Document Type

Article

Disciplines

International Law

Abstract

The international economy continues to expand, spreading the reach of multinational companies across the globe. Inevitably, some of these same multinational entities become multinational debtors requiring bankruptcy protection. These bankruptcies have far-reaching ramifications, especially with regard to creditors residing abroad.

Many barriers exist to obstruct the quick, efficient and equitable resolution of international bankruptcies. Few international bankruptcy treaties, either bilateral or multilateral, exist, and the United States is party to none. Different countries have different bankruptcy policies. Some countries such as the United States encourage rehabilitation,1 while others like Germany emphasize liquidation.2 Some countries, such as Brazil, restrict bankruptcy eligibility to merchants, corporations and other business debtors,3 while in the United States and many other countries bankruptcy protection is available to virtually all entities and persons.

The most fundamental legal problem, however, derives from the local application of the longstanding bankruptcy policy that creditors in similar positions should receive equal treatment.5 Virtually every nation's laws and policies dictate that all creditors of a local debtor, whether such creditors are themselves local or not, should receive treatment that comports with local law. Since the bankruptcy laws of various nations differ, conflicts in international bankruptcies as to proper and equal treatment of parties are frequent and substantial. "Stated another way, most states would export their local laws to creditors and assets in other states but severely limit their recognition of foreign bankruptcy laws [and proceedings] when the local creditors and local assets of a foreign debtor are involved."'

Congress enacted Section 3047 of the Bankruptcy Code (Section 304) as part of the Bankruptcy Reform Act of 1978 to facilitate the handling of bankruptcies that involved the United States and other countries. Section 304 provides a framework to accomodate foreign bankruptcy proceedings. This framework establishes, in subsection (c), six factors which a court must consider when determining whether and how to accomodate foreign bankruptcy proceedings.

One of these factors, comity, is emphasized by many courts to the practical exclusion or at least substantial limitation of the other Section 304(c) factors. Indeed, it may be said that there is a growing trend toward heavy emphasis on the comity factor. There are several reasons for this emphasis. First, before the enactment of Section 304, courts essentially only had comity to look to in any attempt to accomodate foreign laws and proceedings.8 This traditional focus on comity may still linger in the minds of many judges. Indeed, at least one judge has expressed the opinion that comity is an all encompassing doctrine, by its nature incorporating other Section 304 factors.9 Furthermore, in their desire to promote universal and harmonious acceptance of the laws of all nations, judges may overemphasize comity without adequate reflection.

This comment argues that this approach is wrong. All the factors enumerated by Congress in Section 304(c) should be considered equally, including the interests of United States creditors and the provisions of the Bankruptcy Code. United States courts should not favor any one factor listed in Section 304(c), but instead ought to equally utilize and review all of the criteria set forth by Congress for judicial consideration in Section 304(c). Only then will judges be able to determine if the collective weight of all the factors entitles a foreign representative1 " to relief. Part I of this comment will review the extreme approach taken by some courts in using comity as the sole focus of their analysis in Section 304 decisions. Part II will then review an approach taken by some courts which treats comity as the pre-eminent criterion among the Section 304(c) factors. Part III will examine the analysis used by other courts which considers all of the Section 304(c) factors as part of a balanced approach to reviewing Section 304 petitions. Part IV will first analyze these different approaches in the context of domestic judicial requirements and considerations, and second, in the context of international implications, both judicial and commercial. This comment will conclude that both judicial and commercial considerations support the employment of the balanced approach by the courts deciding Section 304 petitions. The utilization of the balanced approach will allow United States courts to fully effect the intentions of Congress by providing security for United States creditors as well as by respecting comity considerations. Application of the balanced approach will simultaneously decrease the cost and increase the amount of United States investment and sales of U.S. products and services abroad.

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