Bankruptcy commentators, policymakers, and scholars generally agree that global insolvency systems should champion the principles of universalism and economic efficiency. The global delegations to the United Rations Commission on International Trade Law [hereinafter "U?[CITRAL"] built those principles into their Model Law of Cross-Border Insolvency [hereinafter in text "Model Law"], which many nations have since adopted. (1) However, some nations have not taken the next step to incorporate these principles into their policies and jurisprudence. In England and Wales, a Victorian-era principle emanating from Antony Gibbs & Sons v. La Societe Industrielle et Commerciale des Metaux, (2) exemplifies how bygone conventional wisdom threatens to derail the world's progress toward efficiency through universalism. The Gibbs Principle states that only an English court may discharge debt arising under English law, even if that debt has first been discharged in a foreign insolvency proceeding. Furthermore, the modern rulings that support Gibbs go further. They hold that the Model Law offers only procedural relief, that judgments entered against parties who do not submit to the foreign jurisdiction are invalid, and that any relief granted under English law to the foreign representatives seeding enforcement under the Model Law must first be correspondingly available under English law. These rulings incentivize holdouts and disincentivize creditors from participating in foreign insolvency proceedings. Also, those with discharged debt arising under English law must, in order to fully discharge their obligations, pursue costly parallel proceedings in England following discharge in a foreign insolvency proceeding. The net effect of these decisions is increased systemic costs and a lack of uniformity contrary to the principles underlying the Model Law. Given these seismic implications, the cross-border insolvency community must pursue Gibbs-related reform.
Discharging debt through bankruptcy is a bedrock principle of many insolvency systems across the globe and has been for some time. In 1918, L.E. Levinthal stated that "the discharge of the honest insolvent has come to be regarded as the all important feature of some bankruptcy statutes." (3) A bankruptcy discharge releases debtors from their obligations to pay certain debts and, in some cases, replaces those debts with obligations that enable the debtor to regain its footing. Indeed, in 1918, the laws of England, the United States, Germany, and Austria allowed discharge much like that historically seen in ancient Islamic and Oceanic cultures. (4) By 1996, the practice had spread to France, Japan, Sweden, and other nations. (5)
Multinational debtors that hope to use discharge as a restructuring mechanism for debt governed by English law, however, must contend with the Gibbs Principle. The rule arises out of Antony Gibbs & Sons v. La Societe Industrielle et Commerciale des Metaux, (6) an 1890 opinion from the Queen's Bench Division of the High Court (now known as the English Court of Appeal) that has stubbornly withstood the advancement of cross-border insolvency law. (7) The Gibbs Principle generally holds that only English courts can discharge debt subject to English law, even if the debtor received a discharge in a foreign bankruptcy proceeding. (8)
The persistence of the Gibbs Principle into the Modern Age, despite significant criticism, is driven by a broader movement within English insolvency jurisprudence that opposes universalism. Recently, English courts have limited the scope and power of UNCITRAL's Model Law, which was codified into English law under the 2006 CrossSorder Insolvency Regulations [hereinafter "OBIR"]. (9) The courts have held that the Model Law is merely procedural in nature, not substantive, and that English courts may only grant relief that would otherwise be available under English law. (10) As a result, after parties endure extensive restructurings in the debtor's home country, they learn that English courts will not recognize or enforce the outcomes of those proceedings including, but not limited to, the discharge of debts.
The universalist foundation of modern cross-border insolvency law is weakened by Gibbs and the English jurisprudential movement to impede recognition of foreign insolvency proceedings. Rather than enabling a more efficient global insolvency system where debtors and creditors collectively negotiate in a unitary proceeding, English rulings require multiple proceedings or the use of English tribunals as the home court. Depending on the circumstances, that choice may be detrimental to the debtor and creditor body. It may also be detrimental to England's standing as a preferred hub for global financial underwriting. Under current English law, debtors may have to manage risk by avoiding issuance of debt under English law. Thus, it is time to thoroughly scrutinize and refresh this dated principle of English insolvency jurisprudence.
