The exit of capital outside the boundaries of one particular state brought a lot of benefits, but also a lot of problems. Globalization has brought about cross-border insolvency. However, what is it?
Bankruptcy is called cross-border insolvency, in the process of which foreign elements are involved - creditors, debtors, etc., and the property recovered for the debt is located in another state. And the situations at the same time arise quite difficult, since in solving this issue it is necessary to apply legislative regulations of different countries.
Bankruptcy itself is a rather complex process, and laws in all countries tend to provide for measures that restore the debtor's solvency. But this is not always possible, and the debtor is declared bankrupt, and the debts are paid by the sale of his property.
Debtors, in turn, are trying to use loopholes in the legislation to save property: they know that the country where the bankruptcy process began will not be able to extend its jurisdiction to foreign territory, and are trying to acquire property in several states in advance.
And if it comes to recognition of cross-border insolvency, then such a case is resolved with the help of the norms of international private law. The grounds for resorting to them are as follows:
- the creditor is a citizen of another state or an enterprise that is registered in another country, i.e. a foreign entity;
- the debtor's property or some part of it is located on the territory of a foreign state;
- insolvency proceedings have been initiated against the debtor not in one, but simultaneously in several countries;
- there is a court decision on the basis of which the debtor is declared bankrupt, and there is a need for this decision to be recognized in another country and enforced.
In practice, however, two main methods are used to regulate such cases:
- the principle of universality, when insolvency proceedings begin in one state;
- the principle of territoriality, when proceedings on such a case are started in several countries at once.
In the first case, everything is based on the fact that other countries undertake to recognize and execute a judicial decision adopted in one country. This principle is complex, since not every state agrees to abandon its own jurisdiction, but it is more effective than the one when the bankruptcy case is being conducted in several countries at once.
But the rules designed to regulate the processes of cross-border insolvency are found in the legislation of specific countries and in international legal acts. In the latter case, these are contracts such as:
- Istanbul Convention 1990;
- UNISRAL Model Law 1997;
- UNISRAL Insolvency Guide 2005;
- EU regulation 1346/2000.
As an example of the legislation of a particular country, one can cite the Laws on Insolvency (Bankruptcy) of Enterprises and the Law on Bankruptcy of Individuals, adopted in the Russian Federation. By the way, there are corresponding norms in the arbitration procedural legislation.
