lead to multiple countries

starting separately. If carried out separately, the transnational bankruptcy proceedings will be

entered into separate insolvency proceedings.

There are many legal problems in transnational bankruptcy, which have caused a lot of

controversy in this field. The main reason lies in the following two aspects:

2.2.1 The difference between national bankruptcy legal systems

There are big differences between national bankruptcy legal systems. Some scholars have

divided the bankruptcy laws of various countries in the world into three types: the type of

procreditor that supports creditors, the type of pro-debtor that supports debtors, and the type of

compromise.

When the debtor goes bankrupt, countries that support the interests of creditors, such as the

United Kingdom, allow creditors to protect their interests and reduce losses caused by the

Id.

debtor's bankruptcy, either through guarantees or through offsets. Countries that support the

interests of debtors, such as France, advocate the rescue of troubled debtors and give them a

chance to start again. All creditors should make some efforts to this end. For historical reasons,

the United States does not explicitly support creditor or debtor claims, so US bankruptcy

proceedings are often contradictory. Since 1978, the US bankruptcy law has provided more

support for debtors. In particular, the regulations on corporate restructuring have clearly reflected

this attitude. In fact, the criteria for dividing the bankruptcy law that supports the interests of

creditors and supports the interests of debtors is very vague. For example, the system of

supporting debtors may be aimed at saving enterprises through judicial means, but according to

statutory salvage procedures, it may make it easier for companies to embark on the path of

formal bankruptcy.73

A country's bankruptcy policy is a concentrated manifestation of the country's public policy

in the field of bankruptcy, and it is also the fundamental starting point of its bankruptcy law. The

different bankruptcy policies that support creditors and support debtors will inevitably lead to

significant differences among countries in the specific provisions of the bankruptcy law. In

addition to the principle of fairness in insolvency law, which is the guiding principle of national

bankruptcy law, on many specific issues, the views of countries are different or even opposite.

These differences are manifested in many aspects, such as the prioritization of property

distribution, the abolition and revocation of fraudulent transfers, priority, offsets, etc.

For example, comparing the provisions on revocable transactions in the bankruptcy laws of

the United Kingdom and the United States, the main consideration for the revocation of a

transaction in the United States is economic effect. British legislation in this regard emphasizes

the in-tent of the parties making such transfers. The United States court may revoke a transaction

that is objectively beneficial to creditors. This division has nothing to do with the division of the

continental law system and the Anglo-American law system, the degree of industrialization of a

country, and so on. It is based on the legal principles of a country. However, in the United

Kingdom, the same transaction may not be revoked if it does not indicate that the debtor

intended to give the creditor an advantage over other creditors. In the aspect of declaration of

claims, the United States law requires creditors to declare their rights within a certain period of

time in order to participate in distribution, while British law has no limit on the time limit for

declaring claims, and creditors can declare their claims at any time. Moreover,

American law recognizes any valid debt rights, including tax claims of foreign governments, but

English law generally does not recognize foreign tax claims.78

On the issue of floating charge, some countries such as the United Kingdom allow the

establishment of floating guarantees, which are considered to facilitate the financing of

enterprises. In the form of floating charge, enterprises can be sold as a whole; but some

countries consider floating guarantees. However, some States considered that the creation of

floating charges harmed the interests of unsecured creditors and did not allow the creation of

such security. In the area of insolvency set-off, some countries, such as the United Kingdom,

recognize that the principle of bankruptcy set-off not only allows for bankruptcy set-off, but also

is mandatory; but in some countries, such as France, bankruptcy set-off is prohibited.81

2.2.2 Protect the interests of domestic creditors

Another reason for conflicts in transnational bankruptcy cases is that countries insist on

protecting the interests of their own creditors. Countries do not trust foreign bankruptcy legal

Id.

systems. Sometimes even foreign debtors who have lost their creditors have a hostile view, nor

do they wish to pay taxes from creditors in foreign proceedings and foreign Governments with

their own property. In dealing with principles of international comity that are more useful in

many international cases, unprecedented challenges have been encountered in transnational

insolvency cases. Some scholars have argued that there are few legal fields like transnational

bankruptcy, and rituals have made such small progress. Based on the concept of comity and

equality of creditors, the call for the establishment of a unified transnational bankruptcy legal

system appeared in the 19th century, but many efforts made by various countries to achieve this

goal were unsuccessful.85

In the case of transnational bankruptcy, in order to achieve the goal of fairness and equality,

it must be necessary to include extraterritorial extra-territorial effects, recognition and assistance

to foreign insolvency proceedings, reconciliation and exemption, reorganization, bankruptcy

claims, cancellation rights, revocable transactions, etc. Due to the different bankruptcy laws of

different countries, the process of coordinating transnational bankruptcy cases is always difficult.

When it comes to issues related to international or transnational bankruptcy, the facts have

made people more and more aware of the need to adopt a pragmatic point of view in cases of

transnational bankruptcy. That is, in dealing with transnational bankruptcy cases, it is necessary

to seek to coordinate the different judicial systems of different countries as far as possible.

The most effective way to solve the complex problem of transnational bankruptcy is through

international treaties. Although all countries have a common understanding on this issue, so far,

whether bilateral treaties or multilateral treaties, the number is very small. It is far from meeting

the needs of practice. In the absence of uniform insolvency laws and international treaties the

task of dealing with transnational bankruptcy and reorganization cases and the resulting conflicts

is largely accomplished by national courts. The role of the court is therefore very important in

resolving the relevant conflicts and in recognizing and assisting foreign insolvencies.

In some countries, bankrupt practitioners and judges have developed some effective and

flexible methods to deal with transnational bankruptcy on a case-by-case basis. For example, in

the case of Re Paramount Airways Ltd., British judges believe that some old and rigid rules

should not be followed on this issue, and a flexible attitude is required. International trade has

developed rapidly, and fraud cases have increased, and the transfer of money has become quick

and easy.87 In order to adapt to these challenges, where appropriate, English courts should

impose more bans on non-residents or foreigners on their overseas activities than before, and the

English courts exercise jurisdiction over a foreign bank.

Id.

Countries are aware that mutual cooperation ensures that transnational bankruptcy cases are

managed in the simplest possible manner while avoiding the addition of unnecessary procedures

and reducing related expenditure and waste.

Although there has been a lack of global treaties or legislation to regulate and coordinate

certain issues in the field of transnational bankruptcy, this situation has not hindered the

development of transnational bankruptcy law, and the development of case law is relatively

rapid. In the MCC case, the cooperation between the English courts and the US courts was very

successful. The two countries also carried out parallel bankruptcy proceedings at the same time.

The coordination work was done very well and many international conflicts were avoided. A

judge in Canada is of the view that in transnational bankruptcy cases, regardless of the conflict

arising, all parties concerned should actively cooperate and respect each other's legal systems

without discrimination.92 This makes it more likely to solve the problem.

The reasons for the conflict of jurisdiction mainly include private conflicts of interest

between the parties and public interest conflicts between the states.

From a personal interests perspective, obtaining appropriate jurisdiction is equivalent to

obtaining convenient conditions for maintaining their own interests. First, there are differences

between parties’ costs when applying for bankruptcy proceedings before different courts.

Initiating bankruptcy proceedings in the country, the parties have no language and space barriers,

and can quickly grasp the relevant information of the bankruptcy proceedings. At the same time,

since bankruptcy fees cannot be declared as claims or can only be compensated for inferior

claims, participation in national procedures also saves a lot of money, which is difficult for

foreign creditors to obtain. In addition, jurisdiction also indirectly affects the rights and

obligations of the parties through conflict norms. The determination of jurisdiction is the premise

Id.

of the choice of law. The choice of the court to choose the conflict norms of the court is

equivalent to choosing the law and predicting the final outcome of the trial. Morris, a famous

British private international law scholar, describes the status of jurisdiction: in the conflict of

laws in the United Kingdom, the issue of jurisdiction is in a special position. If the jurisdiction is

satisfactorily resolved in either the English court or the foreign court, the choice of law is not a

problem.94 On the issue of the priority of the creditor's interests and the distribution of the

bankruptcy property, it seems that the principle of applying the law of the court is generally

accepted. Therefore, the choice of the court is particularly important. When there are differences

in the bankruptcy laws of various countries, the parties will choose the court for the sake of their

own interests, which leads to the conflict of jurisdiction. From the court's point of view, in order

to ensure that domestic creditors are not deprived of their participation in foreign bankruptcy

proceedings on the basis of their own bankruptcy law, they will also accept the selection of the

court by the parties. The formation of jurisdiction conflict is inevitable.

At the level of public interest, the jurisdiction to fight foreign-related civil and commercial

cases is not only a manifestation of judicial sovereignty, but also a need to safeguard national

interests. In the field of cross-border bankruptcy, the conflict of public interest is mainly reflected

in the conflict of national material interests. Taking tax credits as an example, tax

Id.

credits are essentially the difference between a public law right and a private law claim. For the

time being, unless there is a treaty basis, most countries still insist that tax claims cannot be

declared and repaid in foreign bankruptcy proceedings. Therefore, the realization of domestic tax

claims often also constitutes a reason for initiating local bankruptcy proceedings, especially if the

tax claims under the domestic bankruptcy law are of priority. In addition, a country may initiate

an bankruptcy proceeding based on labor compensation and employment considerations.

The principle of the determination of the basis for transnational bankruptcy jurisdiction and

the trend of jurisdictional expansion is that national conflicts of interest play a decisive role. In a

cross-border bankruptcy case involving multinational interests, the lack of cooperation and

courtesy attitude and overemphasis on the maintenance of national interests and judicial

sovereignty are the fundamental reasons for the formation and aggravation of jurisdictional

conflicts. At the same time, it should also be noted that in the case that the differences in

bankruptcy laws cannot be eliminated, it is unrealistic to require the state to unconditionally

renounce local interests and protect domestic creditors. Moderate parallel bankruptcy still has the

rationality of existence in certain situations. The issue of positive conflicts in transnational

bankruptcy jurisdiction should be treated more rationally and a more rational approach to

coordinating such conflicts should be explored.

2.3 Coordination Method of Conflict of Jurisdiction in Transnational

Bankruptcy

As previously analyzed, the existence of cross-border bankruptcy conflicts is inevitable. It is

unrealistic to require countries to adopt a single procedure. It is necessary to make reasonable

institutional arrangements for multiple standards and multiple procedures to coordinate their

relationship.

In transnational bankruptcy cases, the complete elimination of jurisdictional conflicts and

parallel bankruptcy does not yet have realistic possibilities, but in order to achieve a fair, efficient

and predictable transnational bankruptcy proceeding, the goal is to guide cooperation and

politeness. Coordination and mitigation of transnational bankruptcy jurisdiction conflicts should

be the direction of national efforts. So far, there is no set of recognized rules or practices used to

adjust the jurisdiction of transnational bankruptcy cases. Countries can independently decide on

the jurisdiction of their courts in transnational bankruptcy cases. Therefore, in order to protect the

interests of the country and its nationals, countries often expand the jurisdiction of their own

courts, which leads to the proliferation of jurisdictional conflicts, which will inevitably have an

adverse impact on the healthy development of international civil and commercial relations. There

are two classifications to coordinate the jurisdiction of transnational bankruptcy. The first is to

coordinate according to domestic and international law. The second is to make recommendations

for the jurisdiction of transnational bankruptcy based on legal principles.

2.3.1 Based on domestic or international law

2.3.1.1 Unification of the criteria for determining transnational

bankruptcy jurisdiction in international law

Unifying and limiting the scope of the basis of transnational bankruptcy jurisdiction through

the conclusion of international treaties is a very effective way to coordinate conflicts of

transnational bankruptcy jurisdiction. It makes sense in at least two ways. First, it can inhibit the

expansion of transnational bankruptcy jurisdiction to a certain extent. Reducing the scope of

jurisdiction based on the uniform provisions of international treaties not only binds member

states, but also guides non-members who still adhere to long-armed jurisdiction. The more

member states, the more conflicts of jurisdiction will be eased. The second way is to facilitate the

unified recognition and assistance of countries in the standards of foreign bankruptcy procedures

and to achieve international cooperation in a broader sense.

As far as the current situation is concerned, States take into account the factor of jurisdiction

when deciding whether or not to recognize and assist a foreign bankruptcy proceeding, and the

criterion for determining the appropriateness of foreign jurisdiction is usually based on domestic

law, One of the serious consequences of the conflict between the two countries in terms of

jurisdiction legislation is that foreign bankruptcy proceedings cannot be recognized and assisted

in the domestic country.

To determine a uniform transnational bankruptcy jurisdiction standard, it is necessary to

clarify whether this should be a single bankruptcy or multiple bankruptcy. As far as transnational

bankruptcy is concerned, some scholars have proposed the theory of a single bankruptcy system,

that is, a court that initiates bankruptcy procedures with global universal effectiveness to

uniformly distribute bankruptcy assets. In this way, competition and inefficiency of multiple

bankruptcy can be avoided and all creditors can be treated fairly and insolvency proceedings

governed by a single law are more predictable. However, the goal of reaching this theory is

relatively difficult. First of all, it is difficult to reach an agreement on determining the basis of

this single jurisdiction. In particular, the debtor’s place of business and the court where the main

property is located are not willing to give up jurisdiction. More importantly, in the case of

widespread differences in insolvency laws, countries may also fear that the interests of domestic

creditors may be harmed by foreign insolvency proceedings, so a limited range of multiple

standards is more flexible and inclusive.

2.3.1.2 Multiple of the criteria for determining transnational

bankruptcy jurisdiction in international law

A basic principle for determining the scope of multiple standards is that there must be a

close link between the court of jurisdiction and the case of bankruptcy. In recent years, there is an

international trend to divide the jurisdiction of cross-border bankruptcy cases into main

bankruptcy procedure jurisdiction, ancillary bankruptcy jurisdiction and territorial bankruptcy

procedure jurisdiction. The corresponding jurisdiction is based on the location of the debtor's

main interest center, the debtor's business office and the debtor's property. Both main and

nonmain bankruptcy proceedings have universality and should be recognized by other states.

There is, however, a difference in the relief available, since non-primary procedures cannot

receive automatic relief measures in the same way as the main procedure. The effectiveness of

the territorial procedure is rather limited, and it is limited to the liquidation and distribution of

local property. This distinction not only takes into account the factors of close ties, but also takes

into account the differences in the degree and effectiveness of several jurisdiction in relation to

bankruptcy cases, reflecting the cross-border implementation of a number of non-primary or

territorial procedures by establishing a major process. The intention of bankruptcy international

cooperation is reflected in the Model Law on Cross-Border bankruptcy drafted by the United

Nations Commission on International Trade Law.

In practice, the jurisdiction of the main bankruptcy proceedings generally confers on the

court where the debtor's center of main interests is located, rather than the jurisdiction of the

principal insolvency proceeding that confers on the court of the debtor's place of business. In the

event of the coexistence of two or more insolvency proceedings, the centrality of the main

insolvency proceeding should be recognized. This distinction actually reflects the fundamental

need to resolve cross-border insolvency issues by establishing a major procedure with a number

of non-primary or ancillary procedures. Moreover, in the auxiliary procedure method, due to the

participation of the national liquidator, the parties concerned can have a clearer understanding of

the situation of the bankrupt property and creditors. While assisting foreign banks to bankrupt,

the state can pay more attention to the interests of domestic creditors. This method of

distinguishing between major insolvency proceedings and non-primary insolvency proceedings

to determine cross-border insolvency jurisdiction. Taking into account the current situation of the

differences in the bankruptcy system, it not only guarantees the central position of the debtor's

actual interests, but also fully reflects the restrictions on the jurisdiction of the property and

reflects the respect for the local procedures of each country. Therefore, this method reflects to a

large extent the spirit of international coordination and cooperation. It is worthy of recognition

that it represents the development trend of the criteria for determining cross-border insolvency

jurisdiction. However, the disadvantage of this approach is that the auxiliary program may cause

the division of property in the country where the branch office is located. At the same time, these

properties are necessary for the recovery of the enterprise under the main program cabinet, which

may actually hinder the restructuring of the enterprise.

The Model Law on Cross-Border Insolvency also proposes a new criterion for jurisprudence

that is the center of main interests of the debtor. According to the EU Insolvency Procedures

Rules, the Center of Principal Interests should be consistent with the place where the debtor

manages its affairs on a daily basis and the place should be known to third parties. The

expression of the EU rules actually provides a relatively objective standard for determining the

debtor's main interest centre, which focuses on the coherence and transparency of the debtor's

behavior. Coherence requires that the connection point of this jurisdiction must be the location

where the debtor regularly manages his business. Moreover, transparency requires that the

location must be known to third parties. It is more difficult for a debtor to cover up the real place

of its business interests by creating a false domicile. In order to enhance its operability, the

uncitral model law on cross-border insolvency also provided a means of assisting in determining

the location of the principal interest center of the debtor, that is, if is no evidence to the contrary,

the debtor's place of registration or the person's current place of residence is presumed to be the

location of the main interest centre. As far as the current legislation on cross-border insolvency

jurisdiction is concerned, the provisions based on the main interest center are more scientific. In

addition, the Model Law explains the meaning of the Place of business jurisdiction, which refers

to any place of business where the debtor conducts a nontemporary economic activity by human,

material or service. This shows that the court cannot determine that its business office is located

in the country and exercise jurisdiction just because the debtor accidentally conducts a

transaction or establishes a temporary office in a member state. Therefore, the expansion of

cross-border insolvency jurisdiction can be largely restricted and jurisdictional conflicts are

reduced.

The principle of automatic recognition and automatic effect of the main insolvency

proceedings of the EU rules is as follows: (1) From the date on which the main procedure takes

effect in the country of origin, it should receive immediate and universal recognition in other

member states. Recognition extends to procedures related to bankruptcy; (2) unless otherwise

specified, as long as the other Member States do not begin the subordination process, no other

formalities are required, and the judgment of the main procedure has the same effect as that of

the starting country of the procedure in any other Member State; (3) As long as the other member

states have not initiated the subordinate procedure and have not taken the opposite protection

measures, the insolvency liquidator appointed by the main procedure court may exercise all the

powers conferred on it by the law of the starting country in other member states and have the

right. Transfer the property of the debtor in the territory of other member states according to

relevant regulations.109 EU rules allow the existence of subordinate insolvency proceedings to

protect the debtor's property in the country and the interests of domestic creditors. EU rules allow

the existence of subordinate insolvency proceedings to protect the debtor's property in the

country and the interests of domestic creditors. Its subordinate attributes are mainly manifested

in: (1) effectiveness is limited to the processing of property located in the country; (2) if, after

liquidation, the assets in the subordinate process are able to fully settle the claims recognized by

the procedure, the liquidator appointed by the subordinate procedure shall transfer the remaining

property to the main procedure liquidator.

In summary, the main and secondary insolvency proceedings are actually the result of the

application of personal jurisdiction and territorial jurisdiction to transnational bankruptcy cases.

However, this does not result in the primary proceedings being superior to the secondary

proceedings, as the status of the different jurisdiction is equal. Bankruptcy is not to solve a single

issue of creditor's rights or property, but to resolve the debtor's legal relationship, that is, the

jurisdiction of the person is the first and the jurisdiction of the object is the second. At the same

time, in complex transnational bankruptcy cases, the debtor is a constant factor. Different

creditors are dealing with the same debtor. They understand that the debtor is legally affiliated

with a particular country and is governed by the laws of that country, so that all creditors had a

common basis for the risk of dealing with the debtor, which was more appropriate as a basis for

the exercise of jurisdiction. The main bankruptcy and secondary bankruptcy procedures are

reasonable.

2.3.1.3 Self-restriction of domestic law on transnational bankruptcy

jurisdiction

The conflict of cross-border insolvency jurisdiction is the result of countries competing to

realize their national legislation and judicial sovereignty, emphasizing the maintenance of local

interest. It is manifested in each country’s efforts to expand its jurisdiction. After a long period of

historical development, private international law has finally gradually accepted the concept of a

state. The state should abandon certain traditional national interests when countries are adjusting

international civil and commercial relations. On the issue of transnational bankruptcy, if

countries only expand their jurisdiction as much as possible, the result can only be

a process that exacerbates conflicts and hinders international cooperation in cross-border

insolvency.

In order to alleviate the conflict of transnational bankruptcy jurisdiction, it is necessary to

conduct self-restriction of jurisdiction from the perspective of domestic law. This jurisdiction is

self-limiting in two ways. First, it limits the scope of jurisdiction based on legislation and does

not encourage long-arm jurisdiction. In fact, if jurisdiction is not closely related to bankruptcy

cases, such bankruptcy procedures will not be recognized and assisted by foreign courts. In the

long run, it may not be beneficial to the protection of national interests. On the issue of

crossborder insolvency jurisdiction, the United Nations Commission on International Trade

Law's Model Law on Cross-Border Insolvency and the EU Insolvency Rules provide a reference

method for countries. A limited range of models that distinguish jurisdictional effectiveness

levels has gradually been accepted and adopted by many countries. Second, the jurisdiction of

the country should be waived when necessary in the administration of justice. Some countries

have already responded positively in this regard. For example, some civil law countries provide

in their insolvency laws that when the courts of two or more countries have jurisdiction over a

bankruptcy case, the principle of prior application is adopted.

1) Based on different principles

In judicial practice, in order to find a balance between the realization of creditors’ fair

settlement of the debtor’s bankruptcy property and the facilitation of international cooperation,

the jurisdiction system began to diversify.

In the long run, countries should give a new perspective and open space to the jurisdiction

of transnational bankruptcy cases according to their actual conditions. On the basis of protecting

the legitimate rights and interests of the parties, countries promote the development of the unified

movement of the cross-border insolvency law and create conditions for the ultimate coordination

and unification.

Usually, a single connection factor does not motivate the court to exercise jurisdiction over

bankruptcy cases. Especially in common law countries, courts have large discretionary powers

on the issue of jurisdictional standards. For the parties, which country should be prosecuted in

order to seek legal remedies and protect their rights. For the court of the responding country, it is

of special significance to accept and judge the bankruptcy dispute that it is required to resolve,

and fully consider the flexible jurisdiction criteria for the parties to contact the court.

2.3.1.4 Principle of reasonableness and legality

Jurisdiction is established by following the rules of international law to which it applies, The

exercise of jurisdiction by a country must have a basis of international law and must comply with

the relevant provisions of international law. At the same time, it should be as compatible and

coordinated as possible with the current international legal environment. Reasonableness requires

that the coordination of jurisdiction should take into account the various factors of

comprehensive transnational bankruptcy cases, such as public order, national interests and

national sovereignty.

2.3.1.5 Principle of effective and convenience

Effectively resolving bankruptcy disputes is the ultimate result of a country exercising

jurisdiction. In practice, whether the court can easily investigate the evidence collection,

whether the relevant bankruptcy procedures can proceed smoothly, whether the court's exercise

of jurisdiction will bring excessive litigation costs to the parties, and whether the criteria for

jurisdiction will lead to bankruptcy judgments in foreign courts，which should be considered by

the principle of effective convenience. This principle requires appropriate self-restriction when

determining national jurisdictional standards in national laws. By contrast, in the judicial

practice, try to let the countries that have the closest relationship with the case or have a major

interest exercise jurisdiction.117

2.3.1.6 Principle of international cooperation

Since the cooperation between countries is closely related to their political goals and legal

and cultural background, the long-standing legislative facts of cross-border insolvency, both in

terms of substantive rules and in the field of conflict norms, it shows that there are certain

difficulties in the jurisdiction of bankruptcy cases in many different legal systems or different

jurisdictions. In order to ensure the transnational bankruptcy process, cooperation between

various bankruptcy procedures is particularly important. Under the premise of complying with

the relevant restrictions on information exchange, the administrators of various insolvency

proceedings are obliged to exchange any information about possible procedures with each other.

In addition, determining whether a court of a country has jurisdiction over bankruptcy cases is

not enough to make general provisions in other bilateral treaties or multilateral

conventions. Jurisdiction requires international cooperation among States to develop a unified or

harmonized transnational bankruptcy convention. If there is a uniform standard, then the conflict

of jurisdiction will be reduced.

