PRESENTATION_-_What_s_New_in_Vienna_-_Rona_-_October_2011

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What’s New In Vienna?
Your Panel of UNCITRAL Experts
Spyridon (“Spiros”) Bazinas
Mr. Bazinas is a Senior Legal Officer in the International Trade Law
Division of the United Nations Office of Legal Affairs, the Secretariat of
the United Nations Commission on International Trade Law
(UNCITRAL). He is currently the Secretary of Working Group VI
(Security Interests), which is preparing a legislative text on registries of
security interests in movable property. As Secretary of the Working
Group, Mr. Bazinas is responsible for preparing comparative law studies,
drafting legislative texts and commentaries, and servicing the Working
Group.
Javier Canosa
Javier´s practice develops in corporate law issues, advising several
national and foreign companies in various corporate matters, including
investment vehicles, corporate management, directors’ duties and
responsibilities, audits, risks’ detection and distribution, documents,
policies and corporate contracts, and design and implementation of a
suitable corporate form for each business.
Javier teaches International Business Law at the Universidad de Buenos
Aires since 2003 and he has published numerous articles in local and
foreign publications.
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Panel, cont’d
Chief Judge Christopher Klein
Christopher M. Klein is the Chief Judge of the United States Bankruptcy
Court for the Eastern District of California. After completing service in the
U.S. Marine Corps as an artillery officer in Vietnam and judge advocate,
he was a trial attorney in the U.S. Department of Justice, in private
practice with Cleary, Gottlieb, Steen & Hamilton, and Deputy General
Counsel-Litigation of the National Railroad Passenger Corporation. In
1988 he was appointed a United States Bankruptcy Judge for the
Eastern District of California. He was appointed to the Bankruptcy
Appellate Panel in 1998 and served for ten years. From 2000-2007,
Judge Klein was a member of Advisory Committee on Bankruptcy Rules
of the Judicial Conference of the United States and the Advisory
Committee on the Federal Rules of Evidence. Judge Klein is a delegate
to the United Nations Commission on International Trade Law, Working
Group V.
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Panel, cont’d
Patrick N.Z. Rona -- Moderator
Patrick N.Z. Rona is an international corporate finance and insolvency lawyer. He
works on cross-border restructurings, mergers and acquisitions, as well as debt and
equity offerings (public and private). Mr. Rona started his legal career in
emerging markets working for Baker & McKenzie in Budapest and represented,
among other clients, the first country fund behind the Iron Curtain, as well as many
of its portfolio companies that entered into cross-border transactions and capital
raisings. He continued his emerging markets fund work at Duane Morris, and also
became president and CEO of the U.S. subsidiary of a publicly listed emerging
market company. Mr. Rona is multilingual and has worked in many jurisdictions,
including the United States, England, Holland, Brazil, Hungary, Romania and Italy.
Early in his career, Mr. Rona served as law clerk to the Honorable Stuart M.
Bernstein and the Honorable Arthur J. Gonzalez of the U.S. Bankruptcy Court for
the Southern District of New York, and he spent two years training in General
Electric's Financial Management Program prior to entering law school. Mr. Rona is
a delegate to the United Nations Commission on International Trade Law, Working
Group V.
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Panel, cont’d
Leon Zweir
Leon Zwier is a corporate recovery services and litigation lawyer. He has
been a partner of Arnold Bloch Leibler in Melbourne Australia since 1991
and is head of the firm’s reconstruction & insolvency and litigation &
dispute resolution practices.
Leon has acted as lead counsel in many of Australia’s largest and most
complex reconstructions and insolvency workouts. He has advised and
negotiated on behalf of major US and European enterprises with
Australian interests across numerous industries in the resolution of
complex cross-border reconstructions. He has acted for insolvency
practitioners, lenders and companies in the ‘twilight zone’ of insolvency.
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First Session:
Experience Relevant to UNCITRAL’s
Consideration of a Rule Imposing Liability on
Company Directors for “Trading While Insolvent”
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Brief History of UNCITRAL
• UNCITRAL (U.N. Commission on International Trade Law)
– Established by UN General Assembly in 1966: Mandate to “further
the progressive harmonization and unification of the law of
international trade.”
 “International Trade Law” includes, inter alia, commercial & insolvency law
– UNCITRAL’s highly regarded (non-insolvency) work product includes:
 1958 - Convention on the Recognition and Enforcement of Foreign
Arbitral Awards - the "New York" Convention
 1976 - UNCITRAL Arbitration Rules (currently being updated) and 1980 -
UNCITRAL Conciliation Rules
 1980 - United Nations Convention on Contracts for the International Sale
of Goods (CISG)
 2001 - United Nations Convention on the Assignment of Receivables in
International Trade
– 66 Member States, Seven Working Groups, including
Insolvency Law Working Group V (WGV)
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45 Years of UNCITRAL Work Product
• UNCITRAL Employs Different Tools:
1. Conventions  Designed to unify law by creating binding legal
obligations (10 in 45 Years)
2. Model Laws  A Legislative Text Recommended for Enactment, strict
uniformity not necessary; Adjustments may be made to accommodate
local requirements (9 in 45 years)
3. Legislative Guides For when a uniform text is not possible & a set of
possible legislative solutions to certain issues is helpful (7 since 1985)
4. Model provisions for a convention  A set of possible legislative
solutions to certain issues, like modernization of a number of conventions
or to assist in supplementing a provision of a convention (4 since 1982)
5. Contractual Techniques (1 Guide and 3 Sets of Rules)
6. Recommendations for legislative work (Countless)
7. Collection and Dissemination of Court Decisions & Arbitral Awards
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The UNCITRAL Process
• Model Laws enable enacting states to be flexible in adjusting domestic
legislation
• Conventions achieve a higher degree of creativity in the law
– Spiros Bazinas of UNCITRAL:
 What are the differences between Legislative Guides and Conventions, and tell us, in
your personal view as someone who has been involved in the international commercial
reform process, three noteworthy challenges to further adoption of the Model Insolvency
Law?
