Fear of Commitment in International Bankruptcy

This article discusses the difficult questions of conflict and cooperation among national bankruptcy regimes that arise with the failure of a multinational firm. The firm's failure typically leaves assets and unpaid creditors in several jurisdictions, but no overarching international bankruptcy system exists. Instead, the national bankruptcy laws of several states might plausibly apply to the firm's bankruptcy or particular aspects of the case. Though multinational firm failure has become more and more common, states have made precious little progress in regularizing coordination or cooperation among national bankruptcy systems. Uncoordinated territorial competition is the norm, resulting in complex conflicts of law. Scholars and policymakers alike have demonstrated renewed interest in international bankruptcy cooperation. Among academics, the idea of universalist cooperation has long dominated the debate over international bankruptcy reform. Under universalism, the bankruptcy regime of the debtor's home country would govern worldwide. Home country courts applying home country law would exercise extraterritorial jurisdiction to treat all the debtor's assets and creditors wherever located. Despite the academic preference for universalism, however, no universalist arrangements exist in the world. In this article, Professor Tung explores states' reluctance to commit to universalism. While recent scholarly critique of universalism has focused on its hypothetical efficiency, Professor Tung instead discusses political feasibility constraints, an issue that universalist advocates have largely failed to consider. Professor Tung compares the universalist demand for recognition of foreign bankruptcy proceedings with the more straightforward matter of civil judgment recognition. He relies on existing international judgment recognition arrangements as a rough barometer of states' cooperative inclinations with respect to bankruptcy recognition. Jurisdictional limits in the former area suggest even greater reluctance to accede to the broader deference required under universalism, forecasting dim prospects for its widespread adoption. Professor Tung also discusses particular types of states for which universalism may be particularly unattractive. Finally, Professor Tung raises the question whether universalism is even possible among states that might prefer it. Assuming states exist that find universalism attractive, they might find themselves in a prisoners' dilemma, for which ready solutions may be elusive. Prepared for the symposium on Global Trade Issues in the New Millennium at The George Washington University Law School (September 2000).