2.3.1.7 Doctrine of the most significant relationship and minimum

contact principle

The application of judicial discretion in the field of transnational bankruptcy is mainly

manifested in the doctrine of the most significant relationship established by the British courts. In

theory, a court that has jurisdiction over a bankruptcy case should be a court that is the most

significant relationship to the debtor in an economic sense. When the court exercises discretion to

determine the jurisdictional court, it generally considers the location of the headquarters, the

place of residence, the location of the place of business and the debtor are most economically

connected. The court needs to look at the purpose of the insolvency proceedings, mainly to

distribute the debtor’s property fairly to all creditors. If the jurisdiction of the headquarters, the

place of residence, and the jurisdiction of the place of business can include all of the debtor’s

property, it will help achieve the goal of equal protection of the creditor’s interests.

In addition, the US Federal Court established the principle of minimum contact in the 1945

International Shoe Co. v. Washington case.123 According to this principle, even if a non-resident

defendant is not a residence in the state, the court has jurisdiction as long as it has a minimum

degree of contact with the court. The US Federal Supreme Court Justice Harlan Fiske Stone

declared in the case that if the defendant does not have a state residence, the defendant should at

least have a reasonable connection with the case so that the exercise of jurisdiction does not

violate the procedural fairness and substantive justice of the traditional concept.

In summary, the principle of the most significant relationship and minimum contact, with its

flexibility, make it important for national courts to consider the substance and characteristics of

the issue in the face of jurisdictional issues. The court made judgments on the jurisdiction of

transnational bankruptcy cases on the basis of specific circumstances.

2.3.1.8 Party agreement

The choice of the jurisdiction of the court is the specific expression of the principle of party

autonomy in the jurisdiction of international civil and commercial cases. The parties agree to

choose the court of jurisdiction for those international civil and commercial cases that have little

influence on the fundamental interests of the country concerned and their nationals. The parties

choose the courts of the relevant country or other relevant countries as the courts of jurisdiction

based on the principle of autonomy of will.126 The earliest use of the principle of party autonomy

is in the field of contracts. The court of choice for the introduction of agreements in the field of

cross-border insolvency was first proposed by Professor Robert Rasmussen. He suggested that

any debtor and all its creditors be allowed to choose the applicable law when the debtor goes

bankrupt. Moreover, parties can choose from an alternative catalogue provided by law, which is

the existing bankruptcy law of all countries in the

world. In the determination of the jurisdiction of the court, the parties declaration of intention

should be respected, and the jurisdiction of the agreement should be allowed to play an important

role in reducing the conflict of jurisdiction. Because in the international civil litigation, the

private interests of the parties account for a larger proportion of the case, the jurisdiction of the

parties is more effective in avoiding the actual conflict of jurisdiction. Traditionally, most

countries in the civil law system believe that bankruptcy cases fall within the exclusive

jurisdiction of the court. They cannot choose the courts of jurisdiction by the consent of the

parties, but only the courts. The precedents of Britain and the United States show that, in some

cases, the parties are encouraged to choose a court in the cross-border insolvency area, but the

choice cannot involve the “core issue” of bankruptcy.

The parties are allowed to choose the jurisdictional court based on the autonomy of the will.

First of all, it fully reflects the respect for the parties. In the field of private law, it is not only the

nature of the private law relationship that the parties themselves deal with the rights and

obligations, but also the respect of people as social subjects. Secondly, the choice of the court of

the country concerned as a court of jurisdiction by agreement actually allows the parties to

choose the court that is most suitable and convenient for them to handle the case according to the

various aspects involved in the case. The settlement of the conflict of jurisdiction of the courts

has played a positive role. Thirdly, the parties' agreement to choose a court of jurisdiction is

conducive to achieving fairness and efficiency in litigation. The choice of the court of

jurisdiction to combine the will of the parties can prevent the plaintiff from unilaterally selecting

the court, which is fair to both parties based on the will of the parties. Finally, the choice of a

court of jurisdiction can also eliminate the uncertainty of jurisdiction, rules of insolvency, and

other issues, so the choice of jurisdictional courts greatly improves the efficiency of dispute

resolution through litigation.

2.3.1.9 The doctrine of forum non convenience

The doctrine of forum non convenience was first proposed in Scotland. It is defined as the

court's general discretion based on a court that is suitable for hearing a case, or a court that is not

suitable for the trial of the case. There are several principles of forum non convenience

characters. Firstly, non-convenience court has jurisdiction; secondly, considering a variety of

factors, the court considered that it is more appropriate for the court of another country to have

jurisdiction and to hear the case; thirdly, the court may suspend the lawsuit on the basis of the

application of one of the parties; eventually, when the court refused to exercise jurisdiction in

accordance with the principle of forum non convenience, , it requires an alternative foreign court.

The court has general discretion to abandon its jurisdiction over the case. Because in fact there

are no uniform principles of forum non convenience, it is appropriate for the court judgment to

become complex and diverse. Common law countries of the United Kingdom, New

Zealand, Canada and the United States have accepted the principle of forum non convenience.

Conversely, courts in Belgium, France, Germany, Switzerland, Italy, Greece, and the

Netherlands in civil law countries do not have any general discretion to waive jurisdiction over

the case. The strict formulation of the civil law system is to abandon all uncertain factors and

enable the court to operate in accordance with the law in a standardized manner. The certainty

and predictability of the law does not allow for an unstable state that recognizes both jurisdiction

and refusal to exercise jurisdiction, such as the doctrine of forum non convenience.

For the principle of forum non convenience of the court, the advantages and disadvantages

of applying this principle to the commencement of bankruptcy proceedings should be objectively

evaluated. The state accepting the principle of inconvenient court holds that this principle avoids

the difficulties in investigation, evidence collection and judgment execution due to the lack of

necessary connection between the case and the state. A country that refuses to accept the

inconvenient court principle, on the one hand, court gives the defendant an opportunity to delay

the lawsuit, thereby increasing the cost of litigation; on the other hand, if there is no more

suitable court jurisdiction, the plaintiff will have no complaint. The refusal act indirectly violates

the provisions of many national constitutions that cannot be refused. Therefore, under this

principle, the uncertainty factor increases.

2.3.1.10 The doctrine of first-seised court

The principle of first-seised court means that the same party sues in the different country

based on the same fact and the same purpose. Generally, the principle of trial jurisdiction should

be exercised by the first accepted case court. For example, in 1987, Article 9, paragraph 1, of the

Switzerland's Federal Code on Private International Law stipulates that if the same parties are

engaged in proceedings abroad based on the same causes of action, the Swiss court shall stay the

proceeding if it may be expected that the foreign court will, within a reasonable time, render a

decision that will be recognizable in Switzerland.

The doctrine of first-seised court has advantages and disadvantages. The principle advantage

is simple and clear. The disadvantage of principle is that it causes the party to preemptively file a

lawsuit to prevent litigation in another country. This practice has led some countries to sign

bilateral treaties or multilateral conventions to establish the principle of accepting courts first as

an exception. In addition, the lack of an internationally uniform rule on whether a court can be

the first to accept a court means that litigation may have different time limits, which may make

the timing of the commencement of litigation unclear.

Jurisdiction is the first issue to be considered in the field of transnational bankruptcy. The

jurisdiction directly determines the applicable law and the judgment of the case. The settlement

of jurisdictional conflicts is an important guarantee for the progress of transnational bankruptcy

cases. Due to the different national transnational bankruptcy legislation and lack of a unified

international transnational bankruptcy law, the issue of jurisdictional conflict has always been a

problem for transnational bankruptcy. Countries not only need to explore a path that suits them in

legislation and practice, but also strengthen exchanges and cooperation to build an international

legal framework in the field of cross-border insolvency jurisdiction.

Chapter 3: Legal Application of Transnational Bankruptcy Law

In transnational bankruptcy cases, choosing the application of the law may cause differences

in the outcome of transnational bankruptcy cases. The law applicable to transnational bankruptcy

must conform to the general principles of conflict of laws, especially the application of the law

must not harm the interests of domestic creditors, which is an important consideration when

countries recognize foreign judgments. When a transnational company goes bankrupt, how to

apply the law in the bankruptcy proceedings will be the basic question.

In fact, although all courts handling transnational bankruptcy cases have the motivation to

apply the local law of the court, the receiving court must also fully consider the fact that the

outcome of the case may not be recognized by the jurisdiction of the relevant country.

Sometimes, the application of foreign laws may be more conducive to the solution of the

problem. In the absence of a universally binding transnational bankruptcy convention and a

unified bankruptcy law, the rules for the application of laws should be reset to reduce

unnecessary bankruptcy procedures and reduce bankruptcy costs, so as to ultimately protect the

interests of the parties.

3.1 The Impact of Legislative Differences on Transnational Bankruptcy

3.1.1 Legislative

3.1.1.1 Based on bankruptcy reason

Due to different cultural, political, and economic backgrounds, there are two types of

legislative models for transnational bankruptcy in the world. One is to adopt the legislation of

enumeration, the other is to adopt the legislation of generalization.

Common law countries often adopt enumerated legislation, that is, the law only stipulates

some actions and causes of the debtor. When the debtor has such behavior and cause, the creditor

has the right to apply for bankruptcy. For example, the United Kingdom Bankruptcy Act of

1914 adopted enumerated legislative methods for the reasons for bankruptcy, and it’s Article 1,

Paragraph(1) provided eight types of bankruptcy reasons. Chapter 3, section 3, paragraph 1, of

the US Bankruptcy Act of 1898 provides for five causes of bankruptcy. Common law scholars

have specifically pointed out that the existence of bankruptcy does not directly lead to the

debtor's bankruptcy, but that bankruptcy can allow creditors to apply to the court for bankruptcy,

which eventually leads to the beginning of bankruptcy proceedings.For the reasons of

bankruptcy, a large number of civil law countries adopt generalism. Most civil law countries

state in principle several forms of bankruptcy reasons, but they do not prescribe specific acts and

reasons for bankruptcy reasons.7 Generally, there are the following reasons for bankruptcy: (1)

an enterprise legal person fails to clear off its debt as due, and if its assets are not enough to pay

off all the debts or if it is obviously incapable of clearing off its debt; (2) enterprise is obviously

likely that it is unable to pay off its debts; (3) debtors stop paying. The debtor has stated that they

Id.

will no longer settle its due debts or the debtor implied that the notes issued by the debtor could

not be honored. For instance, French bankruptcy law states that suspension of payment is the

sole reason to declare a bankruptcy. The German Insolvency Act stipulates that the declaration of

bankruptcy proceedings is premised on the debtor being unable to pay. If a suspension of

payment has occurred, it shall be presumed to be unpayable. Article 15 of the Japanese

Bankruptcy Law stipulates that when the debtor cannot pay, the court decides to declare

bankruptcy on application. When the debtor stops paying, it is presumed to be unpayable. Article

16 provides that when a juridical person cannot pay off its debts with its property, it can also

declare bankruptcy. Person can also file for bankruptcy when the debtor's debt exceeds its total

property. In principle, the bankruptcy law of Taiwan takes the debtor's insolvency as the

bankruptcy reason. In special circumstances, the reason for bankruptcy is the debt exceeding. For

example, Taiwan believes that for a limited company or a limited company by shares, its ability

to pay off its debts lies in the total assets of the company. Once there is more debt, if it is not

declared bankrupt immediately, it will increase the loss of creditors.17 Therefore, the Taiwan

Company Law stipulates that if the company's property is obviously insufficient to pay off its

debts, the company's responsible person shall apply to the court for bankruptcy except in the case

of a reorganization of a company limited by shares. The presumption that the debtor stopped

paying was presumed to be insolvent, but it was not directly specified as the cause of

bankruptcy.19

Some countries or regions adopt eclecticism. For example, the Macau Civil Procedure Code

applies eclecticism to the reason for bankruptcy. Macau Civil Procedure Code stipulates that

business owners who fail to perform their obligations on time are deemed to be in bankruptcy.

Id.

At the same time, in addition to special provisions for commercial business owners to

declare bankruptcy, if it is confirmed that there is one of the facts enumerated by law, it must also

declare bankruptcy. For example, if the business owner fails to perform one or more debts, and

according to the amount of the outstanding debts and the actual situation of nonperformance, it

shows that the debtor cannot perform his debts as scheduled; the commercial enterprise owner

escapes due to lack of funds without designating a suitable substitute, or when the legal person is

a legal person, the holder of the administrative body of the legal entity escapes due to lack of

funds without specifying a suitable substitute; where a business enterprise owner abandons the

place of the main administrative authority, or where it is a legal person, the place of residence of

the legal person or the main administrative authority; a business owner wastes or makes property

disappear, falsifies a claim, or commits any misconduct that shows that he intends to cause him

to fail to perform his debt as scheduled.22

In the legislation of reason of bankruptcy, the British and American legislation showed a

change from enumerationism to generalism. The new U.S. bankruptcy law, revised in 1978,

Id.

abolished the enumeration of bankruptcy acts and adopted generalization instead. The British

Insolvency Act stipulates that a bankruptcy application filed by a creditor may be based on the

debtor cannot pay off due debts or the debtor does not have a reasonable possibility of paying off

debts as the reason for bankruptcy. These changes have reduced the difficulty for creditors to

initiate bankruptcy proceedings and increased the court's discretion.

The function of the bankruptcy law is how to reasonably distribute the bankruptcy property

among creditors when the debtors cannot pay off their due debts, so as to ensure that all creditors

are fairly paid.

3.1.1.2 Based on subject of bankruptcy

There are three main situations of legislation according to the qualification of bankruptcy

subject: first, the bankruptcy model of businessmen. Bankruptcy law only applies to commercial

entities. When the non-commercial subject is only engaged in commercial activities and the

commercial subject for the purpose of profit cannot pay off the debt, the bankruptcy procedure

can be applied. Civil execution procedure is still applicable to the subjects who are not engaged

in commercial activities. The French Commercial Code of 1807 clearly stipulated that only

merchants can go through bankruptcy; second, the general bankruptcy model. Bankruptcy law

applies to all civil and commercial entities who cannot pay off their debts. Bankruptcy

proceedings can also be applied to non-commercial subjects. With the development of the

commodity economy, the line between businessmen and non-businessmen is becoming

increasingly blurred. Countries such as Germany, Austria, Japan, the United Kingdom, and the

United States gradually expand the object of bankruptcy law adjustment to non-merchant groups

and give non-merchant civil subjects the ability to go bankrupt. For example, the US bankruptcy

law provides for the scope of the subject of the application of bankruptcy proceedings: as long as

natural persons, companies, and municipal agencies who settle in the United States or have a

residence, place of business, or property in the United States can become debtors; third, the

compromise bankruptcy mode. Both commercial and non-commercial subjects can go bankrupt,

but commercial and non-commercial subjects apply different bankruptcy procedures. Because the

debtor and the cause of the debt are different, the methods of dealing with bankruptcy events are

also different. Portugal, Argentina, Brazil, Denmark, Norway and other countries are

representatives of the compromise bankruptcy model.

3.1.1.3 Based on bankruptcy applicant

With regard to the qualification of applicants , most countries require that the parties should

generally file for bankruptcy. Unless in exceptional circumstances, the court declares bankruptcy

directly in accordance with its powers. It is a relatively consistent practice for creditors and

debtors to enjoy the right to apply for bankruptcy. However, whether the debtor makes an

application for bankruptcy is its own right, and generally does not bear the obligation to file an

application for bankruptcy. The bankruptcy laws of some countries stipulate that a third party

within a certain range may apply for bankruptcy. For example, the Corporate Bankruptcy Law of

the People's Republic of China stipulates that creditors, debtors,27 and other entities can

exercise their right to apply for bankruptcy. Other entities include the bankruptcy administrator,

financial supervisory agencies, and administrative liquidation group.

In addition, in order to protect the legitimate rights and interests of the debtor, the laws of

some countries provide certain conditions for creditors to file bankruptcy applications. For

example, the United States, Britain, Canada, etc.

3.1.1.4 Based on time for bankruptcy proceedings

There are three main types of legislation depending on the time. The first is the initiation of

bankruptcy application, that is, the time when the bankruptcy proceedings begin, such as in the

United States. The second is the doctrine of bankruptcy acceptance. The commencement of

bankruptcy proceedings is marked by the court's acceptance of bankruptcy applications, such as

the United Kingdom and China. Bankruptcy acceptance begins bankruptcy proceedings, which

means that bankruptcy applications do not necessarily begin bankruptcy proceedings. The third is

the doctrine of bankruptcy declaration. Bankruptcy proceedings begin when bankruptcy is

declared, such as in France, Germany, and Japan. According to this legislative system,

bankruptcy application and acceptance are only the pre-procedure of bankruptcy proceedings.

The result of this procedure does not necessarily lead to bankruptcy declaration. If there is no

bankruptcy declaration, the bankruptcy procedure will not start.

3.1.1.5 Based on bankruptcy property

Bankruptcy property is also called a bankruptcy estate. When bankruptcy is declared in

accordance with the provisions of the bankruptcy law, in order to meet the common needs of all

the bankrupt creditors, all property of the bankrupt is organized by the bankruptcy administrator.

Bankruptcy legal systems in different countries have different regulations on the scope of

bankruptcy property.

i. Based on the timeline

Generally, there are two types for bankruptcy estate scope: first, when defining the

composition scope of the bankruptcy property, it is limited to all the property belonging to the

bankrupt at the time of bankruptcy declaration. However, it does not include any property

acquired by the bankrupt after the bankruptcy declaration; second, the definition of the scope of

bankruptcy property includes not only the entire property of the bankrupt at the time of

bankruptcy declaration, but also the newly acquired property of the bankrupt after the bankruptcy

declaration and before the end of bankruptcy proceedings. These newly acquired properties

specifically refer to all property acquired by the bankrupt through knowledge, labor, and skills

after the bankruptcy was declared. These properties should be included in bankruptcy property

and cannot be freely disposed of by the bankrupt.42 For the first type, German bankruptcy law

provides that bankruptcy property is all property owned by the debtor at the time of bankruptcy

declaration. The Japanese Bankruptcy Law stipulates that all property owned by the bankrupt at

the time of bankruptcy declaration is bankruptcy property. The bankruptcy property that can

be exercised in the future by the bankrupt based on the reasons arising before the bankruptcy

declaration is bankruptcy property. US bankruptcy law provides that unenforceable property is

not bankrupt property. All assets owned by the debtor at the time of the application for voluntary

liquidation or the application for involuntary liquidation are bankruptcy property. For the second

type, France, the United Kingdom, Austria, Switzerland, Italy, Portugal, Spain, the Netherlands,

China, Norway, Denmark, Argentina, India, Thailand, New Zealand, Mexico,

Sweden and many other countries use this model to provide for bankruptcy. For example, the

French bankruptcy law stipulates that the judgment to start or announce judicial liquidation shall

be automatically deprived of the debtor's right to manage and dispose of his property as long as

the judicial liquidation has not ended. No matter what name the debtor acquires his property.

Where it is related to the debtor's property, it shall be exercised by the liquidator throughout the

judicial liquidation. The British bankruptcy law stipulates that the bankrupt's property distributed

by creditors includes all property acquired or accepted by the bankrupt before the end of the

bankruptcy proceedings.

The difference between the two types lies in the way in which bankrupts acquire newly

acquired property after bankruptcy declaration, both of which have advantages and

disadvantages. The first type is suitable for the purpose of bankruptcy procedure. When the

bankruptcy proceedings begin, the bankruptcy administrator can determine the bankruptcy

property in time and distribute the bankruptcy property to creditors. If the insolvency

proceedings take too long, creditors will also suffer losses. Therefore, the first type can promote

the bankruptcy procedure, which is beneficial to both the creditor and the bankrupt. Moreover,

the newly acquired property after bankruptcy is declared and before the end of the bankruptcy

proceedings shall not be used for bankruptcy settlement, so it can be freely controlled. The

biggest advantage of the second type is that creditors can get more bankruptcy property. By

expanding the scope of bankruptcy assets, bankruptcy fraud can be prevented. However, the

uncertainty of the scope of the bankruptcy property before the end of the bankruptcy proceeding

made management of the bankruptcy property difficult and the bankruptcy process more

complicated. Eventually, the bankruptcy proceedings had to be extended. It is difficult for

bankrupts to resume normal economic activities before the end of bankruptcy proceedings. In

summary, the first type is beneficial for the debtor, and the second type is beneficial for the

creditor.

ii. Based on territory

Based on the space boundary, there are mainly two kinds of legislation theories: general

bankruptcy and territorial bankruptcy. Countries that adopt general bankruptcy and territorial

bankruptcy have different opinions on the scope of bankruptcy property, that is, whether the

bankrupt's property located abroad should be included in bankruptcy property. Countries that

adopt general bankruptcy believe that bankruptcy property should include all domestic and

foreign property. Countries adopting territorial bankruptcy believe that the bankruptcy property

can only be the property of the bankrupt in the country where the bankruptcy proceedings

commenced. Japanese bankruptcy law stipulates that the bankruptcy declared in Japan is only

valid for the bankruptcy property in Japan. According to the principle of reciprocity, when

foreign countries declare bankruptcy, bankruptcy has no effect on Japanese property. In other

words, when the debtor is declared bankrupt in a foreign country, their property in Japan is not

within the scope of bankruptcy property. Civil execution against bankrupt property in Japan need

not be suspended. Even if a foreign court has declared bankruptcy against a debtor, a foreign

bankruptcy administrator cannot recover the debtor's property in Japan. Japanese courts can still

declare the debtor or its branches bankrupt in Japan. Therefore, Japan claims territorial

bankruptcy over the scope of bankrupt property.

The United Kingdom has adopted a combination of general bankruptcy and territorial

bankruptcy for the scope of bankrupt property. On the one hand, the UK bankruptcy law asserts

that domestic bankruptcy has full extraterritorial effect, while also recognizing whether the

bankruptcy declaration of a UK court has extraterritorial effect depends on whether the court

where the property is located recognizes the bankruptcy liquidation procedures conducted by the

UK; On the other hand, whether British courts recognize the effectiveness of foreign bankruptcy

declarations in the United Kingdom will usually weigh the interests of all parties according to the

specific circumstances and conditionally recognize the effectiveness of foreign bankruptcy

proceedings.

The U.S. regulation on the extraterritorial effect of bankruptcy is that from the date of

bankruptcy, all the nonexempt properties of the debtor, no matter where it is located, are

bankruptcy property. The foreign court hearing the case has exclusive jurisdiction over all the

properties of the debtor. The effect of foreign bankruptcy in the United States is reflected in the

provisions of the bankruptcy law. The United States also adopted the view of combining

general bankruptcy and territorial bankruptcy. In order to prevent local creditors from dividing

up the property, when there is a pending bankruptcy proceeding in a foreign country, if the debtor

has bankruptcy property in the United States, the foreign bankruptcy administrator is allowed to

institute a subordinate bankruptcy proceeding in the United States to manage the bankruptcy

property located in the United States. U.S. bankruptcy law also provides that foreign bankruptcy

administrators can have three forms of relief: (1) they can request the court to implement an

automatic cessation system; (2)they may request a court decision to transfer the property and its

proceeds to the administrator and to make a uniform distribution in accordance with foreign

insolvency proceedings; (3) the court may provide other appropriate relief according to the

specific circumstances of the case. On the one hand, the bankruptcy law requires the U.S. courts

to recognize the bankruptcy decisions made by foreign courts as much as possible; on the other

hand, the court is given a relatively broad discretion. The court needs to fully consider the

following six factors before initiating bankruptcy proceedings: (1) fair treatment of owners who

have claims or rights to these properties; (2) protection of US creditors from discrimination or

inconvenience in foreign proceedings; (3) Preventing preferential or fraudulent transactions on

these properties; (4) The valuation of bankruptcy property and the processing of bankruptcy

distribution by foreign procedures are consistent with the sequential distribution prescribed by

the US bankruptcy law; (5) the principle of international courtesy; Bankruptcy entity with rebirth

opportunity.

3.1.2 Effect

3.1.2.1 Provable debt

A debt in respect of which a creditor can claim a share of a bankrupt's assets. A provable

debt must either be incurred by the bankrupt before a bankruptcy order is made against him or

arise after the order is made as a result of an obligation that existed beforehand. Provable debt

generally includes unsecured claims, property-secured claims that renounce priority claims,

Unsecured portion of property-backed creditor's right after priority exercise, unexpired claims,

bill issuer (endorser) was declared bankrupt, or after the bankrupt's guarantor repays the debt.

Different countries' regulations on the scope of bankruptcy claims will also affect creditors.

For example, the U.S. bankruptcy law stipulates that the bankruptcy claim must be a right to

request payment or a right of claim arising from equitable remedies for breach of contract.