– UNCITRAL’S major insolvency law initiatives:
• 1997 - UNCITRAL Model Law on Cross-Border Insolvency *
• 2004 - UNCITRAL Legislative Guide on Insolvency Law
• 2009 - UNCITRAL Practice Guide on Cross-Border Insolvency Cooperation (the "Practice
Guide") –describes practice to date in cross-border protocols, agreements
• 2010: Part III of the UNCITRAL Legislative Guide on Insolvency Law on the treatment of
Enterprise Groups in Insolvency (the “Enterprise Group Guide”)
• 2011 – The Judicial Perspective on the Model Law [Pre-Release]
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UNCITRAL Working Group V (Insolvency Law)
• Working Group V (“WGV”): insolvency law harmonisation &
reform
– Players: National delegations (distinguished judges, academics,
practitioners), NGO Observers, Secretariat
• IBA a leading contributor to WGV
• SIRC members of IBA Delegation work very hard to “take off
national jurisdictional hats” and advocate positions of benefit
to worldwide legal profession
– The Working Group V Process:
• Secretariat plays critical role drafting recommendations and text
• Working Group deliberates and develops work product by
consensus
• Expert drafting committee assists Secretariat in text revisions with
input from NGO Observers, including the IBA SIRC
---------------------------------------
* UNCITRAL reports that legislation based on the UNCITRAL Model Law on Cross-Border Insolvency has been
adopted in various countries and territories: Australia (2008), British Virgin Islands; overseas territory of the
United Kingdom of Great Britain and Northern Ireland (2003), Canada (2009), Colombia (2006), Eritrea (1998),
Great Britain (2006), Japan (2000), Mauritius (2009), Mexico (2000), Montenegro (2002), New Zealand (2006),
Poland (2003), Republic of Korea (2006), Romania (2003), Serbia (2004), Slovenia (2007), South Africa (2000),
and the United States of America (2005).
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Working Group V’s On-Going Projects
• Working Group V is formulating recommendations to
UNCITRAL for future work in insolvency from the
following suggestions:
– Liabilities of Officers and Directors in the pre-
insolvency period (and during insolvency)
– Centre of Main Interests (“COMI”)
– Developing a Model Law on Cross-Border
Enterprise Group Insolvency based on the
Legislative Guide
– Financial institution insolvency regulation—this is
being treated by Basel Committee & other entities.
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Director’s Responsibilities & Liabilities In Insolvency
& Pre-Insolvency
The U.K., the World Bank and other delegates of WGV believe it is
important to set out in guidance the responsibilities of directors where a
company becomes insolvent or is approaching insolvency.
• Under U.K. law, the overriding fiduciary duty is to the creditors of an insolvent
company and “wrongful trading” is a civil action where a liquidator can make
directors liable for trading the business beyond the point that they knew or
ought to have known that there was no reasonable prospect of avoiding
insolvent liquidation and, in so doing, the Directors worsened the position for
creditors. See Insolvency Act 1986, Section 214.
• In the U.K. and elsewhere, insolvency occurs when (i) a company becomes
unable to pay its debts as and when due or (ii) when a company’s liabilities
exceeds the value of its assets.
• How can we define in guidelines the point at which a director knew or ought to
have known the company was insolvent or likely to become. . . ?
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The “Twilight Zone” or “Zone of Insolvency”
Extensive research has been undertaken by INSOL into the roles and duties of
Directors & Officers in this period prior to financial collapse and this work is
available to WGV…
In the U.S., there is no federal or state law imposing liability for “wrongful trading”.
State law governs directors’ duties and although courts in some states have held
that directors owe duties to creditors and other “corporate constituencies” when a
company is in a “zone of insolvency”, courts of other states have held that creditors
only have standing to bring derivative claims on behalf of the corporation. The
state of the common law on this subject is currently unsettled.
Therefore, U.S. corporations operating in the zone of insolvency must continue to
discharge their fiduciary duties to a Corporation and its Shareholders (Gheewala
caselaw), there are no clear statutory rules as in other jurisdictions . . .
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The Twilight Zone - Australia
. . . In Australia there is a “trading while insolvent” statutory rule (including
a cash flow test) . . .
• Leon Zwier of Australia:
– Are there unintended consequences of such a rule?