This Article proceeds in three parts. In Part II, I outline the legal and economic principles that undergird universalism, with special emphasis upon the Model Law. In Part III, I discuss the Gibbs Principle and additional developments in English cross-border insolvency jurisprudence, including a critique and overview of its current interpretation and effects. In Part IV, I discuss the practical effects of Gibbs, the reaction to it from other sources, and then I propose solutions for practitioners, Parliament, and the courts of England and Wales.
KEY PRINCIPLES GUIDING THE ANALYSIS
The following analysis relies on two well-established pillars of insolvency law: 1) that insolvency systems applying universalist, rather than territorial, principles preserve more value, and 2) that insolvency systems should strive to promote economically efficient outcomes.
While hackneyed, Thomas Friedman's claim that the "world is flat" has never been more relevant, as both large, sophisticated, economic players and small businesses operate globally using nothing but a mobile phone. (11) Companies today are no longer confined to work within a single country or geographic region, and a global reach can be accomplished quickly. The ride sharing giant Uber is a case in point. The company was only an idea in 2009. (12) Ten years later, it operates in over seventy countries. (13)
Moreover, multinational companies control a vast array of infrastructure and capital; they are critical components of daily life in societies around the globe. According to The Economist, multinational companies (defined as those that make at least thirty percent of revenue outside of their home region) control supply chains that are responsible for fifty percent of all world trade and forty percent of the value of Western stock markets. (14) Invariably, some of these companies will face financial distress impacting people and systems across the globe. It thus behooves governments wishing to preserve economic value to enact insolvency laws that accomplish that goal across borders, as global uniformity minimizes insolvency-related damage and disruption.
The United Nations [hereinafter "UN"] has championed the goal of preserving global economic value and has worked to create the infrastructure and tools needed to achieve that objective. In 1966, the UN convened delegations from countries around the world to form UNCITRAL. (15) In 1995, the UN General Assembly tasked UNCITRAL with developing a model international law to help move the global community closer to an insolvency system that enables multinational companies to efficiently restructure. (16)
For the most part, academics and the global delegations to UNCITRAL alike agree that a universalist insolvency system, rather than one built on territorial principles, best preserves value for multinational entities. (17) A universalist system would have a single court convening a proceeding to manage the entire restructuring or liquidation of an entity, assessing the claims and assets from every nation involved and distributing assets collectively among all parties. (18) Conversely, territorial systems require countries to administer the claims and assets held by the debtor in their respective countries and ignore those claims and assets held beyond their borders. (19)
There are several reasons why many experts prefer universalism in cross-border insolvency, including the beneficial results of a single proceeding (1) allowing for efficient, cost-effective administration by reducing the time and resources spent coordinating and navigating multiple proceedings, (20) (2) encouraging collective action that reflects the interests of the entire society impacted by the insolvency, (21) (3) ensuring that certain creditors must compromise their individual rights to preserve the most value for the collective whole, even if enforcing those individual rights would have provided for a superior, individual outcome, (22) (4) diminishing the likelihood of contradictory or defiant orders and holdings from parallel proceedings, (5) creating more certainty by ensuring that resolutions to insolvency proceedings are recognized and enforced globally, thereby reducing expense, and (6) providing a "symmetrical" scope to the problems multinational debtors face, in that the dimension of the proceedings is equivalent to the reach of the debtor's business. (23)
Given these benefits, Professors Wessels, Markell, and Kilborn understandably claim that "universalism in one form or another commands virtually undisputed superiority over territorialism." (24) Professor Westbrook, in support of the principle, logically notes that multinational companies in distress require a unitary, conclusive proceeding for all stakeholders globally, and that any other action would only be "a temporary accommodation" subject to upset at any time. (25) Conversely, Professor Robert K. Rasmussen claims that...