Bankruptcy claims include claims that have been or have not been adjudicated, claims that have

been paid off or have not been determined in amount, claims that have been determined or not

determined, claims that are due or not due, claims that are disputed or not disputed, claims that

are written or in equity, claims that are secured or not.67 However, The Japanese bankruptcy law

provides that bankruptcy claims are the property claims of bankrupts based on reasons before

bankruptcy declaration. The bankruptcy claim does not include a secured claim, and a non-full

secured claim can be regarded as a bankruptcy claim only if the security owner waives the

priority right of compensation or the secured property is insufficient to pay off the secured claim.

In terms of the determination of bankruptcy claims, the legislation of various countries also

differs greatly. Japan's bankruptcy law provides that the exclusionary claims can be repaid as

bankruptcy claims. However, some countries do not consider exclusionary claims as bankruptcy

claims. For example, the Chinese bankruptcy law stipulates that the following claims are not

bankruptcy claims (1) fines, penalties and other related expenses imposed by administrative and

judicial organs on bankruptcy enterprises; (2)the late payment of the debtor's failure to pay the

payables after the people's court accepts the bankruptcy case, including the late interest that the

debtor should double to pay if it fails to implement the effective legal instruments and the late

payment of labor insurance; (3) debt interest after bankruptcy declaration; (4) fees paid by

creditors to participate in the bankruptcy process; (5) equity and stockholders' rights in the

bankruptcy enterprise on equity and stocks; (6) Creditor's rights declared to the liquidation team

after the distribution of bankruptcy property has begun; (7) Creditor's rights exceeding the statute

of limitations; 8) The management fee and contracting fee that the debtor's founder did not

charge the debtor.

The order of paying off bankruptcy claims is also called priority. According to the nature

and status of bankruptcy claims, the bankruptcy laws of various countries have stipulated a

statutory priority for bankruptcy claims. For example, the U.S. bankruptcy law provides that nine

priority unsecured claims are settled in strict priority that are namely administrative expenses,

mutual benefit claims, employee wages and benefits, claims from food producers or aquatic

product producers, consumer deposits, government taxes, Special bank deposits and claims of

other unsecured creditors. China's bankruptcy law stipulates that bankruptcy claims include prior

bankruptcy claims and ordinary bankruptcy claims. Moreover, the priority bankruptcy claims are

divided into two orders. The first order is wage claims, basic medical insurance, basic medical

insurance, and compensation claims. The second order is social insurance and tax claims. The

ordinary bankruptcy claims are the third order. If the bankruptcy property is insufficient to satisfy

the liquidation requirements in the same order, it shall be distributed in proportion.78

3.1.2.2 Bankruptcy management

Bankruptcy management is the core of the whole bankruptcy procedure, which runs through

the whole bankruptcy procedure. The international bankruptcy administration mainly includes

the appointment or designation of the bankruptcy administrator, the application for creditor's

rights, the establishment, convening and power of the creditor's meeting, the liquidation, custody,

control, valuation, sale, distribution and continuation of the bankrupt's business of the bankrupt's

property, the participation in the litigation, settlement or arbitration of the bankrupt's property,

and the cancellation of the registration of the bankrupt enterprise, etc. Bankruptcy management

involves the property of a bankrupt located in a domestic country and may also involve the

property of a bankrupt located in a foreign country. Therefore, international bankruptcy

management involves not only the application of domestic law but also the application of foreign

law. Especially when the bankruptcy administrator makes a bankruptcy announcement in a

foreign country, collects bankrupt property located in a foreign country, and distributes the

bankruptcy property at a variable price, it is more likely to involve the application of foreign

law.83 In civil law countries, bankruptcy declaration initiation is mostly implemented. That is,

before the bankruptcy declaration, the bankruptcy proceedings have not begun, the status of the

civil and commercial subject of the debtor has not changed, and there is no reason to set up a

special property manager to take over the debtor's property. If it is really necessary to protect the

debtor's property rights at this time, the property shall be protected by the court through civil

lawsuits. Therefore, the bankruptcy administrator is established and the management of the

insolvency property is established only after the commencement of the insolvency proceedings.

However, in common law countries, the bankruptcy administrator is usually established at the

beginning of bankruptcy proceedings. Therefore, a phased bankruptcy administrator system has

been established. Before the court accepts a bankruptcy case until the declaration of bankruptcy,

the debtor's property is managed by the temporary property manager. After the bankruptcy

declaration, the debtor's property is managed by the bankruptcy administrator.

For the application of the law of bankruptcy administration, some scholars advocate the

application of the law of the place of court or the law of the place of bankruptcy declaration.

Some scholars also advocate separate application of the law of bankruptcy administrator. That is,

the procedural issues in the bankruptcy administration are governed by the law of the place of

bankruptcy administration, but the substantive issues should be distinguished according to

different situations, the law of the place of court or the applicable law of the original legal

relationship itself. The substantive rights involving real estate should also be governed by the law

of the place where the property is located.

i. Law of the forum

Because of the complexity of international civil and commercial relations, the predictability

of the results is particularly valued. Although courts and parties can foresee the choice of law and

the consequences of the application of the law, when the judgment must be recognized and

enforced in another country, they may not be able to foresee whether the judgment can be

recognized and enforced. For the application of bankruptcy administrator law, it is generally

advisable to apply the law of forum of bankruptcy administrator. Wolff argues that the

bankruptcy administrator is governed by the law of the forum. This rule is not only to procedural

matters, but also to substantive law. For example, the bankrupt's defrauding priority or fraudulent

transfer of the deed to revoke his transaction, and priority issues between creditors can be applied

to the law of forum.95 Monis also believes that the distribution of property among creditors, or

the priority among creditors should be determined in accordance with the English law as the law

of the court.

However, some scholars believe that it is questionable to apply the law of forum to

bankruptcy administrator. For example, the rights to land and the rights acquired under the

contract are obviously unreasonable according to the law of the forum, but it should be based on

the law of the country where the land is located and the applicable law of the contract. When a

debtor declares bankruptcy in one country, whether or not the bankruptcy property located in

another country can be brought into bankruptcy hotchpot for centralized management and unified

distribution is a basic theoretical question of transnational bankruptcy. There is great resistance to

applying the court law because bankruptcy proceedings may be interrupted at any time outside

the territory. Especially when it comes to guarantees and liens, the application of non-court law

may be clearer.

ii. Separate application of law

The provisions of international bankruptcy legislation on the application of bankruptcy

administrator laws tend to change in flexibility and rationality. Procedural and substantive laws

are applied separately. Procedural issues are governed by the law of forum. Substantive issues are

distinguished by different situations, or the law of forum, the applicable law of the original legal

relationship, or the law of the location of the property. For example, the validity of the debt, the

transfer of property to the administrator, the price change of the property under the control of the

bankruptcy administrator and other issues should be in accordance with the applicable law of the

creditor's rights or the property itself. The right of the land should be in accordance with the law

of the country where the land is located and the contractual relationship of the bankrupt should

be in accordance with the applicable law of the original contract. In transnational bankruptcy

cases, the bankrupt's property is inevitably scattered in multiple countries or jurisdictions. Based

on the reality that each country has its own consideration, adopting the law

of property location is a realistic approach. For the evaluation of property, there are many factors

considered in the valuation of bankruptcy property, such as the type, performance and use of

bankruptcy property, and market supply and demand conditions. Generally, property evaluation

is closely related to a country's economic policy. It is easier to evaluate the value of the property

by applying the law of the location of the property, and it is more acceptable to creditors and

debtors.

3.2 Court Choice and Law Choice in Transnational Bankruptcy

In dealing with transnational bankruptcy cases, there are two prerequisite issues: court

choice and legal choice. There are not only differences but also contact.

In transnational bankruptcy cases, the choice of court is based on jurisdiction. The choice of

the law of forum is to solve the problem of which country's courts will govern the case after the

case has occurred. The choice of law is to decide the applicable law of the case, which solves the

problem of which country's bankruptcy law should be applied by the court to deal with the case.

These are two different questions, so the answers can be different. the choice of law is closely

related to the choice of court. In addition, in judicial practice, the choice of law is often the result

of the law of the forum.

3.3 Transnational bankruptcy and application of law

A relatively simple bankruptcy process will take a long time and complicated process to

establish comprehensive rules and systems for the application of laws in the field of transnational

bankruptcy. International or foreign-related factors of bankruptcy scholars have different views.

Because the creditors or debtors may belong to different countries, the bankruptcy property is

located in different countries, or the bankruptcy claims are generated by the transactions

dominated by foreign laws, it is difficult to judge which factors are more important to determine

the application of bankruptcy laws in judicial practice. Moreover, there are various procedural

and substantive matters involved in bankruptcy, so there is a question of whether the same law or

different laws apply to different matters of bankruptcy. In addition, At the current stage of the

development of the application of bankruptcy law, the conflict law system and the substantive

law system coexist, the domestic law norms and the international law norms coexist, and they are

interconnected and mutually restrained, which further complicates bankruptcy law application

issues. As far as the application of law in the sense of the conflict of law is concerned, the

analysis of the existing provisions on domestic legislation and international treaties can be

roughly summarized into two situations:

First, the law of the forum or the law of the bankruptcy declaration country is applicable. (1)

The application of the law on bankruptcy requirements shall be resolved in accordance with the

local law of the court or the law of the country in which the bankruptcy is declared. For example,

the EU Council Rules on Bankruptcy Proceedings stipulate that the law of the bankruptcy court

shall apply to initiation of bankruptcy proceedings and their effects unless otherwise provided. It

is also known as the national law of the beginning of procedure. (2) The application of the law on

the scope of bankruptcy property shall be settled in accordance with the law of forum or the law

of the bankruptcy declaration country. For example, the European Economic Community

Bankruptcy Convention (draft) provides that, unless otherwise provided, bankruptcy declared in

accordance with the Convention shall have effect on all property owned by the debtor in each

Contracting State. This means that the Convention considers that the scope of bankruptcy

property should be governed by the law of the country in which it is declared bankrupt. (3) With

regard to the application of the right to set off, it is generally considered that the existence of the

claim to set off is based on its own applicable law. For example, if the existence of a contractual

right arises under the domination of foreign law, the applicable law of the contract shall apply to

the issues related to that right. However, whether the conditions for offsetting are met shall be

resolved in accordance with the local law of the court or the law of the bankruptcy declaration

country. The EU Council rules on bankruptcy proceedings stipulate that the conditions under

which creditors exercise the right of set-off shall apply the laws of the country where the

bankruptcy proceedings commenced. (4) With regard to the application of the right of revocation,

it is generally believed that the law of the place of court or the law of the state of bankruptcy

declaration should be applied. However, when a bankrupt's transaction that harms the interests of

creditors is outside the provisions of the bankruptcy law, the right of revocation shall be in

accordance with the relevant provisions of the law of the country that controls the transaction.

The European Economic Community Convention on Bankruptcy Law (Draft) provides that

“When, according to the law of the State in which the bankruptcy has been opened, a recovery

action brought in the interest of the general body of creditors, in respect of an act done by the

debtor in fraud of the rights of the creditors is provided for only by provisions of law other than

bankruptcy law, the conditions regulating the setting aside shall be those applicable under the law

of the State which governs the transaction as if the bankruptcy had been opened in

that State.” EU Council Rules on Bankruptcy Proceedings stipulating that legal acts that harm all

creditors are invalid, may be invalid or unenforceable, and the law of the country where the

proceedings begin. (5) On the legal application of the scope of bankruptcy claims and the order

of settlement, some scholars advocate the application of the local law of the court or the law of

the bankruptcy declaration country. (6) With regard to the application of laws on bankruptcy

administrator, it is generally advocated that the settlement should be based on the law of the

place of management, that is, the law of the court or the law of the bankruptcy declaration state.

Second, the law on the location of property applies. (1) Regarding the application of the law

of exemption rights, it is generally believed that the law of the forum where assets are located

should be adopted. The European Economic Community Bankruptcy Convention (draft)

provides that the lien on property is subject to the law of the State party to the property lien. (2)

Dutch bankruptcy law stipulates that the right of the owner of the bankruptcy property shall

apply to the law of the location of the property. (3) In the scope of bankruptcy claims and the

order of settlement, some bankruptcy law conventions apply the law of the location of the

property at the time of bankruptcy declaration. The European Economic Community provides for

the location of bankruptcy property as an important connection point to invoke applicable law.

(4) With regard to the application of laws on bankruptcy management, some bankruptcy law

conventions adopt the law of the location of things. For example, the five Nordic countries have

stipulated that if the law of the location of the bankrupt property requires that certain procedures

be followed for the change of value of the property, the law of the location of the property must

be applied. The European Economic Community's Bankruptcy Convention (Draft) clearly

stipulates that the litigation procedures to be followed by an insolvency representative in the sale

of property shall be in accordance with the law of the country where the contracted property is

located. If the law of the bankruptcy-declaring country or the court for bankruptcy-declaration

stipulates that the property should be sold in accordance with certain procedures. If the property

is auctioned publicly, the method of implementation shall still be based on the law of the location

of the property.110 The European Council European Convention on Certain International Aspects

of Bankruptcy stipulates that the liquidator's measures to manage, arrange or dispose of the

debtor's property must comply with the law of the State party in which the property is located.

The EU Council Convention on Insolvency Proceedings stipulates that the administrator can

exercise the powers granted by the national law in accordance with the procedure, but when the

administrator exercises his powers, the bankruptcy administrator shall abide by the law of the

place where the property will be acted.

3.4 General theories

There have been two theoretical disputes on the application of transnational bankruptcy

laws. These two theories are unity of bankruptcy and pluralism of bankruptcy.113 The differences

between unity of bankruptcy and pluralism of bankruptcy are mainly reflected in the fact that

unity of bankruptcy claims that the same law should be applied to all aspects of the same

transnational bankruptcy case, because the application of different laws to various aspects of the

unity of bankruptcy relationship will increase the burden on judges and change the application of

law. It is more complicated and will undermine the integrity of the legal relationship. However,

pluralism of bankruptcy argues that different laws should be applied separately because various

aspects of transnational bankruptcy cases have different characteristics and there is relative

independence between various aspects of legal relations.

3.4.1 Unity of bankruptcy

The unitary system holds that cross-border insolvency should uniformly apply the laws of

one country, that is, the laws of the country where the bankruptcy proceedings are initiated.

Bankruptcy is essentially a procedure, which is a general liquidation procedure of claims

and debts under the guidance of the court. Moreover, When the application of the law conflicts,

the law of the forum should be applied. Based on these two points, transnational bankruptcy

should be governed by the law of the court.

There are some of the advantages of the unitary of bankruptcy. First, because the bankruptcy

unity advocates that all legal issues of cross-border bankruptcy should be uniformly applied to

the law of the forum in which the procedure was initiated, that is, the law of the forum, the unity

of bankruptcy cross-border bankruptcy rule is simple and straightforward.118 Second,

the rule of law applicable based on the unitary system can ensure the consistency of the judgment

results to the greatest extent.119 Third, the application of the rules of the court's local law reduced

Id.

the burden on judges and avoided a series of troubles arising from the application of foreign

law.120 Fourth, the unity of bankruptcy advocates the application of the law of the forum, so the

unity of bankruptcy can fully reflect the principle of state sovereignty.121 However, there are

disadvantages to the unitary system. This deficiency is reflected in the theoretical basis of the

rule and its impact on practice.122 First, the theoretical basis of the unitary bankruptcy law is

unstable.123 Bankruptcy is not only a matter of procedure, it is also a matter of

substance.124Bankruptcy has both substantive and procedural legal issues, which is one of the

consensus in bankruptcy theory.125 Ignoring or improperly highlighting one of these aspects is a

misunderstanding of the nature of bankruptcy.126 Therefore, unity of bankruptcy's view is also

flawed. Second, the unity of bankruptcy has also affected conflict laws.128 The development of

conflict law is influenced by the method of outcome selection, so unity of bankruptcy leads to a

decrease in the role of the distinction between the entity and the procedure of conflict law in the

choice of law.129 Thirdly, the unitary bankruptcy does not distinguish the law of the forum. It does

not take into account the interests of other countries, nor does it take into account the

119 Id.

120 Id.

121 Id.

122 Gerar

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123 Id.

124 Id.

125 Id.

126 Id.

complexity of cross-border investment and trade and the complexity of the resulting cross-border

bankruptcy.

3.4.2 Pluralism of bankruptcy

The legal application of pluralism of bankruptcy and unity of bankruptcy rules is different.

Unity of bankruptcy always applies the law of the forum. However, pluralism of bankruptcy

theory argues that in transnational bankruptcy cases, different matters should apply different

rules of law application. Court law does not apply directly to all conflicts of law in transnational

bankruptcy.132 The biggest feature of the pluralism of bankruptcy is that different legal conflicts

should be governed by the applicable laws of different countries.133 Because the pluralism of

Id.

bankruptcy theory has more complicated rules for cross-border bankruptcy laws, it is bound to

increase the difficulty for judges to try transnational bankruptcy cases in the judicial process. In

this respect, pluralism of bankruptcy is not as good as bankruptcy unity.The pluralism of

bankruptcy advocates that different matters should apply the rules of conflict law in different

places. To some extent, pluralism of bankruptcy restricts the application of court law. This theory

and practice, taking into account the interests of other countries, is conducive to international

cooperation on cross-border insolvency issues. Moreover, this theory fits the complexity of

cross-border trade and investment.

The pluralism of bankruptcy has been increasingly recognized in the academic and practical

circles. An important manifestation of the recognition of the pluralism of bankruptcy is the rules

for the application of laws under the EU Regulations. Although the EU regulation recognizes in

principle that the laws of the member states where the insolvency proceedings begin should be

applied, the automatic recognition of the insolvency proceedings may interfere with the

application of some rules which are followed by other Member States to reach transactions. In

order to give priority to the protection of reasonable expectations and certainty of transactions in

Member States (rather than in the countries where the proceedings begin), provisions should be

made to provide some exceptions to the rules of generality. Therefore, the EU regulation affirms

the important position of the lex fori concursus in the applicable law system of cross-border

insolvency, and then provides the exceptions that are not applicable to the lex fori concursus.

The principles of pluralism of bankruptcy were not always there. If the law of the forum

where the proceedings are initiated is used in whole bankruptcy proceedings, the consequence of

this is that it will be difficult to obtain the support of other countries when they need assistance

Id.

and cooperation in matters involving cross-border insolvency.134 Not only that, people gradually

realized that bankruptcy proceedings are different from ordinary litigation procedures and that

pluralism of bankruptcy has a significant impact on the parties' substantive rights and

obligations.135 Legal relationships that arise before bankruptcy proceedings may be affected after

a party enters bankruptcy proceedings. The rights and obligations of the parties may change the

nature of the occurrence.137 The rights and obligations of the entities affected by the insolvency

proceedings should not always apply the law of the place where the insolvency commenced.138

These scholars summarized the established rights and obligations that may be affected by the

bankruptcy process. They are summarized as follows: (1) the impact on the

134 Coulson, Richard E. Choice of Law in United States

Cross-Border Insolvencies. Denver Journal of

International Law and Policy. 2004.

135 Id.

Id.

debtor's transactions before the bankruptcy declaration, which is mainly realized through the

cancellation system; (2) the effect of the contracts that have entered into force and the claims

related to these contracts are mainly achieved through the system of the bankruptcy

administrator's right to terminate the contracts that have entered into force and the suspension of

related litigation; (3) the impact on the existing guarantees of creditors, which it is realized

through the bankruptcy exclusive right system; (4) the impact on the realization of creditors'

rights, which is mainly realized through the order of liquidation and the offsetting system.

3.4.3 Application of laws to major issues of claims

The substantive issues in the bankruptcy law refer to the issues that directly affect the

relationship between the parties' substantive rights and obligations, such as the composition of

the bankruptcy essentials, the scope of the bankruptcy property, the rights of the bankruptcy

administrator, the proof and confirmation of the bankruptcy creditor's rights, the bankruptcy

distribution order, priority, revocable transaction, right of set off, right of revocation, right of

exclusion, bankruptcy exemption, etc. The purpose of the application of law is to select the part

of the bankruptcy declaration that has changed the parties' reasonable expectation of the

transaction due to the influence of bankruptcy. There are few typical issues for application law.

3.4.3.1 Secured creditor

Secured creditor right refers to the creditor's right not to follow the bankruptcy procedure

but to be paid separately and preferentially by the specific property in the bankruptcy property.

There are two main issues in the security creditor right. (1) The confirmation of the security

real right is whether the law recognizes the real and valid security credit. For example, in terms

of guarantee methods, the floating guarantee system commonly used in some common law

countries is not recognized by other countries, especially civil law countries. Regarding the

formalities requirements for the establishment and entry into force of security claims, due to the

different attitudes to the security system, some countries have simple requirements for

procedures, so the implementation of security rights is easy. However, some have strict

procedures and registration systems. (2) Exercise of security creditor rights in Bankruptcy laws

of various countries generally recognize the priority of security rights in the order of settlement

of bankruptcy claims, but there are still differences in specific regulations. For example, German

bankruptcy law gives more protection to secured creditors. The secured creditor is allowed to

exercise the rights directly on the property and all the proceeds from the price change are owned

by the secured creditor.145 However, French bankruptcy law attaches more importance to the

reconstruction of bankrupt enterprises. There are many mandatory restrictions on the exercise of

secured claims. US bankruptcy law protects security holders between France and Germany

bankruptcy law.

3.4.3.2 Offset

The right of offset derives from Roman Law. Regarding the exercise of the right of

bankruptcy offset, there are two completely different approaches to the recognition and denial of

legislation in various countries. Common law countries and Germany recognize bankruptcy

offset rights. These countries provide that in the event of bankruptcy, offset is compulsory, so this

is typical legislation supporting creditor types.

In the process of bankruptcy, if the creditor's rights of the bankruptcy and the debtor's claims

offset each other, from the economic point of view, the interests of the creditor are easier to

realize and the progress of the bankruptcy process will be smoother. For example, The German

bankruptcy law stipulates that the set-off rights of bankruptcy creditors shall not be affected by

the commencement of bankruptcy proceedings if the creditors enjoy the right of setoff at the

beginning of bankruptcy in accordance with the provisions of the law applicable to the debtor's

claims. Japan's bankruptcy law provides that bankruptcy creditors can offset the debtor's debt at

the time of the bankruptcy declaration without the bankruptcy procedure. The rules of the EU

bankruptcy procedure stipulate that as long as the law supporting the debtor's claims allows

offsetting, the commencement of the bankruptcy procedure does not affect the creditor's right of

offsetting.151 Conversely, there are some countries where bankruptcy laws such as France,

Belgium, Luxembourg, Spain, Portugal and others do not allow offsets. Once foreign courts

allow offsets, in those countries where offsets are prohibited, creditors' proceeds from offsets

may also be recovered. The legal system that allows bankruptcy offsets is different from the legal

system that does not allow bankruptcy offsets, which affects the interests of creditors in various

countries under different legal frameworks.

3.4.3.3 Right of avoidance

The right of avoidance means that after the commencement of the bankruptcy proceedings,

the bankruptcy administrator denies the effectiveness of the acts performed by the bankrupt in

the period before the bankruptcy declaration is detrimental to the interests of creditors. It

eventually asked the court to revoke a right to the act.

Most countries have established the right of revocation system in bankruptcy legislation, but

there are great differences in the requirements for the exercise of the right of revocation. For

example, there are different regulations on the period of revocability of transactions, some as

long as 5 years, some as short as 90 days. Some countries have separate revocable periods for

different behaviors of the debtor and some divide different revocable periods according to the

type of debtor or beneficiary. Some countries, such as the United States and France, deny the

status of motivation in constituting revocable transactions. However, some countries emphasize

that the debtor's motivation is an important constituent condition, such as the United Kingdom.

The original intention of the design of the right of avoidance is to protect the fair distribution of

bankruptcy property. Nonetheless, with the intervention of the right of revocation, the reasonable

expectations formed when the creditor and the debtor reached a transaction were damaged. In

other words, the protection of the right of revocation to the fair distribution of bankruptcy

property is at the expense of the stability of economic transactions.

