University of Nottingham Commercial Law Centre

Strengthening policy for cross-border insolvency and insolvency of enterprise groups

Professor Mevorach's research identified an important gap in domestic and international insolvency law standards and frameworks, where these lacked explicit rules and solutions for group enterprises in distress and insolvency. The aim of her research was to address this gap through a systematic analysis of group structures and the differing insolvency scenarios they may face.

In Insolvency within Multinational Enterprise Groups (Oxford University Press, 2009) Mevorach offered a taxonomy describing prototypical group structures, with a matching toolkit of insolvency solutions that can be most efficient and that can have the broadest benefit to group stakeholders.

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The book also highlighted the gap concerning group insolvencies in existing laws and international frameworks. It argued that, while there were good justifications for initially postponing dealing with group insolvency in establishing international standards of insolvency and cross-border insolvency, it was now time to deal with this issue comprehensively. The research found that there were practical ways to address the complexity of group insolvencies and resolve the policy dilemma between 'entity law' (retaining the economic benefit of separation between entities) and 'enterprise principles' that give effect to the economic realities of the group, including when it operates internationally.

The research then expanded to address the complex issue of the governance of management behaviour during periods approaching insolvency in enterprise groups' contexts – namely, when entities within a group suffer financial difficulties but face conflicts arising from misalignment of the interests of subsidiaries and parent companies (Mevorach, 'The role of enterprise principles in shaping management duties at times of crisis' 14 EBOR 2013).

Mevorach's empirical, comparative and inter-disciplinary research ('On the road to Universalism: a Comparative and Empirical Study of UNCITRAL Model Law on Cross-Border Insolvency' EBOR 2011; The Future of Cross-Border Insolvency: Overcoming Biases and Closing Gaps, Oxford University Press, 2018) highlighted additional gaps in the international system. It revealed that aspects of the global instrument (the UNCITRAL Model Law on Cross-Border Insolvency) were not working as effectively as other elements of the regime.

Thus, Mevorach argued in 2011 that while the UNCITRAL Model Law on Cross-Border Insolvency has been generally successful in promoting a 'universalist' approach – a global approach to multinational default that is fair and can maximise value, some aspects, in particular the discretionary relief that countries may provide to foreign insolvency representatives, have not been applied consistently across jurisdictions.

Mevorach's research developed further to consider what other forces hold the global system back from reaching its full potential, post the 2008-2009 global financial crisis. Her inter-disciplinary research (Mevorach, The Future of Cross-Border Insolvency: Overcoming Biases and Closing Gaps, Oxford University Press, 2018) drew upon public international law sources as well as behavioural and economic theory to propose a set of key pillars on which the future of cross border insolvency can be developed: transforming trends in cross-border insolvency into binding international law; choosing correct instruments – hard or soft law – for cross-border insolvency; considering end-users decision-making processes when designing instruments; and, facilitating compliance with mechanisms that promote the global insolvency regime. The research also assessed and provided a constructive critique on existing instruments as well as on the new instruments that UNCITRAL were developing for addressing previous gaps, concerning groups, and concerning relief (enforcement of judgments).

The above body of research influenced deliberations on the regulation of groups of companies, including those operating across jurisdictions and whose collapse has had enormous impact on stakeholders and economies. Indeed, Mevorach's empirical research of cross-border insolvency cases decided under the global regime (Mevorach, 'On the road to Universalism: a Comparative and Empirical Study of UNCITRAL Model Law on Cross-Border Insolvency', European Business Organisation Law Review, 2011) revealed that about half of the cases examined (195 cases from eight jurisdictions) in the period investigated were cases of groups. Group cases are frequent on the cross-border level. They also tend to be more impactful compared to single company cases as they are larger cases which involve more entities, affecting multiple groups of stakeholders (see eg the insolvencies of enterprises like Lehman Brothers, Nortel, Agrokor).

Drawing on her research, Mevorach provided specialist insight and influenced international policy debate, which informed new global standard and principles (notably new UNCITRAL model laws on enterprise group insolvency and on the recognition and enforcement of insolvency judgments, and new legislative guidance on the obligations of directors in the period approaching insolvency, in single company and group contexts). These developments were aided by Professor Mevorach's participation at the UNCITRAL Expert and Working Group V- Insolvency Law, as an academic advisor to the UK delegation, and through her previous senior counsel role and leadership of the insolvency and creditor-debtor regime and insolvency global task force at the World Bank.

Professor Mevorach continues to explore the impact of new international instruments, and methods for their effective implementation as well as additional areas of uncertainty and gaps, in the fields of cross-border insolvency and enterprise groups, which require further deliberations internationally.

University of Nottingham Commercial Law Centre

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