Document Type

Article

Disciplines

International Law

Abstract

In 1850, with forty dollars' and a lot of hard work, Isaac Merritt Singer created "America's greatest invention," a revolutionary design for the sewing machine. He founded the Singer Sewing Machine Company in 1851, and in 1867 opened a factory in Scotland, making Singer the first American multinational manufacturing company.

In 1999, with little more than forty dollars in the bank, The Singer Company N.V., the successor in interest to the Singer Sewing Machine Company, was again responsible for a new invention, this time in the field of international insolvency. Singer and forty-six of its affiliates (collectively, "Singer") filed Chapter 113 petitions in the United States Bankruptcy Court for the Southern District of New York.4 With business operations in over 150 countries, and creditors at the door throughout the world, it was feared that Singer would suffer a global meltdown. Yet, remarkably, Singer emerged from Chapter 11 just one year later, reorganized and revitalized as an international competitor, selling not just sewing machines but also numerous other consumer goods under the Singer© brand name. Isaac Singer would have been pleased.

The insolvency reorganization and, if appropriate, orderly liquidation of a multinational conglomerate like Singer presents one of the most complex situations in the current business environment. The trend towards globalization has led to the emergence of corporations whose business operations in various countries are closely interdependent. As intercompany debt and intercompany guarantees are used to allocate money within the conglomerate, the resulting web of intercompany obligations leads to an interdependency that has potentially disastrous results when one of the entities within the conglomerate becomes insolvent. Even an isolated insolvency of one of the companies can trigger cross-defaults throughout the corporate group. In the absence of a formal default, local creditors of foreign affiliates often call in their credit lines and seek immediate repayment in full. As a result, a multinational conglomerate can be subject to insolvency proceedings in a number of countries, each with different insolvency laws reflecting different societal attitudes and cultural values.

In such situations, the task of courts, management and international insolvency professionals is to preserve as much value as possible, either by working towards a global reorganization of the business, or by coordinating an orderly liquidation process that minimizes the cost and maximizes the recovery of business shutdowns and asset sales around the world. Prior to Singer, the primary tools utilized in multinational insolvencies involving corporations based in the United States were the appointment of Examiners and the negotiation of ad hoc Protocols on a case-bycase basis.

Due to the unique circumstances of Singer, however, it was apparent that new tools and techniques were needed. Judge Burton R. Lifland of the United States Bankrupty Court for the Southern District of New York created a new weapon in the international insolvency arsenal: the Foreign Representative. Since then, other U.S. bankruptcy courts have also appointed Foreign Representatives to deal with multinational restructurings and orderly liquidations. Part II of this article discusses the void in international insolvency law that has created the need for ad hoc, innovative approaches to multinational insolvencies. Part III focuses on the appointment of Examiners and the creation of Protocols to facilitate international insolvency cooperation and coordination. Part IV discusses why Examiners and Protocols do not meet the needs of certain cross-border insolvencies. Finally, Part V discusses Singer and four other Chapter 11 cases in which Foreign Representatives were appointed.

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