3.4.3.4 Employment relationship

Employment relationships are a very important issue in bankruptcy proceedings. It involves

not only the fair distribution of property, but also the protection of vulnerable groups. The

employment relationship is divided into two aspects, the effectiveness of the employment

contract and the order of payment of wage claims. After the debtor goes bankrupt, the

effectiveness of the employment contract will be affected by bankruptcy. At the same time, it

affects the interests of both parties, especially the interests of employees. When an employee

signs an employment contract with an enterprise, it is generally understood that the contract

applies the labor security laws of the place of employment, even if the enterprise is a foreign

enterprise or a branch of a foreign enterprise. For wage claims, most countries include them in

the scope of priority claims and give priority to settlement but the specific order is still different.

Dicey and Morris believe that although it is sometimes necessary to apply the original creditor's

law for the existence of a claim, the law of the court should apply to the distribution of

bankruptcy property among creditors and the creditor's order of compensation.

EU rules make clear the legal application of employment relations. The rules hold that the

rules governing the application of bankruptcy to the effectiveness of employment contracts

should be based on the principle of providing adequate and stable legal protection to the

employee. Therefore, it is not appropriate to apply the law of the forum on this issue, but the law

of the member states that govern the employment contract should be applied. For other issues

related to the employment contract, such as the order of claims for wage claims or other rights,

the law of the place where the bankruptcy proceedings are initiated should be applied.

3.5 Conclusion

The contradiction in the application of transnational bankruptcy laws is essentially a matter

of choice of law. Through the analysis in this chapter, two main methods can be concluded to

provide options. One is the traditional method of selecting the law of the forum or the place

where property is located. The other is based on the traditional method, supplemented by a more

flexible method, that is, the doctrine of the most significant relationship. Obviously, in the

complicated situation of transnational bankruptcy cases, the traditional method of selecting the

law is no longer adapted to the needs of practice. It cannot effectively solve the problems of the

application of bankruptcy laws in various countries. The doctrine of the most significant

relationship gives judges greater discretion, but judges' discretion is likely to reduce the certainty

and predictability of the verdict. Therefore, re-establishing a system that minimizes conflicts and

contradictions based on the previous discussion is a practical way to solve the problem of the

application of law in complex transnational bankruptcy cases.

In general, the application of laws in transnational bankruptcy can be determined according

to the following provisions according to different aspects. (1) The subject of bankruptcy is

generally applicable to the law of the forum. The application of laws on bankruptcy capacity

should be treated specially. In accordance with the general principles of the legal system of

international civil litigation, the law of domicile of the actor applies to civil capacity. Therefore,

bankruptcy capacity should be governed by the domicile law of the actor. (2) The scope of

bankruptcy property generally applies to the law of the forum. There are two theories:

territorialism and universalism, so whether the bankruptcy property includes all the property at

domestic and abroad has been widely disputed. (3) The law of the place where the property is

located is generally applicable to the creditor's security rights in the bankruptcy property. The

laws of the country in which the bankruptcy property is secured or the location of the lien are

applicable, but in the specific operation, the legal issue of the establishment of rights should also

be considered. If the applicable law of the contract between the two parties creating the security

interest is different from the law of the place where the property is located, the applicable law of

the contract should be further considered which includes the law that the parties agree to choose

independently. (4) The right of set-off is generally applicable to the law of the court. This is to

protect the interests of domestic creditors. According to the specific circumstances of the case,

the law should be applied flexibly to the offset of domination. If the main claims are governed by

foreign law, the court shall apply the foreign law. If the main claim is governed by the law of the

forum, the court shall apply the law of the forum. (5) The right of avoidance generally applies to

the law of the court. However, in practice, when the court considers the application of the law

that denies transactions that are detrimental to the interests of creditors, the court can apply the

principle of closest ties in a flexible manner. (6) The law of bankruptcy administration should be

applied separately. Procedural issues apply to the law of the court. The law of the forum, the

applicable law of the original legal relationship, or the law of the location of the property shall

apply to the cases where there are differences in substantive issues. The reason lies in the wide

scope and complexity of bankruptcy management. It is extremely unrealistic to uniformly apply

the law of the court to resolve the application of law in bankruptcy management. Therefore, it is

necessary to distinguish between matters governed by the law of the court and matters governed

by other laws.

Chapter 4: Recognition of Transnational Bankruptcy and Assistance in

Transnational Bankruptcy Proceedings

Recognition and assistance in transnational bankruptcy proceedings are at the core of

transnational bankruptcy cooperation. Almost all transnational bankruptcy laws address this

issue. The realization of the extraterritorial effect of bankruptcy depends on the recognition and

assistance of foreign courts.

Recognition and assistance of foreign bankruptcy judgments are an important part of

international cooperation. Without the explicit recognition of the country concerned, the

bankruptcy judgment of a foreign court has no legal effect in that country's territory. No foreign

agency or individual can compel the country to recognize and enforce bankruptcy judgments

made by the foreign court. Otherwise, it constitutes a violation of the country's national

sovereignty.

The recognition and enforcement of foreign bankruptcy judgments is a matter of national

private international law systems. The legal requirements for the recognition and enforcement of

foreign bankruptcy judgments vary greatly from country to country. This difference is manifested

not only in the differences between the civil law system and the common law system, but also in

the differences between countries within the two major legal systems. These differences are

mainly related to the conditions and procedures for the recognition and enforcement of foreign

bankruptcy judgments.

4.1 Prerequisites for Enforcing Transnational Bankruptcy Judgments

Compared with general civil and commercial judgments, bankruptcy judgments are

characterized by complexity and diversity. Civil and commercial affairs only solve one legal

problem and the implementation is completed once. As less disputes arise, the recognizing State

generally conducts procedural review only. Bankruptcy judgment usually involves basic

principles in a country's law, so recognition is relatively complex. Some problems are quite

complex, such as the order of priority, the status of tax claims and so on. In addition, some of the

different matters included in the bankruptcy judgment only need to be recognized and not

involved in execution, such as declaration of insolvency. Some need not only recognition, but

also assistance and enforcement, such as the collection and auction of property and the

involuntary release of the debtor from seizure. Therefore, its recognition and enforcement is

much more difficult and complicated than general civil and commercial judgments.

While stipulating that national courts need to recognize and enforce foreign court

bankruptcy judgments, each country has stipulated corresponding conditions without exception.

Recognition and enforcement are only accepted internationally if certain conditions are met. As

for the specific content of these conditions, the regulations made by different countries' laws are

different. It is difficult to unify. The national legislation can be summarized as follows.

4.1.1 Comity

The doctrine of comity claims that the recognition of foreign civil judgments by domestic

courts is not based on the fact that the judgments of foreign courts have extraterritorial effects,

but on the behavior of domestic courts based on a comity to foreign countries. Comity is not a

compulsory rule, but it is for practical, convenience and benefit considerations. It is not a

compulsory obligation. On the contrary, comity is a state's understanding of international

obligations.

According to comity, when considering the recognition and enforcement of foreign

bankruptcy judgment, the court of a country respects the jurisdiction of the court of another

country which has already exercised jurisdiction over the bankruptcy case. If the requesting party

can demonstrate that the foreign court has proper jurisdiction, does not violate the public policies

of the requested State, and does not prejudice the rights of the citizens of the requested State, the

requested State usually grants foreign courts a courtesy. Comity should be refused only if the

granting of comity would harm the national interests of the requested State.6 Comity is neither

compulsory nor autonomous. The court of a country has a large discretion to choose whether to

grant the foreign bankruptcy judgment with comity, so as to ensure that the debtor's property is

distributed to the creditor in a fair, orderly and systematic manner. The United States is the most

typical representative of comity. Before the bankruptcy law came into force in 1978, the court

had few statutory provisions to guide how to solve complex transnational bankruptcy cases, so

the court had to rely mainly on comity theory.

With regard to the recognition of foreign bankruptcy proceedings, the Supreme Court of

Canada has also developed the principle of international comity in some cases of transnational

bankruptcy in recent years. For example, Amchem Products Inc v. British Columbia in 1993,

Hunt v. T & N pic, Hutt v. Mogade 1990 Investment Limited v. Morguard In-vestments Ltd v.

De Savoye, etc. The reasoned that traditional common law rules on the recognition and

enforcement of foreign judgments paid too much attention to political factors such as national

sovereignty and independence, which often led to unfair results. In modern society, in order to

promote the healthy development of international economic transactions, it is necessary to solve

problems with a view of comity. If insolvency proceedings are not commenced in Canada,

Canadian courts can enforce foreign insolvency decisions on the grounds of judicial comity.15

There are six considerations for whether to provide relief to a foreign insolvency

representative under Section 304 of the US Bankruptcy Law. Although comity is only one of the

factors, it is often the most important. US courts have in fact been given maximum flexibility.

The court applies Section 304 when necessary. And the court respects international courtesies

and foreign bankruptcy judgments. For example, in the Cunard Steamship Co. v. Salen Reefer

Services AB case, the debtor, a Swedish company, started a bankruptcy proceeding in Sweden.

The Swedish court appointed an insolvency administrator to manage the debtor's property and

made a decision to suspend creditors' actions against the debtor. Then, the plaintiff, a British

creditor, obtained a ruling that seized some of the debtor's property in the United States. The U.S.

District Court rejected the closure decision, decided to give courtesy to the Swedish bankruptcy

proceedings, and recognized the decision of the Swedish court to suspend the

creditor's behavior. The Court of Appeals of the Second Circuit affirmed the District Court's

approach and further emphasized the policy considerations in favor of courtesy that Swedish

bankruptcy procedures are fair on procedural matters.20 Both Swedish bankruptcy law and US

bankruptcy law emphasize fair distribution of the debtor's property. There is no indication that

creditors will be treated unfairly in Sweden's insolvency proceedings.

Similarly, in the Lindner fund Inc. v. Polly peck Int'l PLC case, the U.S. court gave a comity

to the British bankruptcy proceedings and rejected the claims of the U.S. creditors. In the case,

the court held that courtesy would normally be given to bankruptcy proceedings in sister

common-law countries because such procedures are fair and consistent with US bankruptcy law.

In the Allstate Life Ins. Co. v. linter group case, the Court adopted a very broad point of comity,

rejected two securities fraud lawsuits brought by American creditors and gave comity to the

liquidation procedure in Australia. The court held that, although the Australian bankruptcy

process differs from the U.S. bankruptcy process, the difference is slight.26 What's really

important is that Australia's insolvency law provides for suspension procedures to focus claims

and ensure fair distribution of property.27 In the case of Philadelphia Gear Corp. v. Philadelphia

Gear de Mexico, the third circuit court of the United States held that if the district court was

initially requested to suspend the proceedings, the district court should not exercise its discretion

to refuse the comity of foreign proceedings without considering the relevant factors. Moreover,

the District Court should not make a decision to refuse a courtesy until it has clearly explained

the reasons for it.

As one of the basic requirements, when a foreign debtor asks a US court to give a comity or

suspend a proceeding, the person should prove that the foreign proceeding aims at equitable

allocation of the debtor's property as the US proceeding or that the foreign law provides for the

100

suspension of the proceeding. The court of the United States should first assume the comity to

the foreign procedure, and then consider whether the foreign court has jurisdiction; whether the

foreign law provides fair treatment to the creditor; whether the suspension procedure is harmful

to the interests of the United States; and whether the interests of American citizens will be

damaged by the suspension of the procedure. After comprehensive consideration of these factors,

if the hypothesis of supporting politeness has not been overturned, foreign procedures should be

given comity.32 The Philadelphia Gear case largely restricted the court's discretion to refuse

comity. This shows that the adoption of broad comity views by US courts is in line with the trend

of modern international bankruptcy law.

However, although there are policy considerations to encourage comity, it is not mandatory

and automatic to grant comity to foreign insolvency proceedings. Comity is the result of the

discretion of a country's courts based on the facts of a particular case, so the court has the right to

refuse to give comity after balancing the advantages and disadvantages. The most important

consideration for American courts to refuse comity is that the interests of American citizens are

harmed.34 For example, many courts, when considering whether to grant a foreign proceeding as

a courtesy, require that the foreign proceeding does not result in unfairness to US citizens, does

not damage the interests of creditors under US law, and does not violate US public policy.

In the case of Drexel Burnham Lambert Group v. Galadari, the second circuit denied the

district court's extension of comity to the liquidation process in the United Arab Emirates. The

second circuit court held that further investigation on the fairness of the UAE bankruptcy

procedure and the consistency of the US bankruptcy law was necessary. Because the United

Id.

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States has no experience with UAE bankruptcy proceedings, it is difficult to conclude whether its

bankruptcy law is fair.38

In Overseas Inns v. United States, a Luxembourg company filed for bankruptcy in

Luxembourg and received a court-approved reorganization plan. The company asked the U.S.

court to give comity to the court's decision in Luxembourg and allow it to pay part of its

outstanding U.S. taxes. The Fifth Circuit Court of the United States supported the district court's

refusal of comity. The U.S. Fifth Circuit Court held that U.S. public policy strongly supports full

payment of taxes even if the taxpayer is bankrupt. The court noted that under United States law,

the tax authority was acting as a secured creditor with priority.43 However, under Luxembourg's

restructuring plan, the tax authorities are acting as unsecured creditors.44

34 Id.

102

Comity cannot harm US tax interests.45 On this issue, the Luxembourg bankruptcy law is very

different from the US bankruptcy law, so comity should be refused.46

There is no doubt that for any country to achieve healthy development, it must rely on the

cooperation and exchanges of the international community. This makes the mutual recognition

and enforcement of judgments play a more important role in promoting the civil and commercial

exchanges. In order to properly resolve transnational bankruptcy cases, effectively protect the

legitimate rights, and interests of the parties, it is necessary for all countries to strengthen

international cooperation in the field of justice without prejudice to national sovereignty.

However, due to the lack of uniform bankruptcy laws, international conventions around the

world, and no clear definition of comity, courts in various countries have to rely on a vaguely

defined international comity to recognize and enforce foreign bankruptcy judgments. Therefore,

the subjective reason of the comity theory brings some problems to mutual legal assistance,

which causes the uncertainty of the courts of various countries in the recognition and

enforcement of foreign bankruptcy judgments.

4.1.2 Reciprocity

Reciprocity in international cooperation between countries is very different. When

recognizing foreign bankruptcy on the basis of comity, a country often seeks to coordinate

different judicial systems of different countries as much as possible. As one of the conditions for

the recognition and enforcement of foreign court's judgments by domestic courts, reciprocity

means that the law of a country stipulates that domestic courts should recognize and enforce the

judgments made by foreign courts because it expects that the judgments of domestic courts can

Id.

103

also be recognized and enforced by relevant foreign courts under the same circumstances.47

Theoretically, the increase of the debtor's property value can make up for the loss of the creditor

to a certain extent. The principle of universality is more difficult for countries to accept without

the cooperation of other countries and without relying on the roughly flat results of reciprocity.

In this case, it is difficult for any country to increase the predictability of the bankruptcy law to

the benefit of its creditors.

Although the recognition and enforcement of foreign bankruptcy judgments on the ground

of reciprocity is an important condition that cannot be ignored, there has been controversy over

whether reciprocity is a prerequisite for expressly stipulated by foreign law. Some countries

believe that reciprocity does not necessarily require the explicit provisions of foreign law. If the

foreign law does not provide for this, the existence of reciprocity can be presumed by previous

cases or theories.53 This method is also called cooperative reciprocity by German scholars. Some

Japanese scholars believe that the legal systems of bankruptcy in countries around the world are

very different. It is a waste of time to compare the bankruptcy laws of the two countries to

determine whether there is reciprocity.56 Therefore, as long as Japanese creditors are not

discriminated against, reciprocity can be presumed.57 Some American scholars

47 JingXia Shi. Research on Legal Issues of Transnational Bankruptcy. Wuhan University Press.

1999. Ed.1. P102.

also believe that reciprocity is an appropriate but not an important factor to provide comity when

deciding whether to recognize and enforce foreign bankruptcy judgments.

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Nonetheless, some other countries insist that reciprocity must require the explicit provisions

of foreign law. For example, the Bankruptcy Law of the United Kingdom stipulates that the

courts of the United Kingdom shall only recognize and enforce bankruptcy matters in the courts

of the relevant country or region. When designating the relevant country or region, the British

Parliament's key consideration is which courts of these countries or regions have a mutually

beneficial relationship with the UK in this regard.

The main reason for reciprocity is based on pragmatism. This pragmatism attaches

importance to the interests of its own country. Too much attention to reciprocity requirements is

not in line with the development trend of modern bankruptcy law.

4.1.3 Proper jurisdiction

Foreign courts should have appropriate jurisdiction, which is a condition generally

recognized by the international community for the recognition and enforcement of foreign court

judgments. Appropriate jurisdiction is provided in Germany, Italy, the United Kingdom, Japan64

and so on. Similarly, when deciding whether to recognize and enforce a foreign bankruptcy

judgment, it is also very important to consider whether the foreign court has proper jurisdiction.

Id.

105

According to English case law, the primary condition for English courts to recognize a

foreign bankruptcy judgment is whether the bankruptcy case is under the jurisdiction of the

debtor's domicile or the company's principal place of business. Moreover, such jurisdiction is

considered appropriate by foreign courts. French courts must consider whether to approve an

application for recognition of a foreign judgment, whether the French courts have exclusive

jurisdiction and whether the jurisdiction claimed by the applicant is acceptable.

When judging whether the foreign court has the proper jurisdiction, the rules vary greatly

from country to country. In order to implement uniform cross-border insolvency laws in EU

member states, the European Union governor's EU bankruptcy rules provide that the rules for

initiating bankruptcy proceedings made by the courts of member states that have jurisdiction

under the rules will be recognized in other member states since its entry into force.68 Moreover,

the jurisdiction of the court in the country in which the review proceeded was not provided.69

In addition, when the court of one country accepts the bankruptcy case, it is often unable to

predict in which country the judgment will ultimately be required to request recognition and

enforcement. Even if the court of the requesting country can foresee that its judgment needs to be

recognized and enforced in a specific country, there may be doubts as to whether the judgment

can be enforced. For example, judgments need to be recognized and enforced in the courts of two

or more requested countries, and the jurisdictional provisions of these requested countries' courts

are different or even opposite, which may make the judgments unenforceable. This is directly

related to the fair compensation of creditor's rights and the effect of bankruptcy to maximize the

debtor's property.

Id.

106

4.1.4 Public Policy

The theory of public policy is based on the theory of comity. A country's courts will not

recognize foreign insolvency proceedings that are contrary to its public policy. Public policy is

the most important reason for a country to refuse to recognize the effectiveness of foreign

judicial procedures in its own country. At present, when formulating or revising bankruptcy rules,

various countries pay more attention to some issues than the original, such as the protection of

labor relations, environmental policies, compensation for injuries caused by large torts, the

control of company guarantee transfers, and the reform of insurance systems. In this process, the

bankruptcy law of various countries has changed from the original law which only deals with the

insolvent creditor debt relationship and disputes between creditors to a complex legal mechanism

which coordinates different social interests. Therefore, countries can achieve greater cooperation

in dealing with bankruptcy issues only when the legal coordination of some non-bankrupt

business activities is greatly enhanced.

The recognition and enforcement of foreign judgments must not conflict with the public

policy of the country, which is a condition generally accepted by the international community.

National legislation and relevant international treaties have made clear provisions. For example,

the German civil procedure law provides for a public order clause, which is not aimed at the

foreign insolvency law itself, but at whether the recognition of the outcome of the foreign

insolvency proceedings is detrimental to the basic principles of German law. According to the

article, if the result of the recognition of foreign insolvency proceedings is obviously contrary to

the basic principles of German law, especially the basic rights of citizens stipulated in the basic

law, Germany will refuse to recognize foreign insolvency proceedings. Therefore,

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noncompliance with German public order is one of the prerequisites for foreign bankruptcy

proceedings to be recognized. In addition, The EU rules on insolvency proceedings of the

European Council provide that any member state may refuse to recognize such proceedings or

enforce such judgments if the consequences of the recognition and enforcement of insolvency

proceedings commenced in another member state or the enforcement of judgments made in such

proceedings are obviously inconsistent with its own public policies, especially the basic

principles or the rights and freedoms of individuals guaranteed by the constitution.

In the recognition of foreign bankruptcy proceedings, there are many considerations of

public policy, the most important of which is the recognition and enforcement of foreign

bankruptcy judgments without harming the country's major interests, basic policies, morals and

basic principles. As a condition for the recognition and enforcement of foreign bankruptcy

judgments is a highly flexible factor. The discretion of judges plays an important role. In the field

of conflict law, public order is indeed one of the conditions to be considered. The courts of any

country will not recognize foreign bankruptcy judgments that are contrary to their public order,

so public policy may become a non-negligible factor that hinders international cooperation in

transnational bankruptcy cases.

4.1.5 Fairness

In transnational bankruptcy, fair treatment of all creditors has become the goal of insolvency

proceedings. In transnational bankruptcy, the fair treatment of all creditors has become a

bankruptcy procedure. When a foreign court hears a bankruptcy case, foreign creditors and

domestic creditors must be treated fairly without discrimination. This is one of the conditions for

the recognition and enforcement of foreign bankruptcy judgments. If a foreign bankruptcy

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proceeding violates this condition, the judgment of a foreign court cannot be recognized and

enforced.81

According to Japanese law, foreign creditors and domestic creditors are in exactly the same

position during the corporate reorganization process. However, in the bankruptcy procedure, the

equal treatment of foreign creditors according to the Japanese bankruptcy law should be

determined according to the principle of reciprocity. Japanese scholars generally believe that the

reciprocity required in the bankruptcy law is interpreted as that Japanese creditors should be

given the same treatment as the foreign creditors. Sometimes in practice, Japanese courts have

not considered this requirement, but in some cases, foreign creditors are treated better than

Japanese creditors.

The U.S. bankruptcy law makes fair treatment of all creditors the primary consideration for

U.S. courts to assist foreign bankruptcy. In fact, US courts often refuse to recognize and provide

assistance to foreign bankruptcy because their creditors are not treated fairly.

Moreover, when a British court recognizes foreign bankruptcy, it requires British creditors

to declare their claims in the foreign proceeding and get equal settlement with pari passu.

All countries in the world regulate the legislation of transnational bankruptcy according to

their legal tradition, culture, politics, and economy. Despite equal treatment of creditors, it is

difficult for any country to achieve full egalitarian bankruptcy proceedings. Because the

relationship between creditors and debts is no longer limited to one country's legal jurisdiction,

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the legislation of each country will take the protection of the interests of its own creditors and its

own country as the first consideration in formulating bankruptcy rules and exercising judicial

power. Moreover, the court tries its best to maintain the economic order of the country. Once the

interests of the debtor's domestic creditors cannot be satisfied from the debtor's property and

cannot be fairly protected by foreign countries, recognition and enforcement of foreign

bankruptcy judgments will be impossible.

4.1.6 Treaty

In order to facilitate the recognition and enforcement of cross-border insolvency

proceedings, countries can conclude treaties to make agreements on the recognition and

assistance of cross-border insolvency proceedings of other countries, so as to adjust the conflicts

in cross-border insolvency proceedings. Such treaties include international conventions, regional

international treaties, bilateral and multilateral treaties. The treaty played an important role in the

field of cross-border insolvency in continental Europe. Prior to the creation of the EU regional

treaties, many European countries signed dozens of unilateral and multilateral treaties with each

other, such as the treaty on bankruptcy, liquidation and reorganization between Italy and

Austria or treaty between Germany and Austria on Bankruptcy, Liquidation and

Reorganization. Countries within Europe rely on these treaties to adjust their cross-border

insolvency procedures. With the continuous expansion of the EU Council's competence in the

field of civil cooperation, the EU Convention On Insolvency Proceedings were adopted in 2000,

which came into effect in most EU countries in 2002. EU bankruptcy rules have played a

positive role in adjusting jurisdictional conflicts in the area of cross-border insolvency.

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4.1.6.1 Bilateral and multilateral treaties

Bilateral and multilateral treaties usually have the following functions: 1.treaty turns

uncertain grounds into legal provisions; 2.treaty provides a solid foundation for reciprocity; 3.

the treaty expands the scope of recognized judgments. By signing bilateral or multilateral

treaties, countries can sign bilateral or multilateral treaties in line with the legislative systems of

the two countries on the basis of the similarities and differences of the insolvency systems

between the two countries. In this way, the rights and obligations of the bankrupt creditors and

debtors of the two countries or contracting states can be better protected.

4.1.6.2 International conventions and interregional treaties

When international conventions and interregional treaties are not signed, one country has no

obligation to recognize or enforce court judgments in another country. Although few countries in

judicial practice have directly refused to recognize and enforce judgments of other countries

because they have not entered into or participated in international treaties, one country has no

right to force another country to recognize and enforce its own judgments. The first convention

in history to address the recognition and enforcement of judgments is the 1878 Lima Treaty.

