The Supreme Court yesterday commenced its hearing of a seven-year legal battle concerning the status in England and Wales of bankruptcy orders made abroad.
The law as it stands is that a bankruptcy order made abroad in the US, for example, is not enforceable in the UK unless there is a separate action brought in a UK court.
The Supreme Court is hearing the conjoined cases of Rubin v Eurofinance and New Cap Re.
The Rubin case concerns a US bankruptcy ruling which sought recovery of preferential payments made to English debtor companies for a US business. In New Cap Re, the court is being asked whether an insolvency ruling made in Australia is enforceable in England.
The cases hold legal significance because the judgment could have far-reaching implications in major liquidations such as the collapse of Lehman Brothers. If the Supreme Court decides to uphold the decision in Rubin then future insolvency orders made in one jurisdiction could well have international ramifications under a principle known as 'universalism'.
Universalism is the term which international insolvency practitioners have coined to describe a situation in which all creditors regardless of their country of origin are paid from the single pool of assets.
There is already a global move towards cross-border insolvency, which provided the main theme for the EC Regulation on Insolvency (2000) and the UNCITRAL Model Law on the same subject. The feeling is that if the appeal is upheld, the Supreme Court will be following in a long line of jurisprudence pointing towards greater harmonisation of global insolvency laws.
John Verrill is an insolvency and financial restructuring partner at law firm Chadbourne & Parke.
"International insolvency practitioners have long held the conviction that there should in practice be one pool of assets in which all creditors share equally, regardless of country or continent of residence," he told the Financial Times.
"It is vitally important in cases (such as Lehman and Madoff) that courts and practitioners as far as possible put aside their jurisdictional differences and work together in recovering as much as possible for victims of such financial catastrophes," he added.
The case is being heard this week, but judgment is expected to be reserved until later this year.
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