Bills Digest no. 76 2007–08
Cross-Border Insolvency Bill 2008
This Digest was prepared for debate. It reflects the legislation as
introduced and does not canvass subsequent amendments. This Digest
does not have any official legal status. Other sources should be
consulted to determine the subsequent official status of the
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Cross-Border Insolvency Bill
House: The Senate
Portfolio: Superannuation and Corporate
The Act commences on Royal
Assent, except for Parts 2, 3, 4, and Schedule 1, which will
commence on a day fixed by Proclamation, or 6 months after Royal
Assent, whichever is the earlier.
relevant links to the Bill, Explanatory Memorandum and second
reading speech can be accessed via BillsNet, which is at http://www.aph.gov.au/bills/.
When Bills have been passed they can be found at ComLaw, which is
To give effect to the Model Law
on Cross-Border Insolvency of the United Nations Commission on
International Trade Law ( the Model Law ). The Model Law outlines a
system of insolvency procedures to be used in cases where the
insolvent party has assets in more than one country; or when there
are foreign creditors present in a domestic insolvency proceeding.
Through use of the Model Law, the Government aims to achieve:
- Co-operation between local and foreign courts, and local and
foreign insolvency professionals, who are involved in cross-border
- Greater legal certainty for trade and investment
- Fair and efficient administration of cross-border insolvencies
that protects the interests of all creditors and other interest
persons, including the debtor
- Protection and maximisation of the value of the debtor s
- Facilitation of the rescue of financially troubled businesses,
thereby protecting investment and employment.
Cross-border insolvency is a term used to describe circumstances
in which an insolvent debtor has assets and/or creditors in more
than one country.
The United Nations Commission on International Trade Law
website describes the Model Law as follows:
Adopted by UNCITRAL on 30 May 1997, the Model Law
is designed to assist States to equip their insolvency laws with a
modern, harmonized and fair framework to address more effectively
instances of cross-border insolvency. Those instances include cases
where the insolvent debtor has assets in more than one State or
where some of the creditors of the debtor are not from the State
where the insolvency proceeding is taking place. The Model Law
respects the differences among national procedural laws and does
not attempt a substantive unification of insolvency law. It offers
solutions that help in several significant ways, including: foreign
assistance for an insolvency proceeding taking place in the
enacting State; foreign representative's access to courts of the
enacting State; recognition of foreign proceedings; cross-border
cooperation; and coordination of concurrent proceedings.
Enactment of the Model Law in Australia was first proposed in
the CLERP 8
paper titled Cross-Border Insolvency released in 2002. The
paper discussed the need for Australia to adopt a leadership role
in enacting the Model Law, in order to encourage other
jurisdictions to do so. It was also noted that:
Given Australia s active involvement in developing
the Model Law and its position in the international insolvency
community, other jurisdictions will be monitoring progress of
Australia s consideration of the Model Law s implementation. If
Australia were not to proceed with enactment in the near to medium
term, this is likely to have a direct influence on the position of
other countries, particularly in the Asia-Pacific.
Subsequently, the Government
announced its intention to enact the Model Laws in late
Other jurisdictions that have adopted the Model Law include the
United Kingdom, Colombia, Eritrea, Japan, Mexico, Montenegro, New
Romania, Serbia, South Africa and the United States of America.
Both the UK and USA enacted the Model Law in 2005. In Great Britain,
public consultation on the implementation of the Model Law
showed general widespread support for its enactment throughout
industry groups and associations.
As the Model Law is not based on a principle of reciprocity
between States, it
will, if enacted, operate in Australia to provide access to foreign
representatives. This is regardless of whether that foreign
representative s country has enacted the Model Law also. Therefore,
the adoption of the law in other jurisdictions will not immediately
impact on the use of the Model Law within Australia.
Generally there has been little comment in media and interest
groups regarding the introduction of the legislation. However, in
the years following the CLERP 8 review (2002-2005), commentary and
articles emerged observing that Australia should follow through
with its commitment to enact the Model Law. One industry
representative commented on the urgent need for introduction of the
...if there were to be an economic downturn, and a
rise in insolvencies, the system could get swamped with
jurisdictional issues... The time for implementing these changes is
when you re not facing crisis.
