LEXIS-NEXIS® Congressional Universe-Document
LEXIS-NEXIS® Congressional
Copyright 1999
Federal News Service, Inc.
Federal News Service
MARCH 18, 1999, THURSDAY
SECTION: IN THE NEWS
LENGTH: 1406 words
HEADLINE: PREPARED TESTIMONY OF
TINA L. BROZMAN
UNITED STATES
BANKRUPTCY COURT
BEFORE THE
HOUSE JUDICIARY COMMITTEE
SUBCOMMITTEE ON COMMERCIAL AND ADMINISTRATIVE LAW
SUBJECT - THE
BANKRUPTCY REFORM ACT OF 1999
BODY:
Cross-border insolvencies have confounded creditors, practitioners and jurists
alike for decades. We have watched as jurisdictional battles and territorial
approaches destroyed the possibility of saving viable enterprises and jobs and
decimated the returns that creditors received on their claims. U.S. creditors
have been particularly hard hit because of the frequent loss of going-concern
values and because U.S. debtors in possession have been viewed with hostility
in foreign venues, preventing the repatriation of assets for U.S. creditors.
Private efforts by international bar associations to have enacted standardized
insolvency laws have failed because their proponents aimed to change
substantive law, too weighty an undertaking for a first step. We are poised to
dramatically improve that status quo.
In 1994, the United Nations Commission on International Trade Law, known by the
acronym UNCITRAL, received a clarion call from a multinational group of
bankers, judges, regulators, insolvency professionals and academics to develop
a more modest solution -- one that would achieve three goals: cooperation
between courts, recognition of foreign proceedings and access to foreign
proceedings by estate representatives. Last year, UNCITRAL accomplished that
objective, approving a Model Law for enactment by member states of the United
Nations. The Model Law contains provisions which will accord relief to foreign
representatives needing assistance in this country. But there are also three
features of the Model Law which are especially important to the U.S. First, the
Model Law recognizes debtors in possession as proper estate representatives.
This outcome has been generally unavailable to bankruptcy judges, with the
result that we have had to
appoint examiners or trustees, at great expense to often modest estates, in
order to even try to obtain foreign cooperation. In one case of mine with
companion proceedings in France, notwithstanding that I appointed a trustee, it
still took over two years just for the proceedings to be recognized - without
any other relief being granted. The second important feature of the proposed
law is that it contains an automatic stay once the foreign proceedings are
recognized, ending the dissipation of assets by local creditors and staying the
debtor from wholesale disposition or movement of assets. And third, the Model
Law expresses as one of its fundamental goals enhancing the possibility of
reorganization, thereby preserving value for out creditors as well as jobs. If
we adopt the Model Law, spurring other nations to do so, this will go a long
way
toward furthering our national objectives and increasing stability for the
banking community.
Under the auspices of UNCITRAL and INSOL International, I have led the initial
and subsequent Multinational Judicial Colloquia On Transnational Insolvency. I
am also the chair of the Judicial Section of INSOL International. At our first
Judicial Colloquium, one theme was commonly articulated by judges from civil
law jurisdictions, who have less discretion than judges from common law
jurisdictions like our own; they all agreed that some form of legislation was
critical to enable them to cooperate as they wish to do in transnational
insolvency cases. In addition to my role with INSOL and UNCITRAL, I am the
Chief Judge of the Bankruptcy Court for the Southern District of New York,
which is home to a great many of our transnational cases, cases which are
centralized on the coasts and in a few of the farm states. I have presided
over numerous cross-border cases. I can assure you that legislation is just as
desirable for U.S. judges as it is for foreign ones, because it would eliminate
unnecessary and costly appeals respecting the power of the bankruptcy judge to
harmonize the U.S. and foreign proceedings. In addition, the legislation would
afford to our estate representatives the statutory authority to seek assistance
in foreign courts, ending claims that they are exceeding their statutory
prerogatives and adding immeasurably to our ability to repatriate assets in
appropriate cases.
Our second Judicial Colloquium considered an actual draft of the Model Law
shortly before the final draft received UNCITRAL's approval. At the conclusion
of a day and one-half of discussion, one of our evaluators, U.S. Bankruptcy
Judge Leif Clark, from Texas, summarized the conclusions of the group
respecting the importance of a legislative solution:
"At the outset all of us
agree on one basic point ... and that is that this effort and cooperation is
vital in the cross-border arena. In most jurisdictions judges will in the main
simply not feel comfortable inventing law on a case by case basis. Our hats
must be off to the pioneers who dared to try something new and pave the way for
this process. But the best way to ensure that most judges follow that lead is,
it seems to us, to give them the statutory authority to do so. The express
provision for judicial cooperation may thus appear to be innocuous on its face
but is in reality one of the most important features of the UNCITRAL effort."
Notwithstanding the clear benefits which we will receive from enactment of the
Model Law domestically, there is an even more important reason for its
adoption. The international community is unlikely to embrace the Model Law if
we do
not do so. To date, only Eritrea has adopted the Model Law and the New Zealand
Law Commission has recommended its adoption. If we do not act affirmatively on
this legislation, I have grave fears that it will receive inadequate attention
overseas. Just as we have led the way in creating ad hoc solutions for the
problems of large transnational cases, we must lead the way in enacting a more
comprehensive and long-lasting solution capable of governing not only the
large, newsworthy cases but the smaller, less remarkable, multinational cases
which, with the globalization of commercial enterprise, increasingly are
becoming the bread and butter of our business bankruptcy dockets. No longer
should U.S. creditors have to fear that they will lose out to creditors
overseas who seize a bankrupt debtor's assets with impunity. No longer should
our creditors have to worry that if a foreign enterprise fails, they
will receive no notice of the right to participate in its insolvency
proceedings. And no longer should our creditors be held hostage by shrewd
debtors who can utilize technology to remove assets beyond the reach of our
courts. Indeed, at our second Judicial Colloquium, one of our Norwegian judges
expressed frustration about just such a case, where he was unable to follow the
debtor's assets around the world as the debtor deftly moved them from nation to
nation. If, through our leadership, we convince our trading partners to enact
this legislation, we will have done a great deal to give confidence to the
lending community, maximize asset values for all creditors, rehabilitate viable
enterprises and preserve employment for our own citizens. In short, with the
explosion of international commerce fostered by rapidly changing technology, a
common European currency and initiatives such as NAFTA, coupled with the
foreign business
failures which may flow from the Year 2000 and the ills plaguing Asia, we
simply cannot afford not to enact this legislation.
Which brings me to my final point. I appear today not to express any view on
the omnibus bankruptcy bill, many of whose provisions I disdain and others of
which I applaud, but to advocate in favor of delinking the Model Law from the
more general bill. In the last Congress, the identical proposed legislation for
our adoption of the Model Law was defeated, despite its unanimous
recommendation by the National Bankruptcy Review Commission, because it was
part of the omnibus bill. This legislation is too important to the business
community, banks and insurance companies, vendors and manufacturers alike, to
be held hostage to the fate of the broader, more contentious legislation.
Whatever happens in the larger context, cross-border cases are an
ever-increasing fact of economic reality. We must
enable the courts and the bankruptcy professionals to preserve viable
enterprises and maximize value for parties in interest free from the
unproductive and expensive jurisdictional warfare which lurks as the enemy of
an orderly insolvency regime.
I thank you for the opportunity of addressing you.
END
LOAD-DATE: March 23, 1999