U.S. and Foreign Courts Adopt the Judicial Insolvency Network’s Cross-Border Guidelines

This article was written by Craig Martin and Mark Fairbairn at DLA Piper LLP and first appeared in the American Bankruptcy Institute journal.

The U.S. Bankruptcy Court for the District of Delaware has adopted a new local rule, effective Feb. 1, 2017, that permits application of “Guidelines for Communication and Cooperation between Courts in Cross- Border Insolvency Matters” (the “Cross-Border Guidelines”).¹ Under this rule, the Cross-Border Guidelines will apply where the bankruptcy court approves (either on application of the parties or at the bankruptcy court’s own initiative) a protocol or enters an order applying the Cross-Border Guidelines as adopted.

Similarly, the Supreme Court of Singapore implemented the Cross-Border Guidelines, effective on Feb. 1, 2017. Subsequently, on Feb. 17, 2017, the U.S. Bankruptcy Court for the Southern District of New York entered General Order M-511, adopting the Cross-Border Guidelines. On March 9, 2017, the Supreme Court of Bermuda issued a Practice Direction, which permits the application of all or any part of the Cross-Border Guidelines.

Background on the Adoption of the Cross-Border Guidelines

The Cross-Border Guidelines were drafted during a conference held on Oct. 10-11, 2016, of the Judicial Insolvency Network. This network was initiated by the Supreme Court of Singapore with the aim of encouraging communication and cooperation among national courts. This conference was hosted by the Supreme Court of Singapore, and judges from Australia (Federal Court and New South Wales), the British Virgin Islands, Canada (Ontario), the Cayman Islands, England and Wales, and the U.S. (the District of Delaware and Southern District of New York) attended in person. Representatives from the Hong Kong SAR attended as observers, and the Bermuda Commercial Court participated in the conference electronically. The effort grew out of Singapore’s increasing focus to establish Singapore as an international debt-restructuring center.²

During the conference, the participating judges discussed the need for guidelines and the key aspects of communication and cooperation among courts, including the role of insolvency officeholders or other representatives and parties involved in cross-border insolvency proceedings. These judges drafted the Cross-Border Guidelines as a new set of guidelines, albeit with reference to other guidelines such as those that have been previously used by courts, but specifically distilled concepts set out in the “Guidelines Applicable to Court-to-Court Communications in Cross-Border Cases,” jointly promulgated by the American Law Institute, American Bar Association and International Insolvency Institute. The underlying rationale was to consolidate, update and modernize the principles contained in other guidelines and protocols based on actual judicial experience.

Description of the Guidelines

The Cross-Border Guidelines start with an introduction that describes the rationale behind them, including the “overarching objective” of improving the efficiency and effectiveness of parallel cross-border insolvency proceedings by enhancing the coordination and cooperation among the courts supervising parallel insolvency proceedings. The Cross-Border Guidelines aim to promote timely coordination by permitting consideration of the Cross-Border Guidelines at the earliest practicable opportunity. The guidelines also seek to ensure that relevant stakeholders’ interests are respected while information is shared to reduce costs in identifying, preserving and maximizing the value of the debtors’ assets and businesses. To that end, the guidelines seek to avoid or minimize litigation, costs and inconvenience to stakeholders and ensure the management of a debtor’s estate in a way that is proportionate to the aggregate amount of the financial claims that are involved, the nature of the case and the complexity of the issues, as well as the number of creditors and jurisdictions involved in the parallel insolvency proceedings.

There are then 14 different guidelines covering the adoption and interpretation of the Cross-Border Guidelines, communication between the courts, appearance in court and consequential provisions. Annex A sets out seven principles for the conduct of joint hearings between courts.

Guidelines 1-6: Adoption and Interpretation

The first six guidelines address the manner and scope of the adoption of the Cross-Border Guidelines, including the suggestion that the courts supervising parallel proceedings should encourage their adoption as early as practicable to aid in administration. In so doing, Guideline 2 provides that the Cross-Border Guidelines should be adopted by a protocol or court order following an application by the parties or, if the court has power to do so, at its own direction. Guideline 3 provides that, if possible, the protocol or order should address coordination of requests for court approvals or communications with creditors in a time-saving manner that avoids unnecessary and costly court hearings.