The Explanatory Memorandum states that the financial impact of
the Bill is nil, and that the compliance cost impact will be
minimal, as there already exists cooperation and coordination with
other nations in cases of cross-border insolvency.
Justice Barrett of the Supreme Court of New South Wales, in his
consideration of the aspects of the Model Law in 2005, applied the
hypothetical enactment of the Model Law against recent cases in
Australia s history. He noted when applying it to the HIH
case that the benefits for Australian liquidators would not lie in
Australian adoption of the Model Law, but rather in foreign
adoption of the law (in that case, where the UK might have adopted
the law). The CLERP 8 report makes a similar observation that
adoption of the law might provide immediate benefit for foreign
representatives, rather than provide a domestic benefit.
The reservations expressed in these comments emphasise the
desirability of having the Model Law speedily adopted by Australia
s major trading partners and those countries in which Australian
entities have made significant investments, or are looking to do
so. It is notable that of East and South-East Asian nations, only
Japan has adopted the Model Law.
The CLERP 8 discussion about enactment also pointed to the
disadvantages of enacting the Model Law as a stand-alone enactment
(while ultimately recommending that this be done regardless) on the
- the whole of the law concerning corporate/personal insolvency
would not be in the one place; and
- there may be more risk for argument about legislative intention
and conflict of laws for example, unintentional override of
domestic provisions, by enacting a later law outside the existing
The Bill clarifies that the Model Law overrides any
inconsistencies in laws dealing with bankruptcy and
also clarifies that it will not apply to certain insolvency laws
relating to banking and insurance. Any current or future inconsistencies
can only be addressed on a case-by-case basis; however, as the laws
relating to insolvency proceedings are well-contained within a few
key enactments, the risk identified in CLERP 8 does not appear to
be particularly onerous.
The Bill is structured in two main parts the full text of the
Model Law contained within a Schedule, and a number of clauses
containing provisions that supplement the content of the Model Law,
and address implementation issues. As a result, the Model Law
contained within Schedule 1 cannot be viewed in isolation to
the rest of the Bill. Preserving the Model Law in its original
state allows for a clear indication of the areas where the Bill has
added to, or departed from, the base model of the legislation.
Parts 2 - 4 of the Bill contains provisions
which are necessary for implementation of the Model Law, contained
within Schedule 1.
Part 2 makes a number of preliminary provisions
which are necessary to ensure correct and accurate application of
the Model Law in Australia. For instance, although the Australian
use of the term insolvency is typically associated with corporate
finance (and bankruptcy with personal finance) it is the intention
that the Model Law apply to cases of both corporate insolvency and
personal bankruptcy of individuals. Clause 8
specifies that Model Law applies to circumstances of personal
bankruptcy and corporate insolvency, with references to the
Bankruptcy Act 1966 (the Bankruptcy Act) and the relevant
insolvency in the Corporations Act 2001 (the Corporations
Part 2 also clarifies which courts are
competent to perform the functions in the Model Law (the Federal
Court of Australia, and in some cases, the Supreme Court of a State
or Territory): clause 10; and gives retrospective
application to current cross-border insolvency proceedings (but not
foreign proceedings): clause 20.
Part 3, clauses 21 - 22 outline the interaction
of the Model Law with other Acts. They state that where the Model
Law is inconsistent with a provision in the Bankruptcy Act or the
Corporations Act, the Model Law prevails over the inconsistent law.
According to the Explanatory Memorandum, the potential for
inconsistency with the Model Law lies principally in section 29 of
the Bankruptcy Act which deals with the provision of the court s
assistance to foreign courts and relevant authorities.
The reason is that the Model Law has a mandatory obligation on
the court to cooperate with courts or representatives of foreign
jurisdictions. By comparison, the Bankruptcy Act imposes a
mandatory obligation on the court to assist only the courts which
are prescribed by subsection 29(5) of the Bankruptcy Act.
Clause 23 provides a regulation-making power to
the Governor-General for the Act.