Although the convention ultimately failed to enter into force, it provided a theoretical direction

for the recognition and enforcement of judgments. Montevideo's International Procedural Law

Treaty of 1989 provides that the judgments of other countries that meet specific requirements

have the same effect as national judgments. In 1928, 15 Latin American countries signed the

Bustamante Code. The Convention recognizes the bankruptcy order and debt settlement order of

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other Contracting States, the power of the insolvency representative designated by the Foreign

Contracting States, and the foreign decision on canceling or modifying a transaction, especially

the transaction harmful to the interests of the debtor concluded by the creditor at a specific time

before the declaration of bankruptcy. Although some countries have not signed the Bustamante

international private code or have made a large degree of reservation despite the signing, the

Bustamante international private code has a profound impact on member countries and other

countries outside the member countries in cross-border insolvency cooperation.

Other international treaties related to recognition and enforcement of judgments are

Convention on jurisdiction and the recognition and enforcement of judgments in civil and

commercial matters of 1932, Treaty on International Procedural Law of 1940, New York

Convention of 1958, and Hague Convention of 1971. The Hague Convention specifies the

conditions and procedures for recognition and enforcement of foreign judgments in civil and

commercial cases, as well as litigation concurrence, the retroactivity of treaties and other issues.

However, according to Article 1 of the Hague Convention 1971, the Convention should not apply

to decisions the main object of which is to determine questions of bankruptcy, compositions or

analogous proceedings, including decisions which may result therefrom and which relate to the

validity of the acts of the debtor.

In order to resolve the issue of recognition and enforcement of judgments in bankruptcy

proceedings, the European Community adopted the Draft of the Bankruptcy Convention in 1982.

However, the draft convention adopts the single bankruptcy system on the recognition and

enforcement of bankruptcy judgment and the draft was ultimately rejected. The European Union

’s outstanding contribution to the recognition and enforcement of cross-border insolvency

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judgments is the EU Bankruptcy Procedures Regulations adopted by the European Council in

2000 and effective in 2002. EU bankruptcy procedure regulations regulate the recognition and

assistance of cross-border bankruptcy procedure from the aspects of recognition of bankruptcy

procedure, subordinate bankruptcy procedure, notice to creditors, declaration of creditor's rights

and transition. Nonetheless, the EU Bankruptcy Procedure Regulation does not specify the

conditions for the enforcement of the judgment and the reasons for refusal.

In May 1997, UNCITRAL adopted the UNCITRAL Model Law on Cross-Border

Insolvency. The model law on insolvency provides a framework for transnational recognition of

certain decisions of foreign courts and provides for issues such as how to commence insolvency

proceedings and appoint an insolvency representative. The model law on insolvency includes

five chapters and thirty-two articles. The Model Law on Bankruptcy covers four aspects: foreign

bankruptcy administrators and creditors' involvement in domestic procedures, recognition and

assistance of foreign bankruptcy procedures, cooperation with foreign courts and foreign

bankruptcy administrators, and coordination between concurrent bankruptcy proceedings.

However, with regard to the recognition and enforcement of related judgments in certain foreign

bankruptcy proceedings, the Model Bankruptcy Law does not provide the necessary

authorization.108 This makes the validity of such judgments uncertain.

In response to the above issues, United Nations Commission on International Trade Law

Working Group V (Insolvency Law) Fifty-second session formulated the Recognition and

enforcement of insolvency-related judgments: draft model law. The draft model law was intended

to cover the categories of judgments, procedures for recognition and enforcement, and the

reasons for refusing recognition. In addition, the draft model law sets out the procedures

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for the recognition and enforcement of bankruptcy-related judgements. Although the model law

does not have a coercive force, on this basis, with the continuous expansion of the influence of

the model law and the efforts of the United Nations and other countries, it is expected to form an

International Convention on the basis of the model law.

Treaties are one of the most important components of international law. Countries signing or

acceding to international treaties are bound by the treaties. Treaties can provide relatively definite

guidance and predictions for legal relationships, so the treaty has strong stability and

predictability. Moreover, it has a positive effect on the rule of law in the international community

4.1.7 Domestic Law

In the absence of a treaty, recognition and assistance in foreign insolvency proceedings is

usually judged in accordance with the domestic law of the state. Although countries around the

world recognize and enforce judgments of foreign courts based on different conditions, the gap

between countries is still significant. Review foreign bankruptcy proceedings in accordance with

standards set by domestic law and grant recognition and enforcement if other countries comply

with domestic law. In 2000, Japan enacted the Act on Recognition of and Assistance for Foreign

Insolvency Proceedings, which granted its courts the right to recognize and enforce the

bankruptcy judgment of foreign courts. Singapore's Reciprocal Enforcement of

Commonwealth judgments act and Reciprocal Enforcement of Foreign Judgments Act provide a

legal basis for Singapore's courts to recognize and enforce foreign judgments.113

4.2 Procedures for Recognition and Enforcement of Transnational

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Bankruptcy Judgments

International cooperation in cross-border insolvency cases is premised on recognition of the

insolvency proceedings of the other country. There is no possibility of cooperation if a state does

not recognize insolvency proceedings commenced in the other state.

4.2.1 Object of recognition

In the bankruptcy liquidation procedure, the bankruptcy judgment mainly includes the

judgment of starting and terminating the bankruptcy procedure. The verdict is a declaration of a

certain state. According to the classification system of civil judgment in the theory of civil

procedure law, judgment can be divided into performance judgment, confirmation judgment and

formation judgment. The judgment of bankruptcy procedure court can be classified as

confirmation judgment or formation judgment.

In fact, the recognition of foreign bankruptcy procedure is the recognition of the judgment

of the starting bankruptcy procedure. Due to the different time and way of starting bankruptcy

proceedings in different countries, this judgment may be the judgment of the court accepting the

bankruptcy application or the judgment of declaring the debtor bankrupt. Recognition of this

judgment is actually recognition and declaration of the debtor’s bankruptcy.

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4.2.2 Application

Although the EU regulations provide for major insolvency proceedings in the country where

the debtor's main interests are located and for subordinate insolvency proceedings in the country

where the debtor's place of business is located, these proceedings shall be recognized in all other

member states as of the date of their entry into force in the country where the proceedings began.

As a result, there is no question of applying to other EU countries for recognition of their

insolvency proceedings in EU member states. This approach is good, but it is related to the

special composition of the EU. It is difficult to achieve in the global or other regional economies.

In most cases, if foreign insolvency proceedings are to be recognized by the executing state, an

application for recognition by the executing state is required.

4.2.2.1 Subject

From the perspective of comparative law, there are mainly three situations for the subject of

applying for recognition of general foreign civil and commercial judgments. First, only the

litigants can apply. Second, only the original judgment court can apply. Third, both parties and

the original judgment court are allowed to apply.122

For example, in China, Civil Procedure Law of the People's Republic of China provides

that if a legally effective judgment or ruling made by a people's court is not within the territory of

the people's Republic of China and the party concerned requests execution, the party concerned

may directly apply to a foreign court with jurisdiction for recognition and

execution. The people's court may also, in accordance with the relevant provisions of the

international treaties concluded or acceded to by China, or with the principle of reciprocity,

Id.

116

request recognition and enforcement by the foreign court. Another provision is for foreign courts

to apply for recognition in China. That is, if a legally effective judgment or written order made

by a foreign court requires recognition and enforcement by a people's court of the People's

Republic of China, the party concerned may directly apply for recognition and enforcement to

the intermediate people's court of the People's Republic of China which has jurisdiction. The

foreign court may also, in accordance with the provisions of the international treaties concluded

or acceded to by that foreign country and the People's Republic of China or with the principle of

reciprocity, request recognition and enforcement by a people's court. However, it is different

from the two methods stipulated in the Chinese Civil Procedure Law. For instance, the mutual

legal assistance agreements concluded between China and France, China and Spain, and China

and Italy, stipulate that applications for recognition of foreign court judgments should be

submitted by the parties to the requested State. The legal assistance agreement concluded

between China and Turkey can only be submitted to the court of the requested country by the

original judgment court through the judicial organ.

UNCITRAL Model Law on Cross-Border Insolvency with Guide to Enactment and

Interpretation adopts the method of filing an application by a foreign bankruptcy

administrator. The Model Law provides that A foreign representative may apply to the court for

recognition of the foreign proceeding in which the foreign representative has been appointed.

From the point of view of this article, the application for recognition of foreign bankruptcy

proceedings should be filed by the foreign bankruptcy administrator. In Switzerland, according to

Switzerland's Federal Code on Private International Law regulations, foreign bankruptcy

administrators also have the right to apply to the Swiss courts to recognize foreign bankruptcy

proceedings. In addition to the foreign bankruptcy administrator's application for recognition,

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creditors are also entitled to apply recognition.134 Creditors are also included in the list of

applicants because the insolvency administrator is often unable to grasp the exact situation of the

debtor's property in a foreign country. Moreover, the bankruptcy administrator sometimes cannot

or unwilling to deal with this part of the property.

Therefore, for the application of recognition of general foreign civil and commercial

judgments, the basis subject of application is the parties to the case or the trial court of the case.

The application is made by the parties to the case because there is a close relationship between

the parties to the recognition of the judgment and the final execution.

4.2.2.2 Time

In general, the time for recognition of the court decision of the requesting State should be

after the judgment of the court of the requesting state is made or comes into force. If the court of

the requesting State has not yet rendered a judgment, there are no issues of requesting

recognition from another state.

Although the Model Law on Cross-Border Insolvency does not clearly stipulate that the

time for filing an application for recognition should be after the commencement of insolvency

proceedings in the court of the requesting state, it should be possible to draw such a conclusion

from the analysis of Article 15 of the Model Law. Article 15, paragraph 1, gives the foreign

bankruptcy administrator the right to apply for recognition. Moreover, a foreign insolvency

representative needs to be created after the commencement of the foreign insolvency

proceedings. Therefore, from a logical analysis, the time for filing an application for recognition

should be after the commencement of bankruptcy proceedings in the court of the requesting

Id.

118

country. If the interpretation of Article 15 (1) is not sufficient, Article 15 (2) stipulates that when

a foreign bankruptcy administrator applies for recognition, applicant shall submit to the court of

the requesting state materials that can prove that the foreign insolvency proceedings have been

commenced and that the foreign insolvency representative has been appointed. These materials

can be a certified copy of the decision commencing the foreign proceeding and appointing the

foreign representative, a certificate from the foreign court affirming the existence of the foreign

proceeding and of the appointment of the foreign representative, or any other evidence

acceptable to the court of the existence of the foreign proceeding and of the appointment of the

foreign representative. Obviously, according to the provisions of the Model Law, the time for

filing an application should be after the court of the requesting State has formally commenced

insolvency proceedings.

With regard to the timing of the application for recognition, some countries have other

regulations. The recognition and assistance law of foreign bankruptcy procedure in Japan

stipulates the situations in which the applicant files an application after the commencement of the

foreign bankruptcy proceedings. At the same time, Japan also stipulates that an application for

recognition can be filed before the commencement of foreign bankruptcy proceedings.141 The

Japanese approach has positive significance and demonstrates the openness and friendliness of

Japanese law in transnational bankruptcy cooperation. However, when the bankruptcy

proceedings have not been initiated and the bankruptcy administrator has not yet been created,

the debtor may not make an application for recognition.

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As a result, the model law on the timing of applications for recognition is worth adopting. In

addition, the application for recognition to the court of the requested country should be made

after the court of the requesting country officially initiates the bankruptcy proceedings.

4.2.2.3 Evidence

When the foreign bankruptcy administrator submits an application for recognition and

enforcement to the requested country, the foreign bankruptcy administrator shall provide

corresponding application materials.

i. Composition of application materials

When the foreign bankruptcy administrator submits an application for recognition to the

requested country, the foreign bankruptcy administrator provides proof that the foreign

bankruptcy proceedings have begun or other necessary evidence from the country is the

minimum requirement. For example, the Model Law stipulates that (a) A certified copy of the

decision commencing the foreign proceeding and appointing the foreign representative; (b) A

certificate from the foreign court affirming the existence of the foreign proceeding and of the

appointment of the foreign representative; or (c) In the absence of evidence referred to in

subparagraphs (a) and (b), any other evidence acceptable to the court of the existence of the

foreign proceeding and of the appointment of the foreign representative.

During the review of the model law, it was suggested that the foreign insolvency

representative should be required to provide explanations and evidence on the nature and

jurisdictional basis of the foreign proceeding, so as to enable the courts of the requested state to

decide whether the procedure for application for recognition is the main procedure or not. This

Id.

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suggestion has not received majority approval during the review process. The objection is that

such a provision is not necessary because the foreign bankruptcy administrator will provide all

necessary evidence to the court in order to expedite the recognition process. There is no

mandatory requirement in the finally adopted model law. But from the perspective of the actual

operation of the program, these suggestions are helpful.

In addition to the evidence that a foreign proceeding has been commenced and that a foreign

insolvency representative has produced, the model law also provides for a category of materials

that are required to be provided if these evidence exist.

The analysis of the materials specified in Article 15, paragraph 3 of the Model Law is

obviously not directly related to the recognition of the application itself. The existence of other

bankruptcy proceedings against the same debtor is not a consideration in determining whether an

applicant ’s application should be approved. Therefore, what is the purpose and significance of

this paragraph? Working Group V was aware of this problem and responded to it. The court

needs such information not primarily to make a decision on recognition, but the court needs to

make a decision on relief for foreign proceedings. In order to properly adjust this relief, the court

needs to be aware of all foreign procedures that the debtor may be carrying out in a third country.

Not only that, Working Group V also pointed out that this clause determines specific

responsibilities so it is very beneficial.148 There are two reasons to explain why this clause is very

useful. First, the foreign representative may have more comprehensive information about the

debtor ’s affairs in a third country than the court. Second, the foreign representative ’s main

concern may be to obtain assistance in favor of his own foreign procedure, while the foreign

representative is less concerned about coordination with another foreign procedure.

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ii. Requirements for application materials Each

country has some rules on the application for recognition and enforcement of

judgments such as language or notarization.

For language, article 15, paragraph 4, of the Model Law stipulates that the court may require

that documents supporting the application for recognition be translated into an official language

of the country. The model law is limited to its own purposes and functions. There are no

mandatory requirements on the language requirements of the application materials, but the model

law is authorized to be decided by the enacting country. The Chinese Civil Procedure Law

stipulates that the people's court shall conduct trials of civil cases involving foreign elements in

the spoken and written language commonly used in the People's Republic of China. Translation

may be provided at the request of the parties concerned, and the expenses shall be borne by them.

In addition, the Chinese Civil Procedure Law stipulates that the letter of request for judicial

assistance and its annexes sent by a foreign court to a people's court shall be appended with a

Chinese translation or a text in any other language or languages specified in the relevant

international treaties.

For notarization, in the general practice of judicial assistance, it is normal to require foreign

parties to provide notarized or diplomatic documents. However, when an application for

recognition is filed by a foreign bankruptcy administrator in cross-border insolvency

international cooperation, the application materials are generally not required to be notarized or

consular.

For example, in the report of the working group on insolvency law on the work of the

eighteenth session, there is no provision in the Articles on Evidence of Foreign Procedures

Id.

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whether evidence in foreign proceedings needs to be notarized or consular. In the report of the

working group on insolvency law on the work of the nineteenth session, there were provisions

for the first time that evidence of foreign proceedings does not require notarization or other

similar procedures. In response to this change, the working group on Insolvency Law responded

that denying notarial requirements meant avoiding time-consuming requirements involving

notarial or consular procedure, which were not congruent with the required element of

speedy treatment of applications by foreign representatives. Eventually, the documents presumed

to support the application for recognition, in the finally adopted Model Law, do not require any

special form of notarization or consular procedures.

It should be noted that in the notary or consular procedure requirements for the recognition

of application materials, the Model Law only adopts the method that the court has the power to

presume the authenticity of the materials. Therefore, since it is a presumption, the court does not

have to rely entirely on the presumption of truth. Moreover, the presumption can be overturned if

the contrary evidence exists. This treatment is very necessary. In cross-border bankruptcy cases,

the requested and requesting countries may belong to different jurisdictions and the courts of

each country may not be familiar with each other ’s legislation and justice. Thus, the court is

most likely not willing to conduct activities based on an uncertified foreign document. Under this

situation, the court of the requested country should be allowed to request recognition of the

application to perform the necessary notarization or consular procedures.

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4.2.2.4 Court of acceptance

When the Model Law was first drafted, the working group discussed the question of which

court in a particular country should be the “main” court and mentioned several considerations.

For example, the geographical distance of the court to the assets involved or the possibility that

the court required to issue the emergency protection measures may not be the competent court

that ultimately decides on the application for recognition.157 However, after deliberation, the

working group concluded that due to the variety of such factors, it is not feasible to make

Id.

124

provisions in the Model Law. In the end, the Model Law leaves this issue to the discretion of

each country. The model law only makes suggestive provisions for the sake of increasing the

transparency of legal provisions that is “The functions referred to in this Law relating to

recognition of foreign proceedings and cooperation with foreign courts shall be performed by

[specify the court, courts, authority or authorities competent to perform those functions in the

enacting State].”

For this issue, Japan and South Korea have adopted a similar consistent approach, that is, a

specific court is responsible for accepting cases of recognition of foreign bankruptcy

proceedings. In Japan, the Law on the Recognition and Assistance of Foreign Bankruptcy

Procedures provides that recognition and assistance cases shall be subject to the exclusive

jurisdiction of the Tokyo District Court. The reason for this issue is that, on the one hand, due to

the special nature of the event, centralized jurisdiction is appropriate. On the other hand,

considering the convenience of foreign property managers in application, Tokyo, as the

international transportation center of Japan, should be the most convenient. However, the

Tokyo District Court accepts the transfer trial to recognize foreign bankruptcy cases.

According to the recognition and assistance of foreign bankruptcy law, the court may transfer the

case when necessary to avoid significant damage and delay.165 The transfer time shall be at the

same time or after the decision of recognition.166

The recognition and enforcement of judgments of foreign courts not only concerns the

protection and Realization of the rights and interests of applicants, but also affects the mutual

trust and cooperation between countries. In the review and recognition of foreign court

judgments, the court ’s jurisdiction over the foreign court ’s jurisdiction and litigation procedures

Id.

125

should be clearly defined. In addition, the court should use its domestic law as the basis for

judging the jurisdiction of a foreign court

4.3 Recognition and Enforcement of Transnational Bankruptcy

Judgments in Different Countries

4.3.1 The United States

When the main bankruptcy proceedings are effectively started in a foreign country, some

countries adopt ancillary bankruptcy proceedings to assist the main bankruptcy proceedings.

That is, the bankruptcy administrator designated in the foreign procedure is allowed to apply for

a simple dependent procedure in the home country. A home country liquidator is appointed to

orderly manage the debtor's bankruptcy property in the country. Then, the property is handed

over to the foreign bankruptcy administrator in order to distribute it fairly to all creditors in the

foreign bankruptcy proceedings.

There are many advantages in using ancillary bankruptcy procedure to assist the main

bankruptcy procedure. The subordinate bankruptcy procedure can protect the debtor's bankruptcy

property from being effectively distributed in foreign courts, protect the debtor's bankruptcy

property from being sealed up and seized by individual creditors, and ensure fair and reasonable

treatment for all creditors. However, there are also some disadvantages in the use of ancillary

bankruptcy procedures. The main issue is whether a country agrees to use its own procedures as

ancillary bankruptcy proceedings to foreign, which requires coordination and cooperation among

countries. Although there are some problems with the use of ancillary bankruptcy proceedings,

its existence is often necessary to protect the interests of all creditors. Many countries currently

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adopt ancillary bankruptcy procedures, but the specific regulations are not exactly the same. The

United States is typical of this theory.

Although Section 304 of the Bankruptcy Code of the United States is repealed, it was very

important for the transnational bankruptcy. Section 304 of the Bankruptcy Law of the United

States of 1978 provides that when a foreign country has a pending bankruptcy proceeding, if the

debtor has bankruptcy property in the United States or has business connections with the United

States, the foreign bankruptcy administrator is allowed to file a dependent process in the United

States.167 Dispose of and distribute the bankruptcy property located in the United States in

accordance with foreign laws to prevent American creditors from seizing the bankruptcy

property.168 However, a judgment in a subordination proceeding is only valid for bankruptcy

property in the United States. In addition, the U.S. Court has the right to evaluate the fairness of

major foreign bankruptcy proceedings and provide protection for domestic creditors.170 The

remaining property in the ancillary bankruptcy proceedings shall be transferred to the main

bankruptcy proceedings.171

If the bankruptcy case is initiated in the country where the debtor ’s main interest center is

located, the US court will recognize the bankruptcy case as the main foreign bankruptcy

proceeding. If the initiating country of the bankruptcy case is not the country where the main

167 Lisa Perkins. A Defense of Pure Universalism in Cross-

Border Corporate Insolvencies. 32 New York University

Journal of International Law and Politics. 2000. P 796-797.

168 Id.

Id.

127

interest center is located, the US court may recognize it as a foreign ancillary procedure at the

debtor ’s business office in that country.

Although Section 304 of the US Bankruptcy Law implies a clear attitude towards

international cooperation in cross-border insolvency, the US courts often consider the following

factors when deciding whether to grant relief to foreign proceedings or foreign representatives:

(1)just treatment of all holders of claims against or interests in such estate; (2) protection of

claim holders in the United States against prejudice and inconvenience in the processing of

claims in the foreign proceeding; (3) prevention of preferential or fraudulent dispositions of

property of the estate; (4) distribution of proceeds of such estate substantially in accordance with

the order prescribed by the Bankruptcy Code; (5) Comity. Moreover, the court also thinks that

under reasonable circumstances, the foreign proceeding is given the bankrupt the opportunity to

restart. These factors try to find a balance between fairness and comity, while giving the court

maximum flexibility, so that the court can make appropriate and reasonable decisions according

to different cases.174

Before U.S. Bankruptcy Code Chapter 15 came into effect, section 304 of the bankruptcy

law was the most important legal basis for the settlement of transnational bankruptcy cases in the

United States. However, due to the limitation of article 304 of the bankruptcy law and the change

of objective conditions, it is finally replaced by chapter 15. Article 304 was immediately repealed

with the entry into force of Chapter 15, but the reasonable factors in the above provisions and the

related jurisprudence were inherited and absorbed by the new transnational

Id.

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insolvency law. Compared with article 304 of the bankruptcy law, chapter 15 has made

remarkable progress in three aspects.

First, chapter 15 has been a significant increase in mandatory regulations. In terms of the

goal to be achieved, article 304 of the bankruptcy law is basically consistent with chapter 15. The

nature of article 304 of bankruptcy law is arbitrary in nature. On this basis, the court enjoys

extensive discretion. The court can seek a balance between international cooperation and the

protection of local interests based on the assessment factors of flexibility, which leads to the

diversity of final decisions of the court. Nonetheless, some provisions of Chapter 15 are

mandatory, such as interpretation in article 1508, order granting recognition in section 1517, and

Cooperation and direct contact with foreign courts or representatives in section 1525 (a), which

limits the discretion of the court.

Second, chapter 15 limits and reduces the discretion of abusing comity. In the legal sense,

comity is neither an absolute obligation nor a simple courtesy and goodwill. In the legal sense,

comity is one country's recognition of another country's legislative, administrative or judicial acts

in its own territory.180 This kind of comity not only attaches importance to international

obligations and conveniences, but also respects the rights of its own citizens, or the rights of

others protected by its own laws.181 Article 304 of the insolvency law follows the tradition of

comity in common law countries as one of the considerations of whether to assist in foreign

proceedings. However, this factor has caused widespread controversy in the practice of U.S.

Id.