– Can it impede reconstruction/restructuring/reorganization?
– What’s the “Imperfect Duty” of Directors to creditors of companies in the twilight
zone?
– Is there tension between Australian common law and statutory insolvency law?
– What international guidelines would Australia likely proffer to WGV and would New
Zealand differ?
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The Twilight Zone - Argentina
. . . In Argentina, a Director or officer may be held personally liable if
during the twilight period he/she deliberately produces, facilitates,
permits or aggravates the deterioration of the estate of the company or
its insolvency.
• Javier Canosa of Argentina:
– Should WGV recommend a rule of civil liability for trading while insolvent?
– What cause of action elements and defenses apply?
– Are insolvency tests employed?
– Can you think of a case where Directors who delayed instituting insolvency
proceedings precluded a successful reorganization?
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The Twilight Zone – U.S.
. . . In the U.S., the pendulum is swinging away from Directors’ duties to
creditors in the “zone of insolvency” (and the business judgment rule
affords company Directors wide latitude in determining when to file for
bankruptcy protection).
• Chief Judge Christopher Klein:
– Would creditors of a California corporate Chapter 7 debtor be able to maintain an
adversary proceeding in a California bankruptcy court seeking to subordinate
claims of the company’s directors based on allegations that the directors breached
their duties to creditors by unreasonably delaying the company’s bankruptcy filing
while the company was in the “zone of insolvency”?
– Could the directors prevail by simply arguing that there is no such duty under
California law, or, alternatively, could they prevail by mounting a “business
judgment rule” defense?
– How might U.S. experience be instructive to WGV as it drafts recommendations on
this subject?
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UNCITRAL BREAK !!!
SECOND SESSION: JUDICIAL COOPERATION
IN CROSS-BORDER ENTERPRISE GROUP
CASES
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Judicial Cooperation in Cross-Border Cases
• UNCITRAL recently promulgated a Legislative Guide Annex encouraging
nations to enact laws encouraging coordination and cooperation among
courts, insolvency administrators and debtors-in-possession in cross-border
enterprise group insolvency cases. One objective of this “universalist”
approach is to avoid jurisdictional conflicts and competition for assets that can
impede a successful restructuring of the group and its members.
• There is far from global consensus on this approach at this time, so that a
multi-national business enterprise filing insolvency would likely find itself with
group members/subsidiaries in jurisdictions that still adhere to a non-
internationalist approach, and others in states that are willing to grant
recognition to foreign insolvency proceedings based on objective criteria
(irrespective of comity).
• UNCITRAL Model Law and Legislative Guide annex move considerably
beyond formal procedures previously governing cross-border judicial
communications, i.e., letters rogatory and “comity” which was needed for
recognition of foreign proceedings and orders.
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A Case Study in Corporate Groups
. . . Let’s consider a case study which embellishes on a recent cross-
border proceeding and shows one result of having no commonly agreed
framework to coordinate cross-border corporate groups insolvency
proceedings.
Questions for the Panel:
• What alternatives are open to a court in a Model Law jurisdiction when
facing a situation in which another jurisdiction’s court refuses judicial
communication/cooperation?
• Would a procedural insolvency convention effectively address the type
of corporate group jurisdictional conflict described in the case study or
those recently experienced in Lehman Brothers and other corporate
group cases?
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Would a Procedural Convention Help?
• Many nations regard the Model Law as too complex, feel that it treads
too far into substantive domestic commercial and insolvency policy
matters, and prefer something more limited, bilateral and subject to
reciprocity. This is why the IBA and UIA have called for Working
Group V to promulgate a limited procedural insolvency convention to
establish, on the basis of reciprocity, agreed binding procedures
ensuring judicial cooperation and administrative coordination in cross-
border enterprise group insolvency cases, without touching
contentious issues of substantive bankruptcy law that still
fundamentally divide nations. Representatives of some influential
WGV members that have not enacted the Model Law rose in strong
support of this proposal – which has been deferred for possible
consideration in the future.
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Would a Procedural Convention Help?
Questions for Spiros Bazinas and Audience:
a. What factors bear on the desirability and feasibility of such a
convention?
b. One school holds that deliberating on a convention is itself a
consensus-building process – but another cautions that sufficient
consensus on basic principles must emerge before a convention can
be debated.
c. Would a strictly procedural insolvency convention – i.e., providing as a
matter of treaty for cross-recognition of foreign proceedings and
insolvency administrators based on reciprocity, etc. – be helpful to
jurisdictional conflicts encountered in cross-border insolvencies in your
jurisdictions(s)?
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Please refer any questions or follow-ups to:
Patrick N. Z. Rona
pnrona@duanemorris.com
DUANE MORRIS LLP
1540 Broadway
New York, NY 10036
Tel: 212-692-1048
Fax: 212-692-1020
www.duanemorris.com
Disclaimer: These materials and panel’s comments are intended for discussion purposes only and are
not intended as legal advice. The views expressed are the personal opinions of the speakers and not
those of the institutions or organizations with which the speakers are affiliated, or of the International
Bar Association or its officers (which make no representation as to the accuracy of the information
communicated).
Thank you for your participation!
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