Resolving Transnational Insolvencies Through Private Ordering

There is no international bankruptcy law. No question, there are international insolvencies. Transnational firms, just like domestic ones, often cannot generate sufficient revenue to satisfy their debt obligations. Their financial distress creates a situation where assets and claimants are scattered across more than one country. But there is no international law that provides a set of rules for resolving the financial distress of these firms. The absence of any significant free-standing international bankruptcy treaty means that a domestic court confronted with the domestic part of a transnational enterprise has to decide which nation’s domestic bankruptcy law will apply to which assets. To the extent that one wants to talk about an “international bankruptcy law,” it is nothing more than the question of when, as a matter of domestic law, a court will resolve a dispute according to the law of another country rather than its own nation’s bankruptcy law. International bankruptcy law as it currently exists is thus, in reality, domestic bankruptcy law. The challenge for each nation’s domestic law in this area is to mediate the tensions that arise because the firm and its creditors are spread across more than one jurisdiction. This question becomes difficult in large measure because each country’s domestic bankruptcy laws diverge. Such divergence is not surprising. Bankruptcy laws address a myriad of discrete questions. At a minimum, the bankruptcy laws of each nation must specify who will decide the future deployment of the insolvent firm’s assets, who will own these assets after the proceeding ends, and who will run the firm while all these matters are being sorted out. Scholars exploring the best way to address these questions have provided a number of conceptually coherent theories, yet they have not come to a consensus on the “correct” bankruptcy law – and, even if they had, there is little reason to think that the actual political process would embrace this consensus.