Guidelines 4 and 5 clarify that the Cross-Border Guidelines are intended to be procedural in nature and are not intended to interfere with a court’s jurisdiction in administering the proceeding before it or to interfere with or derogate from the applicable rules or ethical principles that are relevant to the proceeding. Guideline 4 provides that a court may refuse to take any action that would be “manifestly contrary to the public policy” in its jurisdiction or that would not sufficiently protect the interests of the creditor or other interested parties. These provisions are consistent with certain provisions in chapter 15 of the Bankruptcy Code.³ In a similar vein, Guideline 6 is similar to § 1508 of the Bankruptcy Code in that it provides that the Cross-Border Guidelines should be interpreted with due regard to their international origins and the need to promote good faith and uniformity in their application.

Guidelines 7-9: Communication Between the Courts

Guideline 7 provides that courts may receive communications from a foreign court and may respond directly to them for the purpose of the orderly making of submissions, rendering decisions by the courts, and coordinating and resolving any procedural administrative or preliminary matters related to a joint hearing under Annex A. These communications may occur as agreed to by the courts in specific cases and may include either the court sending or transmitting orders, judgments, opinions and other records of proceedings directly to the other court with advance notice to counsel as the court considers appropriate or directing counsel to transmit these materials.

Guideline 7 also permits two-way communications by telephone, video or other electronic means as contemplated by Guideline 8. Guideline 8 provides that in the event of these communications, other than on procedural matters or unless the courts otherwise direct, the parties might be present, and if they are entitled to be present, they should receive advance notice in accordance with the courts’ rules. The communications should also be recorded, and any transcript should be prepared and filed on the record. Guideline 8 also authorizes court personnel other than the judges in each court to communicate with one another outside of the presence of the parties to enable them to establish appropriate arrangements for the communications between the judges.

Finally, Guideline 9 permits a court to provide notice of all proceedings to parties in the proceedings in another jurisdiction. This allows a court to ensure transparency and ensures that the parties in the various jurisdictions are aware of proceedings in the various, but relevant, jurisdictions.

Guidelines 10-11: Appearance in Court

Guidelines 10 and 11 provide interesting and useful provisions that allow a party or appropriate person to appear before and be heard by a foreign court, subject to the approval of the foreign court to such appearance. While it is the practice in many cross-border cases to permit foreign counsel to speak at the podium, Guideline 10 permits the more formal authorization of such appearances and will likely create some certainty and comfort for out-of-country counsel when seeking to explain the foreign parallel proceedings.

Guideline 11 also permits a court to allow a party to appear and be heard on a specific matter without becoming subject to its jurisdiction other than with respect to the specific matter on which the party appears. This jurisdictional exception must be permitted by law and be otherwise appropriate. This is a significant guideline that may ensure that foreign creditors will be able to participate in foreign insolvency proceedings without fully exposing themselves to the jurisdiction of a foreign court for general purposes.

Guidelines 12-14: Consequential Provisions

The last three guidelines provide that a court should recognize and accept as authentic the provisions of the statutes, statutory or administrative regulations and rules of the court that are applicable to a foreign proceeding, as well as the orders made in that proceeding without any further proof subject only to proper objection on valid grounds and then only to the extent of such objection. Guideline 14 permits that a protocol or order made under the Cross-Border Guidelines might be amended, modified and extended as appropriate by the relevant court and consistent with the Cross-Border Guidelines.

Annex A (Joint Hearings): Annex A sets forth the guidelines for the conduct of joint hearings and by its terms encourages the parties to address the matters set out in Annex A in the protocol or order entered under the Cross-Border Guidelines. Annex A permits the conduct of a joint hearing and sets forth seven different principles that should apply if a joint hearing is conducted, which include the following:

(i) The implementation of this Annex shall not divest nor diminish any court’s respective independent jurisdiction over the subject matter of proceedings. By implementing this Annex, neither a court nor any party shall be deemed to have approved or engaged in any infringement on the sovereignty of the other jurisdiction.

(ii) Each court shall have sole and exclusive jurisdiction and power over the conduct of its own proceedings and the hearing and determination of matters arising in its proceedings.

(iii) Each court should be able simultaneously to hear the proceedings in the other court. Consideration should be given as to how to provide the best audio-visual access possible.

