The subject of cross-border insolvency the recognition that a bankruptcy or insolvency proceeding brought in one jurisdiction is accorded in another has received significant attention in recent years, commensurate with the growth of international trade. Efforts to meet the challenges created by cross-border business failure have included a Model Law on Cross-Border Insolvency, drafted by the United Nations Commission on International Trade Law ("UNCITRAL") and adopted in many of the world's leading commercial nations, including the United States, where it is codified as chapter 15 of the Bankruptcy Code. The goal of the drafters has generally been to realize the universalist ideal of a single proceeding that will coordinate the insolvency of a multinational enterprise, providing for centralized control over its worldwide assets, the possibility of a reorganization, and a single, uniform distribution to creditors of the same priority. Even for multinational enterprises administered and controlled from a central headquarters, however, cross-border insolvencies usually involve the opening of a proceeding in each jurisdiction in which assets are located. This creates conflicts, costs and inefficiencies, and substantial loss of value, by making it difficult and often impossible to sell or reorganize the assets of a global enterprise on a going concern basis. To promote coordination and centralization, the UNCITRAL Model Law posits an enterprise's "center of main interests" or "COMI," which will presumably have some form of primacy. However, it is not clear that the COMI principle can act as a force for simplification or unification. It has proven difficult to locate the COMI of an enterprise, and, even when ascertained, the COMI may be situated in one of the many countries that lack a functioning insolvency law or a court system in which creditors have confidence. Moreover, the COMI principle founders on the fact that multinational companies ordinarily form distinct legal entities in the jurisdictions in which they operate, each of which is considered a separate unit for insolvency purposes, leading to the likelihood that multiple courts will administer the assets of an enterprise based on their location, with little regard for the fact that they may be essential parts of an integrated whole. This paper proposes international arbitration as a new approach to achieve the goals espoused by the Model Law in a world without an international court or another means to exercise authority over disparate national proceedings. Arbitration would be particularly useful in connection with two types of proceedings that have proven particularly difficult to resolve in cross-border insolvencies. The first involves disputes among estates of affiliated debtors in insolvency cases in different jurisdictions. In a world where proceedings are usually opened in multiple jurisdictions, there are few effective means to resolve disputes between affiliates, especially as the Model Law has very few provisions that apply to corporate groups. Second, arbitration could play a positive role in the reorganization of the debt of an insolvent or financially distressed enterprise that does not have access to an effective reorganization law. In present practice, the debtor and its principal creditors, who are ordinarily its lenders, attempt to "work out" the problem. Arbitration would complement the workout process by providing a neutral arbitrator or panel to attempt to effectuate a consensual restructuring while keeping in reserve a binding process that would provide an enforceable decision in a reasonable time frame. Arbitration would also provide the parties with the ability to designate the applicable law, the forum, and prospective neutral decision-makers, whose awards would be prima facie enforceable. Arbitration would thus benefit all the parties involved in the economic distress of a multi-national entity by consolidating and centralizing disputes relating to the debtor and its affiliates in a single proceeding, in an ascertainable neutral or acceptable venue, before expert arbitrators. Under the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, an arbitration agreement and award is enforceable unless it is "null and void, inoperative, or incapable of being performed." There is no reason to believe that the arbitration of issues relating to the financial distress of a business enterprise would be unenforceable. As is the invariable rule in any arbitration, cross-border insolvency arbitration would be based on consent. In an arbitration among affiliates, the consent of the affiliates (and presumably the respective courts) would be required. An arbitration of a debt restructuring would also require consent and would ordinarily bind only the borrower (debtor) and its principal lenders, a limited group of entities whose consent could be obtained. However, the benefits of arbitration ought to be great enough for the lenders to consent to the process, even though creditors not participating in the arbitration would have to be paid in full or left unimpaired.
