The Development of Cross-border Insolvency
Under Global Coronavirus disease (COVID-19) Outbreak
The COVID-19 disease is raging all around the world. Although all countries are doing their best to prevent it, the speed of propagation is still hard to contain and the inflection point has yet to pass. This epidemic has caused unprecedented damage to the global economy and many industries were forced to shut down. For instance; March 2nd, 2020, Japan’s Luminous Cruising Co. filed for bankruptcy; April 1st, Whiting Petroleum filed for bankruptcy; April 11th, Burger King New Zealand has been placed in receivership; April 21st, Virgin Australia declared that they are seeking bankruptcy protection; April 23rd, Rhyl FC, a football club that has existed for 140 over years, announced that they have started the formal winding up procedures. Hotels, restaurants, and even the entire travel industry have all been crippled.
Upon the backdrop of globalization, cross-border insolvency would be an important topic in the field of bankruptcy in the future. As China is the world’s largest manufacturing country and the second-largest economy, it is crucial whether China is able to play a good role in the field of cross-border insolvency; it would also determine China’s power in discourse and global position.
一、 跨境破产的发展历程 The Development of Cross-border Insolvency
Currently, the legal source of cross-border insolvency which is generally accepted worldwide is the “UNCITRAL Model Law on CrossBorder Insolvency” (hereinafter referred to as the Model Law), the purpose is to “assist states to equip their insolvency laws with a modern, harmonized and fair framework to address more effectively instances of cross-border insolvency proceedings.” This means seeking common ground while reserving differences. Except for the Model Law, some other regions have reached agreements relating to cross-border insolvency, as well as international organizations which are also working on this matter. For example, the American Law Institute published “ALI’s Principle of Cooperation”, it aims to deal with cross-border insolvency cases among NAFTA (US, Mexico, Canada); EU passed the “European Insolvency Regulation” in 2015 and established a data sharing mechanism. Globalization makes all types of economies interact together and with the development of cross-border insolvency becoming the general trend, it can only be promoted by cooperation among all countries.
China is neither a member of the Model Law, nor a participant in any international multilateral treaties related to cross-border insolvency, Article 5 of the Law of the People’s Republic of China on Enterprise Bankruptcy (“Enterprise Bankruptcy Law”) is the only relative regulation. What needs to be pointed out is that according to Article 5, Chinese courts would only recognize and enforce foreign cases that already have a legal effect. However, in reality, this article would largely restrict the creditors’ rights. This is because from the moment that the court accepts the case up until the debtor is adjudicated as bankrupt, it would normally take a long period of time. So if the court in China does not take any legal remedy, the debtor would highly likely be transferred and their assets hidden, which means that multilateral cooperation would lose its meaning.
二、 跨境破产的保护作用 The Protective Effect of Cross-border Insolvency
Firstly, the cross-border insolvency system is able to protect the debtor. Generally, enterprises that can apply for cross-border insolvency often have a mature operating system, a complete supply system and rich management experience, etc. During the current outbreak, most of them applied for bankruptcy because of the cracks in their cash flow and capital. At this moment, a cross-border insolvency system might be the last chance for the debtor. This is because bankruptcy liquidation not only means the end of the enterprise, but also an opportunity that it can act as a mechanism to save the enterprise through rebirth. For example, the enterprise could enter the bankruptcy reorganizing procedures by introducing the investors, integrating excess inventory, and eventual “resurrection”. Also, it can use the bankruptcy conciliation procedures by reaching a settlement with the creditors to keep the enterprise “alive”. Multinational companies often have the potential to reorganize and reconcile, hence the future market is foreseeable.
The pandemic might be under control in a short period of time but the bankruptcy proceedings of a large number of multinational companies caused by the pandemic will continue for several years, which may also have a long-term impact on the economy. China only by adhering to an open attitude, speeding up legislative reforms in the field of cross-border insolvency, and assisting and cooperating with other countries and regions, can minimize the loss. China should turn this crisis into an opportunity, to build an active and open image so as to control the power of discourse.