129

transnational bankruptcy because the relevant jurisprudence shows its shortcomings as an

independent factor when explaining comity. As a result, there are contradictions in the decision

of whether to grant relief to foreign representatives.184 In view of this reality, comity enables

judges to have a wide range of discretion in deciding whether to cooperate with foreign

proceedings, which will lead to inconsistent results and the inefficiency and unpredictability of

cross-border liquidation or reorganization. Thus, article 1507 of Chapter 15 is based on the

reasonable factors of article 304 (c) of the bankruptcy law. In addition, bankruptcy law no longer

regards comity as an independent consideration, but requires the court to consider factors

consistent with the principle of comity when giving other remedies except Chapter 15. Article

1509 makes it clear that comity only plays a role after the recognition of foreign procedures,

which further limits and reduces the discretion for abuse of comity.188

Third, Chapter 15 has changed the inconsistent application of law to some extent.The

purpose of Article 304 of the Bankruptcy Law is to advocate the amended principle of

universality and it has also been adopted by most courts in practice. Because the US courts have

great discretion when the courts were considering the factors set forth in Article 304 (c), the case

law was divided between universalism and territorialism.190 This differentiation reflects the

contradiction in practice of the regulation, which is an internal conflict between conservatism

centered on the interests of American creditors and liberalism that promotes international

cooperation.191 Although many courts emphasize the principle of universality when the courts

interpret Article 304, some courts insist on the opposite view and adhere to the principle of

territorialism.192 For further analysis, item 1, 3, and 5 of article 304 (c) of the Bankruptcy Law

imply the potential objective of respecting or cooperating with foreign bankruptcy

Id.

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proceedings.193 Items 2 and 4 emphasize the protection of the interests of U.S. creditors.194

Because of this, U.S. courts often made multiple interpretations when the court decided whether

to grant foreign procedural relief and would lead to the inconsistency of court decisions.195

Moreover, it also confirms the shortcomings of Article 304 of the Bankruptcy Law in practice.196

In summary, ancillary procedures have limitations in handling cross-border insolvency

issues. On the one hand, the ancillary procedures require the court to consider various factors to

find a balance between cross-border insolvency cooperation and the protection of the interests of

US creditors.197 The greater discretion of judges makes this cooperative mechanism unstable. On

the other hand, the complexity of cross-border bankruptcy cases has also far exceeded the

expectations of lawmakers when they drafted Article 304.199 In the case of complex multinational

company bankruptcy, especially in multinational reorganization cases, the probability of using

ancillary procedures is very small.200 In comparison, Chapter 15 greatly

191 Id.

192 Id.

193 Id.

P700

194 Id.

195 Id. 196

Id.

197 Paul L. Lee. Ancillary Proceedings Under Section 304 and Proposed Chapter 15 of the Bankruptcy Code.

American Bankruptcy Law Journal. Spring.2002.

Id.

131

increases the certainty of the law through clear jurisdiction standards, meticulous relief measures,

and specific cooperation channels. Chapter 15 more restricts the court's discretion, so it will

increase the consistency and predictability of the law. This is more conducive to achieving the

legislative goal of treating all creditors fairly.

4.3.2 England

Some countries (mainly common law countries) regard bankruptcy as the complete transfer

of property from the debtor to the creditor, so these countries recognize foreign bankruptcy by

using rules that recognize foreign assignment. According to the theory of assignment, the

recognition of foreign bankruptcy proceedings is usually conducted on the basis of comity. A

foreign bankruptcy administrator can directly file a request with the local court and do not need

to start a local bankruptcy process, so this is a non bankruptcy procedure relief method. The

requested State needs to recognize that the insolvency representative has the right to collect the

debtor ’s property located in its own country, while freezing the seizure of local property by the

creditor and the disposal of its property by the debtor.

According to the traditional assignment method, some countries allow the foreign

insolvency representative to directly deal with the debtor's movable property located in their own

country or transfer the movable property to the foreign insolvency representative after

recognizing the foreign bankruptcy. Although the transfer of such movable property does not

require special procedures, the appointment and powers of the insolvency representative must be

proved in the courts of the state of recognition. As for the debtor's real estate, its processing

power is not automatically granted to the foreign administrator, but the foreign administrator can

132

be designated as a receiver of the rent or income of the real estate. With the permission of the

court, the foreign administrator may sell real estate for the benefit of all creditors and incorporate

the proceeds into the foreign bankruptcy property for uniform distribution.206 Take British law as

an example to illustrate the specific implementation of assignment methods.

The general principle of British law is within the Commonwealth. Under the insolvency

laws of Scotland and Northern Ireland, after insolvency proceedings are instituted against the

debtor, the proceedings are considered to be a transfer of all of the debtor's property to the

insolvency representative. Insolvency or other similar insolvency proceedings in other countries

with jurisdiction are the transfer of movable property of the debtor located in the United

Kingdom to the insolvency representative who is required to administer the estate, as long as the

foreign law provides for the effect of such transfer.208 Therefore, the Commonwealth countries

have different assignments for internal and external bankruptcy.209 The effectiveness of a transfer

of the debtor's property under foreign insolvency law in the UK is subject to the following

restrictions:

(1) the effect of such transfers will only occur if the foreign bankruptcy law

has provisions for extraterritorial effects;

(2) the transfer of property in England will be recognized by English law. At

the same time, English law recognizes the restrictions on guarantees set on these

properties. Even if the rights of creditors under the law of the place of insolvency or even

under English law are superior to security rights, these security rights will give way to the

rights of the bankruptcy administrator. However, if the foreign bankruptcy declaration

Id.

133

precedes the seizure of the property, the foreign bankruptcy administrator ’s rights will

prevail over the guarantor ’s rights;

(3) foreign bankruptcy is the transfer of the debtor ’s movable property in the

UK to the bankruptcy administrator does not necessarily exclude the right of the British

court to declare the debtor bankrupt, but this may be a factor that needs to be considered;

(4) there has been controversy over whether foreign bankruptcy

administrators have the right to sue in the UK for certain property recovery. At present,

English law believes that if the administrator has such power under the laws of the

country where the administrator is appointed, the English court will also explicitly

recognize the administrator's power to sue in the UK. Moreover, the bankruptcy

administrator can also guarantee the exercise of this power by obtaining a designated

method from the debtor.

4.3.3 European Union

Over the past five decades, Europeans have been trying to build a legal framework. In this

framework, the main insolvency proceedings in any EU member state can be recognized and

assisted by all other member states.212 However, it is difficult to establish a unified legal

framework. People are always caught in the dilemma of two conflicting goals. On the one hand,

people want to manage and distribute all the debtor ’s property in a single bankruptcy process.

134

On the other hand, because the insolvency laws of various countries are difficult to unify in the

foreseeable future, the contradiction between the goal of unitarian universalism and the

protection of the interests of local creditors cannot be resolved. In order to be the best model for

effective cooperation among European member states, Europe has been constantly exploring

cross-border insolvency laws. The EU Council finally passed the Regulation on Insolvency

Proceedings.

There are only two types of bankruptcy procedures under the legal framework of Regulation

on Insolvency Proceedings. One is the main bankruptcy procedure and the other is the territorial

bankruptcy procedure. Territorial bankruptcy is also called ancillary. The main insolvency

proceedings are those initiated by the court in the place of the debtor's center of main interests

located in the member state. The bankruptcy judgment of the main procedure does not require

any other formalities to have the same effect in the country where the procedure is initiated and

in other member states.215 The bankruptcy administrator appointed by the main proceeding may

exercise all the powers granted to the person by the main proceeding in any member country

outside the place where the territorial proceeding is initiated.216

In cross-border bankruptcy cases, the bankruptcy administrator needs to take quick and

effective measures to control and protect the debtor ’s property outside the country. If in this

process, due to the strict or complex recognition and assistance system of foreign laws, other

parties, especially local creditors, may have controlled or transferred the debtor ’s property

before the bankruptcy administrator took action, then the bankruptcy administrator cannot

135

effectively protect and control the insolvency property. One of the outstanding characteristics of

the EU bankruptcy procedure is that it provides a convenient and effective way for the

administrators of the main bankruptcy proceedings to uniformly control the bankruptcy property.

First of all, the restriction of EU bankruptcy procedure rules on the recognition of major

bankruptcy procedures has been minimized, which seems to be close to the effectiveness of

domestic bankruptcy procedures Based on this legislative intent, the EU bankruptcy procedure

rules do not impose much on the conditions of recognition. Apart from the restrictions on the

jurisdiction of the court, the EU bankruptcy procedure rules only stipulate the restrictions on the

conditions of public policy. In addition, the EU bankruptcy procedure rules add a restriction on

the use of public policy, that is, only when the recognition or enforcement of foreign bankruptcy

judgment will obviously violate the public policy of a country, it can be used as the principle for

restricting the effectiveness of foreign bankruptcy procedure.219 In the world, public policy is

usually used as a protective clause to interfere with the effectiveness of foreign judicial

procedures. However, within the EU, countries have very similar standards in judging the

legitimacy of legal procedures. In fact, the probability of using such restrictive provisions in

practice is very small. Secondly, after the main insolvency proceedings are recognized, there is

no need for any more forms and it has the same effect as the initiating country of the insolvency

proceedings in other member states except territorial insolvency proceedings. This kind of

extraterritorial effect without any form of hindrance is a useful guarantee for the main procedure

to have universal effect. Third, the EU bankruptcy procedure rules also give the bankruptcy

administrator of the main procedure the right to effectively exercise powers. The insolvency

136

representative of the main procedure can exercise all the powers authorized by the main

procedure in foreign countries, including transferring the debtor's property from the location to

the main procedure. Moreover, the procedures for the bankruptcy administrator to exercise this

power are also as simple as possible. According to the EU Bankruptcy Rules, the insolvency

representative needs to verify the fact of his entrustment with a certified copy of the original

letter of appointment or an appointment certificate issued by the court with jurisdiction. If

necessary, these certificates need to be translated into the official languages of the member states

in which they intend to take action, and no additional legal or other formalities are required. This

provision is important because it prevents the power of some countries to impose complex and

costly procedures in recognizing and assisting foreign insolvency decisions.

People had hoped to achieve real bankruptcy universalism in the EU first. Nevertheless, the

actual situation is that the differences in the bankruptcy laws of the EU member states are

currently difficult to resolve and this situation will continue to exist. This objectively leads to the

contradiction between the goal of universalism and the protection of the interests of domestic

creditors. Therefore, the EU adopts flexible strategies in the process of pursuing the goal of

universalism. That is, the bankruptcy procedure allows the commencement of a territorial

bankruptcy procedure at the debtor's place of business. If it coexists with the main bankruptcy

procedure, it is called the secondary bankruptcy procedure.225

Territorial procedure is the bankruptcy procedure initiated by the court where the debtor's

business is located. Unlike the main procedure, its effect is limited to the property where the

debtor is located. Although the territorial procedure is restricted by region, it is an independent

bankruptcy procedure like the main procedure. Relevant substantive and procedural issues

general application of the law of the state in which the procedure begins. As a result, it would be

137

more advantageous for creditors who could obtain more benefits under the law of the debtor's

place of business to participate in the distribution of territorial proceedings. This is a solution of

universalism for the protection of local interests.

However, if a creditor can claim a creditor's right in multiple bankruptcy proceedings at the

same time, it may have an impact on the goal of uniform and fair distribution of the bankruptcy

property. EU bankruptcy procedure rules minimize conflicts through cooperation between main

and secondary procedures. On the one hand, the EU Bankruptcy Procedure Rules stipulate that

liquidators of main and secondary bankruptcy proceedings have an obligation to exchange

information with each other. They should promptly exchange any information that may be

relevant to other proceedings, in particular information on progress made in the filing and

confirmation of claims and all possible measures taken to terminate the proceedings.227 This

method of cooperation can ensure that creditors who have been liquidated in a bankruptcy

proceeding do not have the opportunity to obtain excess liquidation by filing multiple

applications in multiple parallel bankruptcy proceedings. On the other hand, if the liquidation of

assets in the secondary process is passed and all requests granted by the program are satisfied,

the liquidator should immediately transfer any remaining assets to the liquidator of the main

program.

The European Union is a region with strong market integration and its requirements for

cross-border bankruptcy cooperation are also very strict. The effectiveness of major insolvency

proceedings is protected to the maximum extent according to the EU insolvency proceedings

rules. The main bankruptcy proceedings have the privilege of automatic recognition and

138

automatic validity. Other EU member states must provide maximum assistance to the bankruptcy

proceedings. In order to coordinate the protection of domestic interests, the EU bankruptcy

procedure rules allow for the existence of a secondary procedure outside the main procedure.

However, in order to avoid damage to the effectiveness of the main procedure, the EU

bankruptcy rules place strict restrictions on territorial procedures. Territorial bankruptcy can only

be initiated by the court where the debtor's business is located, and its effect is limited to the

property where the debtor is located. This close and highly cooperative system is an important

feature of the EU model.

4.3.4 Japan

Japan was originally a conservative country that insisted on bankrupt territorialism and was

once evaluated as a completely closed country. However, this situation has changed dramatically

in the new bankruptcy law of Japan. Japan not only broke away from territorialism, but also

carried out very large reforms in the process of realizing universalism. Japan has specially

formulated Act on Recognition of and Assistance for Foreign Insolvency Proceedings to establish

a clear, predictable and highly operational legal framework for cross-border insolvency

cooperation in order to effectively realize the effectiveness of foreign insolvency proceedings in

Japan. At the same time, The relevant content of the Civil Rehabilitation Act has also been

incorporated into the Bankruptcy Liquidation Law and the Company Reorganization Law.

The reform of Japan ’s new bankruptcy law on the issue of cross-border bankruptcy is first

reflected in the change of attitude towards the extraterritorial effect of bankruptcy. The principle

of territorialism that the old law insisted on was not only opposed by scholars and business

circles, but also gradually lost interest in it by the Japanese government and courts. The Japanese

139

judiciary believes that the principle of territorialism is no longer suitable for the needs of active

international economic exchanges. Japan ’s method of protecting the interests of its domestic

creditors can imitate US bankruptcy laws. Therefore, cross-border bankruptcy Law does not need

to persist in territorialism to avoid unnecessary protests and retaliation.234 Under this background,

Japan's new bankruptcy law has made major reforms. According to the current bankruptcy law in

Japan, all property of the bankrupt becomes bankruptcy property when the bankruptcy is

declared. For the effectiveness of foreign bankruptcy proceedings in Japan, Japan takes

conditional recognition. According to the provisions of the Recognition Assistance Law, foreign

bankruptcy administrators can apply to the Japanese courts for recognition of foreign bankruptcy

proceedings, and the Japanese courts can decide to grant them recognition and assistance after

examination.237 These rules show that Japan's new bankruptcy law has changed to the direction of

universalism. The original bankruptcy law of Japan stipulates

that the principle of non discrimination is applied to foreign creditors, while the conditions of

reciprocity are attached, that is, the domestic law of foreign creditors is required to give equal

treatment to Japanese creditors. Civil Rehabilitation Act and the Company Reorganization Law

have given up reciprocity conditions when adopting the principle of non-discrimination. It is not

necessary to adopt two types of legislation for bankruptcy liquidation and reorganization.

Therefore, the reform of the Japanese bankruptcy law abolished the reciprocity condition in the

Bankruptcy Act.

The new Japanese bankruptcy law has clearly demonstrated the intention of conducting

cross-border bankruptcy cooperation with foreign courts. In order to ensure that this kind of

cooperation can be realized, Japan specially formulated the Act on Recognition of and

140

Assistance for Foreign Insolvency Proceedings. This law mainly includes how to apply for

recognition of foreign insolvency proceedings by foreign representatives, how to approve or

reject foreign insolvency proceedings by the court, how to remedy, how to cancel recognition of

foreign insolvency proceedings, and how to coordinate the concurrent insolvency proceedings.

With regard to the conditions for the recognition of foreign bankruptcy proceedings, the Act

on Recognition of and Assistance for Foreign Insolvency Proceedings provides for it in three

aspects. Firstly, this law defines the basic legal definition of foreign bankruptcy procedure,

including bankruptcy procedure, replacement procedure, reorganization procedure, and special

liquidation procedure. Secondly, from the perspective of jurisdiction, the foreign procedure that

can be recognized is limited. According to the recognition and assistance law, if a foreign

bankruptcy procedure is to be recognized by a Japanese court, it should be a procedure initiated

141

by the court of the debtor ’s residence, domicile, business office, or business office.241 Therefore,

foreign bankruptcy proceedings based on the jurisdiction of the property will not be recognized

in Japan because the property factor is not enough to constitute a sufficient connection between

the court and the bankruptcy proceedings. If the effectiveness of the procedure is recognized, the

bankruptcy distribution may be more dispersed, which is not conducive to improving the

efficiency of handling cross-border bankruptcy cases. Thirdly, it stipulates the case of

nonrecognition of foreign bankruptcy proceedings in terms of negative conditions. According to

the provisions of the act, these situations include five categories. (1) The foreign representative

fails to pay the relevant fees for the recognition assistance procedure. (2) The law of the country

where the foreign proceeding begins clearly stipulates that the bankruptcy proceeding has no

extraterritorial effect. (3) The court believes that it is not necessary to give relief. (4)

The foreign representative fails to fulfill the obligation to provide relevant information. (5)

The foreign representative admitted that there was obvious fraud in the application.

In the procedure of recognition, the Act on Recognition of and Assistance is very detailed.

In order to ensure the convenience and transparency of foreign representatives and foreign

creditors to intervene in local insolvency proceedings and to take into account the geographical

convenience of Tokyo, this Law designates the Tokyo District Court as a special institution to

accept applications for recognition. After the recognition judgment is made, the Tokyo District

Court can also transfer the case of recognition assistance in foreign bankruptcy proceedings to

241 Id.

the court closely related to the case for trial. Foreign representatives who require foreign

bankruptcy proceedings recognized by a Japanese court are eligible to apply for recognition in

Id.

142

the Tokyo District Court. A foreign representative must perform his statutory obligations when

making an application, otherwise his application may be rejected. There are two main types of

obligations for foreign representatives. First, foreign representatives need to pay. Second, the

foreign representative has the obligation to provide relevant information. This information

includes the progress of foreign insolvency proceedings, the proof of the debtor's place of

business, or domicile. This information is the basis for the court to decide whether to grant

recognition and assistance in cross-border insolvency proceedings. The Japanese law also allows

the court to authorize foreign representatives to appoint another representative in Japan. The

purpose is to use the intermediate role of Japanese lawyers to strengthen communication between

the court and foreign representatives. If the conditions for recognition are met, the court can

make a decision on recognition and immediately provide public notice of the main text of the

order. Foreign representatives may appeal immediately if they disagree with the court's

recognition decision.

According to the Act on Recognition of and Assistance for Foreign Insolvency Proceedings,

once the court makes a decision on recognition of a foreign bankruptcy proceeding, the

procedure can obtain five remedies. First, suspend litigation against the debtor or its property.

According to the provisions of the Recognition Assistance Act, the court can make a suspension

of litigation or other proceedings against the debtor that has already begun but it does not include

a suspension decision to initiate such procedures. Second, suspension of execution. The act on

recognition of assistance not only provides for the suspension of the execution procedures that

have already begun, but also includes the suspension of the relevant execution procedures, and at

the same time, the execution can be cancelled. For example, if there is a warrant against the

Id. Id.

143

debtor ’s property before the recognition of the foreign proceeding, after the recognition, the

foreign representative can dispose of the property upon cancellation of the enforcement

judgment, which is a very effective assistance measure for the foreign bankruptcy proceeding.

Third, it is prohibited to dispose of the debtor ’s property in Japan. Fourth, collect relevant

information.261 For foreign bankruptcy proceedings, it is very important to know the information

about the debtor ’s property in Japan. Japanese law does not authorize foreign representatives to

collect information about debtors’ property to foreign representatives.262 If the court discovers

that a foreign representative who appears as a recognized representative abuses the right to

collect information, Japanese court will appoint other recognized representatives, such as a

Japanese lawyer to replace the recognized representative of the foreign representative. Fifth,

transfer the debtor's property. The transfer of the debtor's local property overseas is a very

important issue in cross-border bankruptcy cases. Because once the property is transferred

beyond the sovereignty of a country, it cannot be controlled and protected the interests of its

creditors. For the debtor ’s property in Japan, the Recognition Assistance Act requires the

appointment of a recognized representative to manage. If debtors want to transfer this property,

debtors must obtain the permission of the court to protect the interests of local creditors in this

way.

The cancellation of the recognition of foreign bankruptcy proceedings is divided into two

types: the recognition shall be cancelled and the recognition may be cancelled. Recognition shall

be cancelled means that after the court makes a decision on recognition, if the foreign procedure

involved does not meet the legal recognition conditions or the foreign bankruptcy procedure has

ended, the court must make a cancellation of the recognition of the foreign procedure based on

Id.

Id. Id.

144

the application of the interested person. Recognition may be cancelled against illegal transfer of

debtor's property. If a debtor transfers the debtor ’s property without permission, recognizes that

the manager disposes of the debtor ’s property without the permission of the court, or if a foreign

representative who does not have the status of recognized manager transfers the debtor ’s

property, the court may exercise the power to cancel the recognition decision.

Moreover, the Act on Recognition of and Assistance for Foreign Insolvency Proceedings

provides for the coordination of concurrent bankruptcy in two ways. The first is related to the

coordination of Japanese bankruptcy proceedings and foreign bankruptcy proceedings; the

second is related to the coordination between foreign bankruptcy proceedings. With regard to the

first aspect, Japanese law gives priority to domestic procedures in principle. However, if the

following three conditions are met, foreign bankruptcy proceedings take precedence: (1) foreign

bankruptcy proceedings are under the jurisdiction of the debtor ’s residence and principal

business office; (2) recognition of foreign bankruptcy proceedings is in the general interest of

creditors; (3) recognition of foreign bankruptcy proceedings will not hurt on the interests of

Id. Id.

145

creditors in Japan. The rule shows that the domestic creditors should be be given priority

protection. In the second type, bankruptcy proceedings commenced by the country where the

debtor is domiciled or where principal place of business are generally preferred. If these foreign

insolvency proceedings are under the jurisdiction of a state other than the debtor's domicile and

principal place of business, the court shall decide which proceeding is the priority in accordance

with the interests of creditors.268

In summary, according to the Act on Recognition of and Assistance for Foreign Insolvency

Proceedings, foreign bankruptcy administrators can apply to the Japanese courts for recognition

of relevant foreign bankruptcy proceedings. After reviewing the documents, the Japanese court

will decide whether to grant recognition. The review mainly examines factors such as

jurisdiction, the legality of the initiation of insolvency proceedings, public order, and the

cooperation intention of foreign courts. After satisfying the above basic conditions, the court

signed an execution order. After acknowledging foreign bankruptcy proceedings, Japanese courts

take certain assistance measures to preserve the debtor ’s property in Japan.

Recognition and enforcement of cross-border insolvency is very complicated due to

different regulations in different countries and conventions. For example, the New York

Convention is mainly aimed at arbitration and Japanese law does not specify arbitration.

Therefore, in cross-border bankruptcy, due to the different laws, it is difficult for creditors to

predict the cross-border recognition and implementation after bankruptcy. In addition, different

countries have different protections for creditors 'claims, which adds uncertainty to the creditors'

Id.

146

prediction of their rights. There is really a need for a uniform convention on transnational

bankruptcy in the world.

4.3.5 German

As early as 1882, the German court recognized the universal principle of the extraterritorial

effect of bankruptcy. However, only two years later, the extraterritorial effect of the German

bankruptcy law turned to its opposition and began to adhere to the territory principle.270 Since the

1970s, the development of case law shows that the German courts have realized the limitations of

regionalism on the transnational bankruptcy issue and have begun to turn to limited universalism.

For the effect of foreign insolvency proceedings in Germany, in a 1982 ruling, the German

court held that a Dutch insolvency proceeding should be recognized. German courts terminated

all actions of creditors against the Dutch debtor's property in Germany and assigned the German

property to the Dutch debtor's bankruptcy estate. Although the court cited the Netherlands and

Germany as members of the European Community as the basis of its ruling, the court ruling still

reflects Germany ’s recognition of foreign bankruptcy proceedings.

In 1985, the IX Division for Civil Matters of Bundesgerichtshof issued a ruling granting the

Belgian bankruptcy trustee the power to sue the debtor ’s property in Germany in accordance

with Belgian law. In the same year, the former Federal Court of the German Federal Republic

also issued a very famous ruling, which attracted wide attention in the transnational bankruptcy

law community. In this case, the court held that a Swiss bankruptcy trustee had the right to file a

request in a German court to classify the debtor ’s property in Germany as bankruptcy property

147

and to recognize the bankruptcy proceedings in Switzerland. The ruling in this case is considered

to be a turning point in Germany ’s attitude on the issue of extraterritorial effects.