Schedule 1 of the Bill sets out the Model Law
on Cross-Border Insolvency of the United Nations Commission on
International Trade Law. The Model Law consists of a Preamble and
Article 1 sets out the scope of the Model Law s
application. It states that the Model Law applies where a foreign
court or representative seeks Australia s assistance with a foreign
insolvency proceeding; or assistance is needed in a foreign country
relating to an Australian insolvency proceeding; or where Australia
and a foreign country have concurrent proceedings against the same
debtor; or whether foreign creditors or other interested persons
have an interest in an Australian proceeding.
Article 1, paragraph 2 enables the
Governor-General (via his regulation-making power under
clause 23) to prescribe a list of types of
entities that might be excluded from the Model Law. The Explanatory
Memorandum states that regulations will be made to specifically
exclude special insolvency arrangements which apply to authorised
deposit‑taking institutions and insurance companies under the
Banking Act 1959, the Insurance Act 1973 and the
Life Insurance Act 1995. Exclusion of banks and insurance companies is
consistent with the Model Law s suggestions for excluded entities,
on the basis that such entities are subject to special insolvency
Article 2 contains relevant definitions. In
particular, the definitions of foreign proceeding and foreign
representative limit the scope of the application of the Model Law
to only those matters which satisfy the relevant definition.
A foreign proceeding is a judicial or administrative proceeding
in a foreign State, pursuant to a law relating to insolvency in
which the assets and affairs of the debtor are subject to control
or supervision by a foreign court, for the purpose of
reorganisation or liquidation.
A foreign representative is a person or body authorised in a
foreign proceeding to administer the reorganisation or the
liquidation of the debtor s assets or to act as a representative of
the foreign proceeding.
Article 3 clarifies that the Model Law will not
override any conflicting obligation arising under another treaty or
Article 4 sets out the courts which may deal
with foreign proceedings and courts under the Model Law. These are
the Federal Court of Australia, and for some corporate insolvency
cases, the Supreme Court of a State or Territory.
Article 5 authorises a trustee or registered
liquidator to act in a foreign country on behalf of an Australian
Articles 9 14 deal with access of foreign
representatives and creditors to courts in Australia. Overall,
these articles enable foreign liquidators, trustees in bankruptcy
or creditors to apply directly to local courts. Article
11 enables a foreign representative to commence insolvency
proceedings in Australia; article 12 allows a
foreign representative to take part in a current Australian
insolvency proceeding. Articles 13-14 deal with
access and notification issues in these circumstances.
Articles 15 - 24 deal with recognition of a
foreign proceeding and relief. Overall, these articles allow a
foreign representative (such as a liquidator or trustee) to apply
to the local court for recognition of the insolvency proceeding in
their foreign country.
Of note is article 15 which sets out the
requirements for an application for recognition of a foreign
proceeding . This article is supplemented by additional
requirements under clause 13 of the Bill, thus
increasing the amount of information required from foreign
Similarly, article 18 (which requires foreign
representatives to inform the court of particular information
regarding the insolvency proceedings) is supplemented by
clause 14 of the Bill, which increases instances
for which this obligation may occur.
Clauses 13 and 14 appear to be the only
instances where the Government has chosen to impose a greater
responsibility than that set out in the Model Law.
Articles 25 - 27 facilitate the cooperation of
Australian courts with foreign courts which are currently holding
insolvency proceedings against a debtor. The articles require the
relevant Australian court to cooperate to the maximum extent
possible with foreign courts or foreign representatives .
Articles 28 32 deal with concurrent proceedings
between Australia and a foreign country. Once a court has
recognised a foreign main proceeding (see article 17),
the Model Law states that an Australian proceeding should only be
commenced if the debtor has assets in Australia (article
Article 29 outlines how to coordinate and
Australian proceeding and a foreign proceeding concurrently. For
instance, it specifies certain articles in the Model Law for which
a court should seek cooperation and coordination from the foreign
The enactment of this legislation, while long overdue, may not
have an immediately apparent effect on the operation of insolvency
proceedings in Australia. According to the Explanatory Memorandum,
the law will simply give force to arrangements that are already in
clear benefits lie in the creation of increased certainty for
parties to an insolvency proceeding particularly as the occurrences
of cross-border insolvency cases will inevitably increase, given
the steady pattern of globalisation in individuals and
11 March 2008
Bills Digest Service
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