(iv) Consideration should be given to [the] coordination of the process, and [the] format for submissions and evidence filed or to be filed in each court.

(v) A court may make an order permitting foreign counsel or any party in another jurisdiction to appear and be heard by it. If such an order is made, consideration needs to be given as to whether foreign counsel or any party would be submitting to the jurisdiction of the relevant court and/or its professional regulations.

(vi) A court should be entitled to communicate with the other court in advance of a joint hearing, with or without counsel being present, to establish the procedures for the orderly making of submissions and rendering of decisions by the courts, and to coordinate and resolve any procedural, administrative or preliminary matters relating to the joint hearing.

(vii) A court, subsequent to the joint hearing, should be entitled to communicate with the other court, with or without counsel present, for the purpose of determining outstanding issues. Consideration should be given as to whether the issues include procedural and/or substantive matters. Consideration should also be given as to whether some or all of such communications should be recorded and preserved.

Some of the points regarding joint hearings replicate the earlier guidelines (e.g., Guidelines 10 and 11 address the appearance in a court and the submission to a jurisdiction, as does item (v) of Annex A). Thus, it seems that in the general course, a court may permit certain actions in connection with administrative hearings before itself that it might need to reconsider or replicate if a joint hearing is to be conducted. This thoughtful process as to the impact of the appearance and participation in joint proceedings, contrasted with independent hearings, will likely aid in the certainty of administration. The guidelines contemplate setting out solutions to the problems in advance in order to provide greater certainty and efficiency in the conduct of parallel cross-border proceedings.

Conclusion

The adoption of the Cross-Border Guidelines is important, and while many U.S. courts have previously implemented similar concepts in orders approving cross-border protocols, not every case can support the time and expense of such a protocol. Indeed, Hon. Christopher S. Sontchi of the U.S. Bankruptcy Court for the District of Delaware, who participated in the Judicial Insolvency Network conference in Singapore, said that the “implementation of the Cross- Border Guidelines in Delaware would lead to more efficient and prompt coordination and cooperation in many cases, but especially those smaller cases that in the past have not had the resources to pursue expensive and lengthy negotiations and hearings over a cross-border protocol.” Under the Delaware local rule, a bankruptcy judge, on his own initiative if necessary, can enter an order that applies the Cross-Border Guidelines, in whole or in part, in any case. Hon. Robert D. Drain of the U.S. Bankruptcy Court for the Southern District of New York, who also participated in the drafting process, added that “[t] he Guidelines are consistent with Chapter 15’s general directive to cooperate and coordinate with foreign courts and representatives.” He added that since the Cross- Border Guidelines “have been developed by judges from leading commercial jurisdictions worldwide; however, they provide a practical and efficient means to implement this core principle.”

The adoption of the Cross-Border Guidelines by local rule or general order is an important step in the ongoing effort to coordinate insolvency proceedings across multiple jurisdictions. While the first courts to adopt the Cross- Border Guidelines are in Singapore, the U.S. and Bermuda, it is expected that other jurisdictions will adopt them, which will take consistency and uniformity in global insolvency proceedings to a new international standard. It is also envisaged that the Judicial Insolvency Network will convene a conference every two years in the various jurisdictions, and this judicial input into the practice and procedure of cross-border insolvency law likely will be an important step forward in the development of the best practices in the adjudication of cross-border insolvencies. Indeed, in the Asian region, cross-border insolvency — and cooperation among courts — is in the early stages of development, and the Cross-Border Guidelines seem to be a welcome development in this important economic region.

Reprinted with permission from the ABI Journal, Vol. XXXVI, No. 5, May 2017.

The American Bankruptcy Institute is a multi-disciplinary, nonpartisan organization devoted to bankruptcy issues. ABI has more than 12,000 members, representing all facets of the insolvency field. For more information, visit abi.org.

---

1. See Del. Bankr. L. R. 9029-2.

2. See generally Report of Committee to Strengthen Singapore as an International Centre for Debt Restructuring, available at http://www.mlaw.gov.sg/content/dam/minlaw/corp/News/Report%20of%20the%20Committee.pdf (last visited March 23, 2017).

3. See 11 U.S.C. §§ 1506 and 1521.