In May 1993, the Federal Court of Germany in a ruling recognized the Swiss bankruptcy

proceedings and rejected the claims of creditors. In this case, the debtor started bankruptcy

proceedings in Switzerland. The Swiss court issued a loss certificate to the creditors on the

outstanding claims to limit their power to seek compensation again. When a creditor filed a

lawsuit in Germany and demanded another claim, the German court rejected their request.

Because the Swiss procedure was a bankruptcy procedure under the standard of German law, the

Swiss court has jurisdiction, so it was recognized that the loss certificate issued by the Swiss

procedure did not violate German public policy. The case also shows that the German court will

only recognize the foreign bankruptcy process if it meets the six conditions. 1. The ruling must

be made in accordance with relevant laws governing foreign bankruptcy proceedings.285 2.

Foreign proceedings must exist as an insolvency proceeding under German law.286 Generally, the

procedure is to provide a collective relief through liquidation and distribution of the debtor ’s

property. 3. According to the rules of German law, the foreign bankruptcy court has jurisdiction

over the debtor. Recognition of jurisdiction is generally based on the debtor ’s place of residence,

principal place of business, place of residence, etc. 4. According to the provisions of the foreign

law, the bankruptcy administrator has the right to manage and dispose of the debtor ’s property

located in a foreign country. 5. According to the foreign law, the ruling must be valid for all the

debtor ’s property no matter where it is located. 6. Recognition of foreign insolvency proceedings

does not violate German public policy.

Id.

148

Before the German legislation was fundamentally changed, such breakthroughs in legal

precedent were not very consistent and traditional concepts would not be completely changed

soon. In a 1988 legal precedent, the First Civil Court ruled that a bankruptcy case in a foreign

country under Article 240 of the German Civil Procedure Code had no effect on German legal

proceedings. However, according to the above development trend, German courts are likely to

gradually recognize the effectiveness of foreign bankruptcy proceedings in Germany, as long as

there is no principle difference between the insolvency laws of the two countries and there are

reciprocal factors.

Since the German scholar Muller-Freienfeils criticized German transnational bankruptcy

laws and practices in 1963, many scholars have criticized them and proposed reforms. These

scholars believed that it was imminent to revise Germany's transnational bankruptcy legislation.

149

In summary, German scholars believed that the necessity of revising cross-border

bankruptcy was mainly due to practical needs.295 Although the German bankruptcy law provided

for the extraterritorial effect of domestic bankruptcy, it was difficult to implement it.296 Although

the German bankruptcy law stipulates that the debtor ’s property abroad constituted part of the

bankruptcy property, it was not clear how to incorporate these properties into the country ’s

bankruptcy property.297 With the development of the situation, the original principle of

nonrecognition should be changed.

Under the influence of the above viewpoints, the Federal Ministry of Justice of Germany

also believes that from a long-term perspective, the handling of transnational bankruptcy cases

should have consistent legislation and practice that adapt to the development of the situation, so

that the handling of such cases has certain predictability.298 As a result, the Ministry of Justice

organized the revision of the German Transnational Bankruptcy Law. The amendment not only

involves the jurisdiction of cross-border insolvency and the application of laws, but also changes

to the substantive law in this field, which has comprehensive and important significance.

The draft submitted by the German Federal Ministry of Justice is based on the drastic

changes that have taken place in the field of cross-border insolvency and basically reflects the

relatively new developments and developments in this field. From the content of the draft, the

cross-border insolvency draft does not put aside territorialism, on the contrary, the cross-border

insolvency draft is also based on territorialism. However, the transnational bankruptcy draft is

clearly trying its best to balance the interests of the parties of the transnational bankruptcy.

Id.

150

295 Hans-Jochem Luer. The Revision of International Insolvency Law in Germany. Current Issues in Cross - Border

Insolvency and Reorganizations. Ed. E Bruce Leonard, Christopher W. Besant. Graham, Trotman, London,

Dordrecht, Boston. 1994. P125-132.

296

297

298

Although the draft does not cover all issues in the field of cross-border insolvency, the legislative

reforms in the field of cross-border insolvency provide a basis for continued discussion.

4.3.6 France

The legal problems caused by transnational bankruptcy in France are more prominent

because of two reasons. On the one hand, the French insolvency law has few provisions on

crossborder bankruptcy and the new insolvency law of 1985 does not deal with it.299 Except for a

limited number of bilateral treaties, France has not participated in any multilateral treaty on

bankruptcy.300 France also has fewer precedents in the field of cross-border insolvency, so France

can only refer to general international legal principles in handling cases of cross-border

insolvency.301 On the other hand, with regard to the issue of extraterritoriality of bankruptcy,

France does not have a clear attitude regarding the choice of universality and regionality.302

Judging from some French jurisprudence, it includes both territory and universal principles.303

This article will analyze the effectiveness of foreign bankruptcy proceedings in France in

conjunction with jurisprudence. The effectiveness of foreign bankruptcy proceedings in France is

closely related to whether the proceedings are granted an execution order issued by a French

court. The existence of foreign insolvency proceedings does not constitute any restriction of

French courts on the debtor's commencement of insolvency proceedings. In other words, the

foreign insolvency judgment has no res judicata effect in France unless it is enforced by an

Id.

151

299 Laurent Gaillot. Effects of Foreign Bankruptcy Judgments

and Powers of Foreign Receivers-A French Perspective.

Current Issues in Cross-Border Insolvency and

Reorganizations. London, Dordrecht, Boston. 1994. P245-

247.

300 Id.

301

302

303

execution order.304 Before the execution order was obtained, the foreign bankruptcy judgment

was regarded as creating a new legal situation. Although it will also have certain effects in

France, these effects are very limited.305 However, the foreign bankruptcy judgment proves the

power of the foreign insolvency representative, especially the power of the foreign insolvency

representative to represent creditors, who has the right to initiate judicial proceedings in

France.306 If a French court starts an insolvency proceeding, the foreign bankruptcy administrator

can declare the claims on behalf of the foreign creditors in the proceedings and the foreign

creditors can also independently declare the claims in the French proceedings.307

Before the execution order of foreign bankruptcy judgment is obtained, the power of foreign

bankruptcy administrator will be restricted in five aspects. (1) Before the execution order was

obtained, the debtor was not deprived of the right to manage and dispose of their property in

France and the debtor was still free to dispose of the property.308 The circumstances in which the

debtor ’s power may be limited include the possibility that a foreign bankruptcy judgment may

obtain a French execution order, a French court may initiate bankruptcy proceedings against the

debtor in France, and according to the provisions of the French bankruptcy law, certain actions of

the debtor during the suspected period may be revoked.309 (2) The foreign bankruptcy judgment

Id.

152

does not affect the rights of creditors in France.310 Creditors can file lawsuits in France to realize

their claims. Debtors can pay French creditors.311 The debts are not accelerated

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308 Laurent Gaillot. Effects of Foreign Bankruptcy Judgments and Powers of Foreign Receivers-A French

Perspective. Current Issues in Cross-Border Insolvency and Reorganizations. London, Dordrecht, Boston. 1994.

P248.

309

310

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Id.

154

maturity due to foreign bankruptcy proceedings. Similarly, creditors can also file bankruptcy

proceedings in France. (3) Deprivation of the debtor's rights outside the foreign insolvency

proceedings or other adjudication measures made by the foreign insolvency court against the

debtor's administrator are invalid in France. (4) The foreign bankruptcy administrator cannot take

any enforcement measures and sell the debtor's property in France. (5) If the bankruptcy

proceedings have begun in France, the foreign bankruptcy administrator cannot take any further

action. The power of the French bankruptcy administrator or liquidator is exclusive.

According to the French Civil Code, foreign bankruptcy administrators can intervene in

French courts. Foreign judgments include bankruptcy judgments. If an execution order of a

French court is obtained, it becomes an enforceable judgment in France and a foreign bankruptcy

administrator can start some enforcement actions in France. Obtaining an execution order usually

prevents France from starting bankruptcy proceedings. If French proceedings have already

begun, the seizure or other actions of the creditor ’s property by the creditor will also be

suspended.

There are two requirements for obtaining an enforcement order: procedural requirements

and substantive requirements. For procedure requirements, there are 3 conditions. First,

interested parties have the right to apply for an execution order, but the foreign bankruptcy

administrator is the most suitable applicant. The debtor may also make such an application.

Second, the application should be filed in the court where the debtor ’s main business center is

located in France. If the debtor does not have a main business center in France, it can be filed in

the court where the debtor ’s property is located. Third, the procedure for issuing execution

orders should be adversary proceedings, that is, both the plaintiff and the defendant must

participate, and such a ruling cannot be made based on the unilateral application of the parties.

155

For substantive requirements, there are 4 conditions. First, in accordance with the conflicting

rules of French jurisdiction, French courts have no exclusive jurisdiction over bankruptcy cases

and debtors. Second, the jurisdiction exercised by foreign courts must be acceptable to French

courts. Third, the parties' selection of foreign courts does not have fraudulent factors. Fourth,

foreign bankruptcy judgments and procedures do not violate French public order.324

To determine whether a foreign bankruptcy judgment meets the above conditions, the

French court has the power to review the factual and legal issues of the procedure. In issuing

execution orders and determining the power of foreign bankruptcy managers, French courts can

apply the laws applicable to foreign bankruptcy proceedings.

If a foreign bankruptcy judgment obtains an execution order in France, the judgment has the

effect of being finalized and becomes an enforceable judgment in France. After obtaining an

execution order, the retroactive effects of the execution order become more important because in

France, concurrent insolvency proceedings cannot be started against the debtor. The dispute is

whether the effect of the judgment in France starts from the date of the execution order or can be

traced back to the date of the bankruptcy judgment made by the foreign court.

Before 1986, the court's jurisprudence generally believed that the order of execution had no

retroactivity and its effect began on the date of the order of execution. A Danish company

distributes products of a French company in Denmark. After the Danish company was declared

bankrupt in Denmark, the French company declared its creditor's rights in the Danish bankruptcy

procedure. At the same time, it sealed up some real estate of the Danish company in France. To

156

invalidate the seizure, the Danish bankruptcy administrator applied to the French court and

obtained an enforcement order. The French court cancelled the French company's seizure of the

Danish company's real estate based on the execution order. The issue in this case was whether

the seizures that occurred before the execution order was issued should be invalid. The Supreme

Court noted that in this case, Danish law prohibits the individual execution of the debtor or its

property after the bankruptcy judgment is made. In addition, the French bankruptcy law also has

similar provisions. Once the execution order is issued, the two most important results of the

bankruptcy declaration are that the debtor is deprived of the right to dispose of its property and

the prohibition of the creditor's individual execution should take effect from the date of the

foreign bankruptcy judgment, so the retroactivity of the execution order should be recognized.334

The case raised some controversial questions in France, especially whether the Supreme

Court ’s approach applied only to creditors who had declared claims in foreign bankruptcy

proceedings. If the French creditor did not know the start or proceeding of the foreign

bankruptcy proceedings and did not declare the creditor's right, could it be executed individually

in France? In this regard, most scholars believed that the Supreme Court's ruling should be

interpreted in a broad sense. First, the ruling itself did not limit its scope to creditors who only

knew foreign bankruptcy proceedings. Second, the ruling helped to promote the security of

international trade and prevented individual creditors from carrying out actions that were

detrimental to the interests of all creditors. Third, the most important thing was that the ruling

was consistent with the principle of universality of the extraterritorial effect of bankruptcy today,

which helped promote equality between creditors and better achieved the goals of the bankruptcy

law.340

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4.3.7 Canada

With regard to the issue of extraterritoriality, the Canadian bankruptcy law does not adopt

the principle of universality because Canada believes that this principle is currently unrealistic.

Canada believes that every country has the right to start bankruptcy proceedings in accordance

with its own bankruptcy laws as long as there are suitable jurisdictional reasons. Once a

Canadian court makes a ruling on takeover or appoints an official receiver, the bankrupt loses the

power to dispose of his property. The bankruptcy trustee appointed by the court then gained

control of the debtor ’s property.342 The scope of bankruptcy property is broad. Bankruptcy

property includes money, goods, land, movable property, real estate, located in Canada or

foreign countries, and even includes the property acquired by the debtor before exemption and

the related rights exercised by the debtor for these properties for their own benefit. Although

Canada has such a wide range of bankruptcy property, it does not mean that the country where

the property is located will recognize this provision. In Canada, the transfer of debtor's property

to bankruptcy trustee is mainly regulated by the laws of each province, including its conflict of

laws rules. However, whether the debtor ’s property located in a foreign country can be

effectively transferred to the bankruptcy trustee of Canada depends mainly on the provisions of

the law of the location of the property. At the same time, the transfer of these properties will also

be restricted by the securities set on these properties as provided by the law of the location of the

property. If there are several bankruptcy proceedings in different countries at the same time, the

property managed by each bankruptcy trustee is generally limited to the territory of the country.

Although Canada's bankruptcy law stipulates that all courts and judges must assist each other and

try their best to assist other proceedings in bankruptcy matters, it seems difficult to understand

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the court as including courts outside Canada because the laws of one country cannot constrain

the actions of courts in other countries after all.348

Canada ’s Federal Bankruptcy Law does not provide any clear provisions on the

effectiveness of foreign bankruptcy proceedings in Canada. Generally, this problem is solved

through the current effective conflict of law rules.350 In the area of common law system, it is

generally stipulated that the power of the trustee appointed in each insolvency proceeding is

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limited to the property within its territory if the insolvency proceedings are conducted

simultaneously in several countries where the debtor operates, including Canada.

If the foreign court that made the bankruptcy ruling has sufficient contact with the debtor,

the Canadian court will recognize to some extent the effect of the foreign bankruptcy

proceedings on the debtor ’s movable property in Canada. Sufficient contact means that the

debtor ’s domicile is located in the country, the debtor is mainly engaged in business in the

country, or the debtor is voluntarily subject to the jurisdiction of the country ’s courts.353

According to traditional common law principles, Canadian courts recognize that foreign

bankruptcy proceedings are the result of the exercise of discretion and courtesy. This result

shows that if the foreign bankruptcy proceedings are recognized by Canadian courts and do not

violate the Canadian principle of fairness, the status and capabilities of the bankruptcy

administrator appointed in the proceedings will also be recognized. After the foreign bankruptcy

process is recognized by the Canadian court, the debtor ’s property in Canada can be transferred

to the foreign bankruptcy administrator. However, according to the foreign law, the

representative in bankruptcy has the right to manage these properties and such transfers must be

subject to the restrictions established by Canadian law on the security of these movable assets

and not to violate Canadian public policy. This rule does not apply to real estate in Canada where

the debtor is located.358 The bankruptcy ruling does not require registration in Canada, and

the bankruptcy administrator can carry out these actions. If the bankruptcy administrator

encounters difficulties, he can also apply to the Canadian courts for assistance.

Id.

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In recent years, Canadian courts have increasingly shown a more positive attitude towards

the issue of the extraterritorial validity of bankruptcy. Although Canadian law does not specify

the recognition of foreign bankruptcy proceedings, the court will give special consideration to the

recognition of foreign proceedings. In 1976, Kennedy Co. v. Stibbe-Monk Ltd the Ontario court

also recognized the British private-appointed receiver status. The privately appointed receiver

has the same status as the receiver appointed by the court in the power over the debtor ’s

property.

Of course, Canadian courts were also unwilling to allow domestic creditors to be subject to

foreign bankruptcy proceedings, especially when their interests would be harmed. In Canada, the

recognition of foreign bankruptcy proceedings does not exclude the possibility of starting

bankruptcy proceedings in Canada, so in cases where the interests of creditors may be harmed,

Canadian courts usually conduct concurrent bankruptcy proceedings to deal with the debtor’s

property in Canada. The purpose of Canadian bankruptcy law is to provide a more convenient

and coordinated way for Canadian bankruptcy law to recognize the extraterritorial effect of

bankruptcy.

4.3.8 Mexico

According to the Mexican Bankruptcy Law, the extraterritorial effect of the domestic

bankruptcy procedure is determined by the debtor. If the debtor is a Mexican, the court will adopt

the principle of universality and claim worldwide jurisdiction over the debtor’s property. That is

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to say that the domestic bankruptcy procedure has an extraterritorial effect. Foreign creditors

have the right to declare their claims in Mexican bankruptcy proceedings. However, if the debtor

is from another country, the principle of territoriality is adopted. The bankruptcy proceedings in

Mexico are limited to property and creditors in Mexico. This shows that Mexico claims the

extraterritorial validity of its insolvency proceedings based on the nationality of the debtor. With

the increasing development of transportation and communications, nationality alone is not

enough to indicate the actual scope of the debtor's business operations. Moreover, this standard

facilitates the debtor to evade the jurisdiction of the court by changing its nationality, which leads

to the selection of court.

According to the provisions of the treaties or conventions that Mexico is a party to, any

foreign judgment can be recognized and enforced in Mexico as long as it does not violate

Mexican law. Of course, if the foreign bankruptcy judgment meets certain conditions, the

Mexican courts can also recognize its validity in the country.372 These conditions mainly include:

Id.

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(1) The letter of request made by a foreign court must meet the

requirements of Mexican law;

(2) Foreign courts must have jurisdiction to hear cases;

(3) The foreign procedure must reasonably notify the debtor

and related creditors;

(4) The foreign judgment should be final;

(5) Enforcement of the judgment does not violate Mexican

law;

(6) Foreign judgments should be reasonably proved. The court

does not examine the substantive issues of the case and has discretion over

whether to enforce the foreign judgment. Therefore, in theory, Mexican

courts can recognize foreign bankruptcy proceedings, but in practice they

attach various strict conditions. For example, the foreign procedure needs

to be fully consistent with the substantive provisions of the Mexican

insolvency law. If a foreign bankruptcy judgment is executed in Mexico,

the judgment needs to meet all the procedural requirements of the

Mexican Bankruptcy Law. Similarly, when a Mexican court recognizes a

foreign bankruptcy trustee, it must determine whether the existence of the

trustee's rights conflicts with Mexican law in accordance with Mexican

legal standards. Based on the above requirements, as a scholar

commented, it is very difficult for foreign bankruptcy procedures to be

recognized by the Mexican courts.379

Id.

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The creditor in Mexico can seize or seize the debtor’s property in Mexico, especially when

there is evidence that the debtor may improperly handle their property. If the debtor’s property is

seized or seized in Mexico, the debtor can only protect their rights through a Mexican lawyer.

For example, prove that the debtor has the ability to pay, provide corresponding guarantees, and

negotiate payment methods with creditors. Foreign bankruptcy proceedings generally cannot

suspend creditors’ actions in Mexico. In order to manage Mexican property, a foreign debtor can

file for bankruptcy, as long as appropriate jurisdiction exists or the foreign debtor applies for

liquidation of Mexican property. Then the debtor transfers the liquidated property to the foreign

bankruptcy proceedings. However, under this situation, Mexican courts will often require

repayment of the country’s creditors as a precondition for liquidation.386

The issue of the extraterritorial effectiveness of bankruptcy involves the vital interests of all

countries. At present, there are many differences in the social, economic and legal policies that

are clearly reflected in the bankruptcy legislation and practice of various countries and it is

difficult to reach a consensus. Some people even believe that unifying the legislation and practice

of countries in the field of transnational bankruptcy is as unrealistic as trying to unify the

currencies of all countries in the world.389 From the comparative analysis of the practice of the

extraterritorial effectiveness of bankruptcy in various countries, it can be seen that on this issue,

no country has automatically granted full and unconditional recognition to foreign bankruptcy

procedures. However, completely neglecting the extraterritorial effects of bankruptcy hinders

international economic cooperation. The key lies in how to seek a balance between protecting the

interests of domestic creditors and transnational bankruptcy cooperation from the perspective of

Id.

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conducive to international economic exchanges.392 Many countries are aware of the limitations of

the principle of territoriality to varying degrees, so the countries should gradually abandon the

principle of strict territoriality. Although different countries have different steps and practices, the

development trend of countries toward the ideal goal of the principle of universality is still

relatively obvious.

4.3.9 The United Nations

As stated in the preamble of the United Nations Model Law on cross border insolvency, the

purpose of this law is to provide an effective mechanism for dealing with cross-border

insolvency cases so as to promote cooperation between courts and other institutions in

crossborder insolvency cases. The goal of the Model Law is to provide countries with a fair,

efficient, and predictable legal framework for cross-border insolvency cooperation. However, the

model law and the EU bankruptcy rules have different goals. The model law is open to different

countries or regions around the world. Its ultimate goal is to gradually realize the unification of

cross-border insolvency cooperation on a global scale by expanding the scope of adopting

countries.

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The recognition and assistance of foreign bankruptcy is the most common form of

cooperation. The Model Law advocates simplifying the application process as much as possible.

The applicant only needs to submit a certificate or a copy of the foreign bankruptcy procedures

and the foreign representative that comply with the provisions of the Model Law, and such

certificate does not need to go through notarization or other complicated formalities. There are

not too many restrictions on the conditions of recognition. As long as the national public policy

is not violated, the main insolvency proceedings started in the place where the debtor's main

interest center is located and the non-main insolvency proceedings started in the court where the

debtor's business is located should be recognized.398

The Model Law provides three remedies for assisting foreign bankruptcy proceedings. The

first is grant relief of a provisional nature. In order to avoid the loss of the debtor's assets, the

model law provides provisional relief measures during the period between the application for

recognition and the decision of recognition. This measure includes suspending the execution of

the debtor's property, allowing the insolvency representative to preserve the value of the

bankruptcy property, suspending the transfer, mortgaging or otherwise disposing of any assets of

the debtor, providing the witness's inquiry and collecting evidence on the relevant information of

the debtor. The second is automatic relief measures for the main procedures. After the

recognition decision is made, the court will further determine whether the foreign bankruptcy

proceedings are main or non-main proceedings because this judgment will affect the nature and

content of relief measures. Recognition of the main insolvency proceedings will have an

automatic effect. This effect includes suspending the action brought by the creditor against the

debtor, suspending the execution of the debtor's property, suspending the debtor's disposition of

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its property or creating security on its property. This kind of relief measure is very necessary to

prevent the debtor's property transfer. Under the economic background of Globalization, it is

very easy for debtors of cross-border operations to transfer their property to foreign countries

quickly. After the recognition of foreign main procedures, the prohibition of measures against the

debtor's property can prevent fraud and protect the legitimate interests of the parties. The third is

that the model law allows the adopter state to decide on its own what kind of relief measures to

grant to the foreign procedure. This discretionary relief may be to suspend the right to mortgage

the debtor's property, to obtain information about the debtor's property and its obligations, to

entrust a foreign representative or another administrator appointed by the court to manage and

dispose of the debtor's assets located in the home country, or to adopt other relief measures

provided by the domestic law of the country.405

The Model Law does not limit concurrent proceedings. According to the provisions of the

model law, after a state recognizes a foreign insolvency proceeding, a local insolvency

proceeding can be initiated as long as the debtor has property in its jurisdiction. Moreover, the

recognition of the foreign main procedure itself can be used as evidence to start the local

procedure. Moreover, the recognition of the foreign main procedure itself can be used as

evidence to start the local procedure.409 This provision actually relieves the court from repeating

the procedure to prove that the debtor has gone bankrupt. This provision reduces the possibility

of the debtor's property being concealed or transferred as a result of the delay in commencement

of insolvency proceedings.411

The initiation of local bankruptcy proceedings raises a new issue of how it can coordinate

with foreign bankruptcy proceedings that have been recognized by domestic courts. The Model

Law responds to this issue. On the one hand, these procedures still require maximum cooperation

Id.

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in information exchange and management of bankruptcy property. On the other hand, in terms of

effectiveness, the initiation of local proceedings prevented the extension of the effectiveness of

foreign bankruptcy proceedings. When the domestic procedure coexists with the foreign

procedure, the attitude of the Model Law is that the domestic procedure takes precedence. If the

domestic court receives two or more foreign proceedings for recognition and assistance at the

same time, the principle provided by the Model Law is that the main foreign bankruptcy

proceedings take precedence.

The coordination of concurrent bankruptcy proceedings also manifests itself in the

distribution of bankruptcy property. The last article of the model law makes clear provisions on

the creditor's liquidation rules when multiple insolvency proceedings are carried out at the same

time. Creditors who have received partial repayment in a certain bankruptcy proceeding may

only be repaid if other creditors in the same distribution order receive the same proportion of

payment in other bankruptcy proceedings.417 Although there may be several independent

bankruptcy proceedings in concurrent, through the coordination and cooperation of the court and

the bankruptcy administrator, no creditor can use the concurrent bankruptcy to obtain the

overpayment.

