The present financial crisis has accelerated the filing of multinational insolvencies from frequent to commonplace, dragging with them a host of unresolved difficulties of cooperation, fairness, and efficiency. Perhaps the greatest difficulty is the existence of widely different treatment of creditors from one country to the next, a problem often discussed under the heading of “priority” or “preference.” Today these terms must be understood as comprehending not only order of payment but other variations in treatment as well, including the fact that in some systems a particular category of creditor is subject to the control of the insolvency court or agency through imposition of a moratorium or stay, while another sort of creditor left free to enforce its rights. In a neighboring country, both kinds of creditors may be equally free of control or equally subject to it.
When a multinational corporation is subject to an insolvency proceeding in more than one jurisdiction, each court concerned must decide what system of priority to apply as to specific assets and creditors found in the various countries involved. Because these systems vary greatly from country to country, a court may be required to choose between its own domestic system of priorities and that of another jurisdiction. Such a choice may have great consequences for the litigants and for progress toward a system of international coordination.
Just such a situation was presented in the English case, McGrath v. Riddell, [2008] UKHL 21; [2008] 1 W.L.R. 852. The case is often called the “HIH ” case. There the liquidators for an Australian insurance company sought to distribute in their proceeding the proceeds of valuable assets located in England. The Australian rules would prefer certain types of creditors in such a distribution, while applicable English law would distribute to the relevant classes of creditors pro rata, with no preference. The House of Lords directed that the English funds should be given to the Australians for distribution. The result was unanimous but the reasons given divided the court sharply, illustrating the problem which this symposium addresses.
The symposium is sponsored by The University of Texas School of Law and the Texas International Law Journal, which will publish the final papers.