Introduction

When the United Nations Commission on International Trade Law ("UNCITRAL") introduced the Model Law on Cross-Border Insolvency ("MLCBI") in 1997, it may have anticipated that the complexities of recognizing foreign insolvency judgments would unfold gradually, with some challenges deferred for future resolution.

Fast forward 28 years. The UNCITRAL Model Law on Recognition and Enforcement of Insolvency-Related Judgments ("MLIJ") is now in existence. A major jurisdiction, the United Kingdom, is now preparing for its implementation in parts. Meanwhile, across the Atlantic Ocean, Canada is also reviewing the MLIJ. However, despite its common law heritage, Canada may determine that its existing domestic framework already provides adequate mechanisms for recognizing insolvency-related judgments, thereby rendering its formal adoption as nonessential.

The contrast between the UK and Canada regarding the MLIJ highlights the dilemma between global harmonization of insolvency laws against domestic legal autonomy. Ultimately, for this debate to be resolved, the effectiveness and strengths of each nation's domestic framework in handling foreign insolvency rulings must be understood.

What is an "Insolvency-Related Judgment" in MLIJ?

As per Article 2(d) of the MLIJ, an insolvency-related judgment does not include a judgment that initiates an insolvency proceeding. Instead, it refers to a judgment that:

• Arises as a consequence of, or is materially associated with, an insolvency proceeding, regardless of whether that proceeding has been closed; and

• Was issued on or after the commencement of that insolvency proceeding.

Examples of these judgments, as provided in the MLIJ, include:

• Judgments relating to the disposal of assets of an insolvency estate.

• Judgments relating to avoidance actions.

• Judgments determining that a director of the debtor is liable for actions taken when the debtor was insolvent or approaching insolvency.

• Judgments confirming plans of reorganization or liquidation.

• Judgments granting a discharge of debts.

• Judgments approving an out-of-court restructuring agreement.

• Judgments authorizing the examination of a director where that director is located in a third jurisdiction.

Why the UK Needs MLIJ

The UK’s position on implementing the MLIJ is based on the understanding that a foreign court’s involvement in insolvency proceedings does not necessarily end with the opening of proceedings in its jurisdiction. Further orders or judgments are often required to manage the insolvency effectively. This is mostly seen in cases involving disputed assets, where questions of ownership or appropriate disposal arise. In contrast, the MLIJ establishes a clear and predictable framework for recognizing and enforcing such judgments, while incorporating safeguards to protect public policy and the interests of local creditors.

The UK, in its public consultation on the MLIJ, also acknowledged that the MLCBI in its current-form lacks clarity in addressing the recognition of foreign insolvency-related judgments. According to the consultation, this ambiguity in the MLCBI has created a gap in the coordination of international insolvency proceedings, as different jurisdictions adopt varying interpretations of what recognition entails. This inconsistency reduces procedural efficiency and makes outcomes less certain. It has also given rise to jurisdictional issues, as reflected in several UK cases such as:

• Contracts and debts governed by English law cannot be discharged or compromised by insolvency proceedings in a foreign jurisdiction unless the parties were present in the foreign jurisdiction or otherwise submitted to them [Antony Gibbs & Sons v La Société Industrielle et Commerciale des Métaux [1890] LR 25 QBD 399 (Gibbs)].

• UK cross-border insolvency regulations have been interpreted as only allowing the court to provide the relief that would be available in domestic insolvency proceedings under UK law [Pan Ocean Co Ltd – also known as Fibria Celulose S/A v Pan Ocean [2014] EWHC 2124 (Ch)].

• A foreign insolvency judgment cannot currently be enforced under the Cross-Border Insolvency Regulations; more generally, common law holds that foreign judgments cannot be enforced in England and Wales unless the parties were present in or submitted to the foreign jurisdiction [Rubin v Eurofinance SA [2012] UKSC 46].

Therefore, to address these gaps, the UK government is partially implementing the MLIJ. This will grant UK courts the discretion to recognize and enforce foreign insolvency judgments based on existing legal principles.

Why Canada Doesn’t Need MLIJ

Canada's Bankruptcy and Insolvency Act ("BIA") and Companies’ Creditors Arrangement Act ("CCAA") provide a robust toolkit for managing complex cross-border insolvency matters. Both legislations create a framework that encourages collaboration among stakeholders, the judiciary, insolvency professionals, and foreign representatives. The goal is to prioritize corporate resolution while recognizing and respecting the reasoned decisions of foreign courts in insolvency matters.

In the same spirit, Canada partially implemented the MLCBI in 2009 through amendments to the CCAA and BIA. The amendment incorporated key provisions while modifying others to uphold judicial discretion, protect domestic interests, and ensure flexibility in cross-border insolvencies. This approach has successfully balanced international cooperation while maintaining local judicial autonomy.

For instance, Canadian courts have routinely granted relief under the BIA and CCAA in cross-border proceedings, which can be considered recognition of "insolvency-related judgments" in the MLIJ context, such as:

• Recognition of foreign judgments and appointment of an interim receiver for the protection of debtor's property or interests of creditors, for insolvency proceedings commenced in the United States [Marciano Re (2012 QCCA 1881)].

• Records production and relevant witness questioning, including third-party examinations in Canada, for insolvency proceedings commenced in the Cayman Islands [Pacer Holdings Construction Corporation v. Pelletier (2020 ABCA 379)].

• Appointment of a receiver over all the assets, undertakings, and properties of the debtor; order an examination in the jurisdiction of the foreign main proceeding, for insolvency proceedings commenced in Japan [Nishiyama (Re) (2020 BCSC 224)].

• Temporarily lifting stay granted in recognition order and leave to assign foreign debtors into bankruptcy, for insolvency proceedings commenced in the UK [Tucker v. Aero Inventory (UK) Ltd. (2010 ONSC 1196)].

COMI or No, Canada’s Insolvency Framework can Lead

The effectiveness of Centre of Main Interests (“COMI”) under the MLCBI is a central debate in insolvency academia today. In 2023, notable academics and insolvency professionals wrote to UNCITRAL Working Group V, highlighting issues with COMI and proposing the Commitment Rule as an alternative.

According to them, COMI is ambiguous, unpredictable, and legally uncertain, particularly in a globalized, technology-driven economy where businesses operate across multiple jurisdictions. As an alternative, the Commitment Rule proposes that companies pre-select their insolvency forum by embedding this choice in their corporate constitution. This approach enhances predictability, reduces litigation, and enables firms to choose efficient insolvency regimes, ultimately lowering credit costs and improving recoveries. A second alternative is that if UNCITRAL retains COMI, the MLCBI should allow companies to select their insolvency forum at the time of filing, provided they demonstrate that the chosen jurisdiction benefits creditors as a whole.

In this context, Canada’s flexible and predictable insolvency framework stands out as a strong choice for an insolvency forum among mature jurisdictions. Upon satisfying jurisdictional requirements, Canada’s system is well-equipped to handle insolvency proceedings of any scale or cross-border complexity, making it a stakeholder-friendly option.

Conclusion

The UK’s move towards the MLIJ suggests a preference for global legal alignment, yet Canada’s reliance on its proven domestic laws highlights the strength of national autonomy. In the larger context, Canada’s approach implies that a well-established national system, with its flexibility and proven effectiveness, may present a stronger alternative to international models. Should the debate center on choosing a COMI based on these criteria, the Canadian model could emerge as a leading contender.

By Aubrey Kauffman (Partner, Fasken Martineau DuMoulin LLP) and Divi Dev (Founder, Divi Distressed Investments, L.P.), Toronto, Canada.

This article was originally published in the Singapore Global Restructuring Initiative