4.4 Necessity of Establishing Recognition and Enforcement of New

Id.

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Transnational Bankruptcy Judgments

4.4.1 Necessity

Through the discussion on the conditions and procedures of the recognition and

enforcement of foreign bankruptcy judgment in the relevant countries and regions, it can be

found that there are differences in the legislation of different countries to varying degrees. Even

between different jurisdictions of the same sovereign country, mutual recognition of bankruptcy

judgments may encounter great obstacles, such as Hong Kong and mainland China. If each

country's court acts in a different way, it may directly affect the comprehensive protection of the

interests of all creditors.

Some scholars connected the recognition and enforcement of judgments with trade issues.

In addition, the recognition and enforcement of the judgment is used as one of the indicators of

smooth trade exchanges. Professor Ronald A. Brand of the United States believes that the court's

decision, goods, services, funds, and technology are the same. Moreover, these elements

represent the interests of the parties.419 A country's refusal to recognize and enforce a foreign

court's judgment or its strict attitude towards this issue is tantamount to setting high tariffs to

Id.

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restrict the import of foreign goods, which is like a trade barrier. If a foreign court judgment is

not recognized and enforced in the country, the prevailing party may have to re-sue or relinquish

the claim in the country in order to obtain relief. This will increase the cost of private

transactions and hinder the development of mutual economic interaction.422 The recognition and

enforcement of foreign bankruptcy judgments is not just a trade issue, but it is also a legal issue.

Recognition and enforcement of foreign court decisions are fundamentally related to

international interests, but it is often difficult for national interests of countries to be fully

balanced. Therefore, reaching a universal international convention in this field around the world

is difficult.

In recent years, in order to solve the problem of recognition and enforcement of foreign

judgments, the international community hopes to adopt conventions to make the recognition and

enforcement of judgments predictable, the Brussels Convention signed in 1968 and the Lugano

Convention concluded in Lugano in 1988, but these conventions are not applicable to bankruptcy

matters.

Based on these situations, in order to facilitate the recognition and enforcement of foreign

bankruptcy judgments, many countries and regions in the world have conducted in-depth

explorations on this issue. In fact, the parties can negotiate to establish a new system conducive

to the recognition and enforcement of foreign bankruptcy judgments. This system can maintain

the stability of the parties' mutual recognition and enforcement of the bankruptcy judgment of the

other party, improve the predictability of the parties, reduce the cost of the parties'

application for recognition and enforcement of court judgments, and improve the transparency of

the parties' cooperation policies.

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4.4.2 Proposal

Recognition and enforcement of foreign bankruptcy judgments are not only a respect for

foreign judicial power, but also a respect and protection for the interests of creditors of various

countries. At the same time, it is also to better promote international civil and commercial

exchanges. Therefore, countries should set up a convenient, transparent, fair and efficient value

orientation in constructing a new mechanism for the recognition and enforcement of foreign

bankruptcy judgments.

4.4.2.1 Minimize subjective considerations of comity and

reciprocity

This chapter has explored that comity and reciprocity are important conditions for the

recognition and enforcement of foreign bankruptcy judgments. Nevertheless, comity is the result

of a country's court exercising its discretion according to the specific facts of the case, which is

not binding as a rule of international law. Therefore, the court has the right to make a decision to

refuse comity after comparing the conflicting domestic interests with the interests of other

countries. Reciprocity is mainly based on the view of self-interest, which essentially focuses on

national interests. This view prevents countries from giving priority to the issue of cooperation. If

the court refuses to recognize the foreign bankruptcy judgment only on the grounds of no comity

and reciprocity, it will lead to a large number of concurrent proceedings. Therefore, both from

the national perspective and the parties' perspective, they are contrary to the economic principles

of litigation. Based on the particularity of bankruptcy cases, it is more in line with the

development trend of modern bankruptcy law to minimize the consideration of comity and

reciprocity.

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Taking comity as an example, in a transnational bankruptcy case, when the court involves

whether to grant a foreign bankruptcy judgment with comity, the court may be required to first

assume that courtesy should be granted. Those who disagree have the burden of proof of refusal.

In other words, the court must prove why it does not give comity, rather than just why it gives

comity.

Taking reciprocity as an example, countries that advocate reciprocity generally recognize

reciprocity as a mandatory clause when recognizing foreign bankruptcy judgments. However, in

some cases, especially in countries closely related to their trade and investment, even if there is

no legal basis for recognition and enforcement of foreign bankruptcy judgments based on

reciprocity, the courts of one country can also consider cooperation with foreign courts.

Although the exercise of comity and reciprocity usually depends on the discretion of the

law, it can still be a better way to solve the problem. As long as it can be determined that foreign

courts have proper jurisdiction, treat creditors of all countries equally, and the consequences of

comity and reciprocity do not violate national laws and public policies, countries should consider

courtesy and reciprocity. If comity and reciprocity are given more and more broad meanings in

national courts, more and more foreign bankruptcy judgments can be recognized and enforced by

other countries based on comity and reciprocity in order to achieve greater cooperation in dealing

with transnational bankruptcy. While establishing a new method of recognition and enforcement

of foreign bankruptcy judgment, countries can also consider the provision of the reservation

clause of public order because there are huge differences in political and economic systems, legal

systems and procedural systems in various countries. However, in view of safeguarding national

sovereignty and overall interests, the reservation provisions of public policy should be defined as

necessary. The state should adopt a narrower interpretation than the previous practice, so as to

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prevent arbitrary interpretation of comity and reciprocity and waste, fraudulent, concealment or

transfer of bankruptcy property.

4.4.2.2 Minimize restrictions on recognition and enforcement

of foreign bankruptcy judgments

Under the trend of mutual communication and interdependence between countries, it is

necessary to reduce the restrictions on the jurisdiction of recognition and enforcement of foreign

bankruptcy judgments as much as possible, and pay attention to cooperation, which will promote

the economic exchange and development of all countries in the world.

The domestic court reviews the application for recognition and enforcement of foreign

bankruptcy judgment. It is generally accepted internationally that recognition and enforcement

should be carried out only when certain conditions are met. However, within a country, in the

recognition and enforcement of judgments between different jurisdictions, the new provisions

may consider reducing and relaxing the restrictions on recognition and enforcement of judgments

as much as possible. For example, until now, the recognition and enforcement of judgments

between Hong Kong and Mainland China have been very strict. Generally, there are three criteria

for judging whether the court has proper jurisdiction. Firstly, it is based on the recognition of

direct jurisdiction in the domestic law of the country in which it is implemented. Secondly, the

determination standard of jurisdiction clearly stipulated by international treaty. Thirdly, the

jurisdiction of the country that made the bankruptcy judgment is used to determine jurisdiction.

In addition, when dealing with transnational bankruptcy cases, national courts are greatly

affected by the interests of domestic creditors. Therefore, it is difficult for any country's

bankruptcy proceedings to achieve complete egalitarianism. Based on this situation, the court can

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consider the flexible application of the insolvency law restrictions on the recognition and

enforcement of foreign bankruptcy judgments. This new method can only be temporary, and the

solution reached can only be aimed at a specific bankruptcy case, that is, different special

treatment is given to creditors in different regions.

4.4.2.3 Minimize the adverse effects of multiple foreign

insolvency proceedings

Generally, in order to maintain the stability of the legal relationship and the seriousness of

the law, there can only be one lawsuit in a case and only one judgment result. In other words, the

national court can only confirm the validity of one judgment on the same subject matter.

Therefore, once the courts of all countries have exercised jurisdiction over the same subject

matter of litigation, in the future when the judgment is recognized and enforced, there will

definitely be a contradiction. Each country's courts are faced with the problem of how to

coordinate the different legal systems of each country to avoid or reduce conflicts regarding the

recognition and enforcement of foreign judgments. In the practice of cross-border bankruptcy, in

order to avoid the conflict of jurisdiction, concurrent procedure always exists. It has become a

new goal to avoid the disadvantages of multiple foreign insolvency proceedings and to focus on

the coordination of parallel foreign insolvency proceedings. If all countries and national

bankruptcy administrators consider the factors of parallel proceedings, it is more conducive to

the court's recognition and enforcement of foreign bankruptcy proceedings.

Chapter 5: A Study of Possible Methods for the Unified System of Transnational

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Bankruptcy Law

From the current situation, the most common way to solve the problem of cross-border

insolvency is to establish bilateral treaties through cooperation and coordination. Bilateral

treaties exhibit specific regional characteristics. They are usually reached between countries that

are not only geographically neighbors, but also closely related to legal traditions, culture,

language and political issues. However, in the case of two or more insolvency proceedings that

apply obviously to different legal systems starting at the same time, the solution of bilateral

treaties is not enough. With the development of the global economy and the strengthening of

political cooperation, countries also show the trend of cooperation in the legal system. As long as

there are common interests among all countries, it is possible to eliminate the conflict. It is

feasible and necessary to construct a unified transnational bankruptcy legal system as the

development prospect of transnational bankruptcy legislation.

5.1 The Unification of Law and Practice in Transnational Bankruptcy

Due to different legal traditions and specific national conditions, there are inevitably various

conflicts and contradictions in the bankruptcy legal systems of various countries in the world.

Therefore, these conflicts and contradictions need to be resolved through the establishment of

international treaties or international practices between countries, so as to coordinate the

positions of each country and promote cooperation in the field of transnational insolvency law.

Under this background, the unification of transnational bankruptcy law came into being. The

Hague Conference on Private International Law, the Society of International Law, the United

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Nations Commission on International Trade Law (UNCITRAL), Committee J of the Commercial

Law Department of the International Bar Association, and other organizations have made

unremitting efforts to realize the unification of transnational bankruptcy law.

5.1.1 Treaty or Convention method

5.1.1.1 Treaty of Montevideo

Although Latin American countries became independent in the 19th century, their economic

exchanges with each other became more frequent. These countries put forward requirements for

the unification of laws in the cross regional economic exchange. However, countries believe that

the unification of substantive laws cannot be achieved in a long period of time, so Latin

American countries put the goal of legal unification into the unification of private international

law. The Lima treaty concluded between Chile, Peru and Ecuador concerns the recognition and

enforcement of foreign judgments. During the three years from 1875 to 1878, the Peruvian

government and several other Latin American countries held a meeting in Lima to prepare a

unified international private law treaty, which also involved the recognition and enforcement of

foreign judgments, but none of these involved bankruptcy.

In 1888, the first meeting of private international law in Latin America was held in

Montevideo, and the issue of bankruptcy was the subject of discussion. On March 12, 1889, the

meeting passed Montevideo Treaties On Commercial International Lawand stipulated the

relevant content of cross-border bankruptcy. From 1889 to 1903, Argentina, Bolivia, Peru, and

Uruguay successively ratified the treaty. Colombia also joined in 1930. The Treaty of

Montevideo of 1889 provides that the court of the debtor's commercial domicile has jurisdiction

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over cross-border bankruptcy cases. If there is only one bankruptcy proceeding, the insolvency

representative appointed by the insolvency proceeding may take preventive measures against the

property of other Contracting States. All contracting parties should recognize the power of the

insolvency representative in that country.5 When the debtor has independent business offices in

multiple countries, the treaty adopts the principle of priority of national interest, that is, the

domestic creditor can first get liquidation from the national bankruptcy proceedings. If there is

any remaining property, it is transferred to the bankruptcy proceedings of other countries.

The Second Latin American Conference on Private International Law, held in Montevideo

from 1939 to 1940, was intended to modify the 1889 treaty. On March 19, 1940, Uruguay,

Brazil, Colombia, Bolivia, Argentina, Peru, and Paraguay signed the Montevideo Treaty On

Commercial And International Law, of which Chapter VIII made provisions for bankruptcy.

Although the issues and types of procedures covered by the treaty are broader than the 1889

treaty, in terms of substance, it seems to be further away from universalism. The effectiveness of

national priorities has further expanded. Even if there is only one insolvency proceeding, the

domestic creditor can obtain priority compensation from the domestic debtor ’s property.

Perhaps, because of the increase in the number of Contracting States, the degree of cooperation

has decreased.

5.1.1.2 Havana convention of 1928 (Bustamante Code)

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At the Sixth Pan American Conference held in Havana, Cuba in 1928, a relatively

comprehensive convention on private international law was concluded. Because the structure and

content of the treaty are deeply influenced by Cuban judge Bustamante, it is also known as the

Bustamante Code. The code deals with cross-border insolvency from articles 414 to 422. The

Havana conference attracted nearly all American countries which include the United States. 21

countries were represented. Finally, the code was approved by 15 countries.

The Havana Convention accepts the concept of bankruptcy universalism. A cross-border

insolvency cooperation mechanism has been established between countries that are close to each

other and have similar legal traditions. The Convention stipulates that if the bankruptcy

proceedings initiated by the court where the debtor resides are effective in all Contracting States,

the power of its bankruptcy administrator can be extended to all Contracting States. The court

where the debtor ’s place of business is located may also exercise jurisdiction. Its role is to freeze

the property of the local debtor and transfer it to the insolvency proceedings in the place of

residence. There should be effective cooperation between the two proceedings. However, the

specific provisions of the Havana Convention are relatively broad, so many details have not been

resolved.

5.1.1.3 Nordic bankruptcy Convention

Nordic bankruptcy convention is a transnational bankruptcy. The draft convention was

submitted to various countries for signature in Copenhagen in November 1933. The contracting

parties successively ratified the Convention in 1934 to bring it into effect. Although some

aspects of the Convention have changed in the past years, these changes are not substantial. In

fact, the current Nordic Bankruptcy Convention has basically remained the same as it was many

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years ago. Many scholars believe that the Convention is the most successful international

bankruptcy treaty in the world.

In the 20th century, although Nordic countries often recognized foreign judicial decisions in

individual cases, they generally did not recognize foreign bankruptcy or liquidation decisions.

The Nordic countries believe that differences in national bankruptcy legal systems are an

important obstacle to recognition of foreign bankruptcy or liquidation decisions. The

coordination of different legal provisions in different countries makes the emergence of Nordic

bankruptcy convention possible because the similarity of legal systems is an important basis for

countries to recognize each other's bankruptcy or liquidation decisions.

The working group that drafted the convention made it clear that the purpose of the

convention was to make the bankruptcy declared by a Contracting State have an immediate effect

in other Contracting States, so as to ensure that the property of the debtor located in different

countries can be included in the unified bankruptcy procedure for management. In order to

achieve this goal, the Convention provides that an insolvency trustee appointed by a

Contracting State has the right to dispose of the debtor's property directly in other countries.

The Nordic Bankruptcy Convention stipulates that a bankruptcy declaration made in any

one Contracting State applies to all property of the bankrupt in the territory of other Contracting

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States.22 Therefore, there is no need for any procedural requirements such as an enforcement

order and the declaration of bankruptcy will be recognized in all five Nordic countries. The main

effect of recognition is to deprive the debtor of the right to dispose of their property, which will

be granted to the insolvency representative.

The Convention does not directly stipulate the jurisdiction of the Contracting State to

commence bankruptcy proceedings, but the convention limits recognition to the recognition of

the bankruptcy of the debtor ’s domicile.23 The Convention stipulates that if the debtor does not

have a domicile or registered place in a Contracting State, but the country has declared

bankruptcy, the relevant provisions of the Convention do not apply, and the court that made the

bankruptcy declaration must make this statement.24 It should be noted that the nature of the

domicile of the insolvency proceedings is determined by the judge who decides to commence the

insolvency proceedings, and the courts of other Nordic states parties will be bound by this

opinion. Therefore, the bankruptcy jurisdiction under the Convention contains discretionary

factors.

A bankruptcy trustee designated by a Contracting State may receive appropriate assistance

from the courts or related institutions of other Contracting States and shall be eligible to appear

in courts of the five countries.25 The trustee can apply in writing for such assistance in Danish,

Norwegian or Swedish language.26 In addition, when the trustee appeared in the courts of five

countries, he could also use one of the three languages.27 The bankruptcy trustee appointed by

22 Nordic Bankruptcy Convention. 7 Nov 1933. Article 1.

23 Id. Article 13.

24 Id.

Id.

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25 Lars Olof Svensson. Inter-Nordic Insolvency Convention. International Business Lawyer. May 1996, Vol.24, No.

5. P227.

the Contracting State which has commenced insolvency proceedings may directly sign

transactions involving bankruptcy property in all Contracting States.

The Nordic Bankruptcy Convention is based on the full recognition of the bankruptcy of the

foreign domicile, so it excludes the possibility of independent bankruptcy proceedings by other

Contracting States and prevents the existence of individual creditors ’legal actions, concurrent

bankruptcy, and non-domestic bankruptcy.

The Convention stipulates the legal application of insolvency proceedings. Generally, the

law of the country where the bankruptcy procedure is conducted should be the applicable law of

the bankruptcy procedure. The provisions of the Convention include: deprivation of the bankrupt

’s right to dispose of his property, the rights and obligations of the debtor in the bankruptcy

proceedings, the scope of the bankrupt property, the management of the bankrupt property, the

cancellation of invalid transactions, the right of creditors to obtain reimbursement, the order of

priority, the settlement with creditors, other methods of termination procedures, and other issues

of bankruptcy procedures. To a certain extent, the legal application rules of the Convention also

minimize the different treatment of creditors in the insolvency proceedings of different countries.

In addition to the main rules, the Convention also stipulates the application of laws in

special cases. These situations include mortgage rights, the rights of bona fide third parties, and

rules regarding the forced sale of property. These situations generally apply the laws of the

country where the property is located. For example, according to the provisions of the

Convention, the existence of priority over individual property and the priority between such

priority and mortgage, security right, and other priority over real right over such property shall

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be determined by the law of the place where the property is located at the beginning of the

insolvency proceedings. This provision is an exception to the law of the forum of the main rules

of the Convention. In addition, the application of law in some cases involves the determination

of the location of property, which is also stipulated in the Convention. For example, the claims

generated based on the bill are considered to be located in the seat of the bill. The other claims

are believed to be located in the country where the insolvency proceedings started.

The Convention also stipulates how to deal with bankruptcy proceedings in practice. For

example, the Convention provides that if a State Party declares the debtor ’s bankruptcy, its

bankruptcy property includes property located in the territory of another State Party. Moreover,

the bankruptcy declaration shall be announced by the bankruptcy administrator on the

appropriate media of the State party where the property is located. The Convention further

requires that the debtor's insolvency shall notify all known creditors located in other Contracting

States as soon as possible, except for those creditors who can be recognized without declaring

their claims. If someone raises an objection to the creditor ’s claim, the creditor should also be

notified in time. If some creditors are not properly notified, their rights to the estate will not be

affected. Failure to comply with this provision does not affect the legal effects of bankruptcy.37

As long as the mandatory procedures of the bankruptcy declaring country are followed, the

procedure should still be fully recognized.38

Id.

182

Due to the entry into force of the EC Convention on Insolvency Proceedings, the provisions

of both conventions will apply to the EC Convention rather than the Nordic Convention. In

practice, this means that the Nordic Bankruptcy Convention will only be meaningful between

Norway and Iceland because Norway and Iceland are non-EU Council member states. For

Denmark, Finland and Sweden, the Nordic Convention will only apply if the EU Convention

does not provide for it. For example, the EU Convention does not apply to the bankruptcy of

financial institutions, so when a Swedish insurance company goes bankrupt, the provisions of the

Nordic Convention can still apply. Therefore, even if the EC Convention on Insolvency

Proceedings comes into force, it cannot completely replace the role of the Nordic Bankruptcy

Convention.

It is not difficult to see from the content of the convention that the content of the Nordic

Bankruptcy Convention is relatively simple and clear. Except for the final provisions, the

Convention has only 15 substantive provisions.45 However, since the implementation of the

Convention, only a few cases have involved difficulties in the interpretation or application of the

Convention. This is not to say that the practical application of the Convention is rare. On the

contrary, due to the close commercial ties between Nordic countries, there are a lot of

transnational bankruptcy cases, so the implementation of the Convention is effective. The

advanced nature of the Nordic Convention mainly comes from the fact that the parties to the

Convention have relatively similar legal systems and common values. Without such favorable

Id.

183

conditions, the formulation, interpretation and implementation of the Convention will not be so

successful. In countries with very different legal systems, it is difficult to reach such a high

degree of agreement in the field of insolvency without a certain degree of trust between them.

5.1.1.4 European Community Convention on international

Bankruptcy

In Europe, with the continuous deepening of the free flow of goods, services, employees

and capital, there is an increasing demand for the unification of private international law. The

1968 Brussels Convention which is called jurisdiction and the enforcement of judgments in civil

and commercial matters is a representative result of the movement to unify private international

law during the European Community. However, the Convention specifically excludes

bankruptcy, insolvency, liquidation procedures of companies or other legal persons from the

scope of application of the Convention.46 Therefore, the unified legislation on cross-border

insolvency is an independent work from the beginning.

As early as 1970, the expert committee established by the European Community submitted

the preliminary draft of the EC bankruptcy convention, which was revised and formally proposed

in 1982.47 The core of these two drafts is to advocate an unitary bankruptcy system and universal

bankruptcy.48 That is, only one member country's court should take bankruptcy proceedings and

other member countries should unanimously refuse to exercise jurisdiction.49 The bankruptcy

judgment made by the only court with jurisdiction should be generally recognized.50 This is

46 European Economic Community. 1968 Brussels Convention on jurisdiction and the enforcement of judgments in

civil and commercial matters. Article 1.

47 Donald T. Trautman. Four Models for International Bankruptcy. The American Journal of Comparative Law.

Vol.41. 1993. P 578.

Id.

184

48 ShuangYuan Li. China and the process of the unification of private international law. WuHan university press.

1998. P 180-182.

obviously an over-idealized model, which is hard to be accepted by Member States and

ultimately failed to be adopted. Nevertheless, this did not prevent the pace of unified legislation

for cross-border bankruptcy in Europe. In 1990, the European Convention on Certain

International Aspects of Bankruptcy drafted by the European Council was officially opened for

signature. Its main characteristic is to establish a bankruptcy declaration system which

coordinates the main bankruptcy procedure with the secondary insolvency procedures. Although

the Convention has not come into force due to its own shortcomings, its legislative meaning has

been continued. On January 1, 1993, the European Union was formally established. Therefore,

the process of European integration has accelerated and cross-border insolvency regional

cooperation legislation has been refocused. In 1995, representatives of 15 EU Contracting States

adopted the Convention on insolvency proceedings. However, due to an agricultural dispute

between the United Kingdom and the European Institutions on the issue of mad cow disease, the

United Kingdom did not sign within the prescribed period.

As mentioned earlier, the 1982 draft is an idealistic model. Under the principle of unitary

bankruptcy system and universality, there is no need to separately solve the problem of legal

choice because this issue should also be included in the unified jurisdiction, that is, the law of the

forum dominates the relevant matters. These related matters include the conditions for starting

bankruptcy proceedings, the property subject to bankruptcy management, the creditor ’s security

interest, the priority order between creditors, and the effectiveness of the termination of

insolvency proceedings.

185

Affected by the idealistic model, the 1982 draft has some special provisions. The draft is

different from1968 Brussels Convention on jurisdiction and the enforcement of judgments in

civil and commercial matters. 1968 Brussels Convention on jurisdiction and the enforcement of

judgments in civil and commercial matters requires its contracting parties to negotiate to reach a

simple form of mutual recognition and enforcement of judgments so that the judgments can be

automatically recognized and enforced throughout the European Community, but it does not

include bankruptcy matters. However, the 1982 bankruptcy convention draft seeks to establish a

unitary basis of jurisdiction, which makes the judgment generally recognized within the entire

community.

The 1982 Bankruptcy Convention draft has two special provisions. One is the provision of

jurisdiction and the other is the difference between a Contracting State and a non-Contracting

State. With regard to jurisdiction, the Convention provides that the debtor shall have exclusive

jurisdiction over the bankruptcy case in the court where the administrative center of a certain

Contracting State is located.57 The administration center refers to the place where the debtor

usually manages its own rights and interests, unless there is proof to the contrary.58 For an

enterprise, company or legal person, the place is presumed to be the place of registration.59 This

standard is similar to that commonly used in some current insolvency treaties. For a

nonContracting State, in many ways, it is almost inevitable that States parties to a convention

have an advantage over non-Contracting parties. However, the 1982 draft bankruptcy convention

did

Id.

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