Testimony on Behalf of
TINA L. BROZMAN
United States Bankruptcy Court
1 Bowling Green, Room 729
New York, New York 10004
Testimony of Tina L. Brozman, Chief Judge of the Bankruptcy Court for the Southern District of New York Before the House Judiciary Subcommittee on Commercial and Administrative Law in Connection with the Hearing on the Bankruptcy
Reform Act of 1999
Cross-border insolvencies have confounded creditors, practitioners and jurists alike for decades. We have watched as jurisdictional battles and territorial approaches destroyed the possibility of saving viable enterprises and jobs and decimated the returns that creditors received on their claims. U.S. creditors have been particularly hard hit because of the frequent loss of going-concern values and because U.S. debtors in possession have been viewed with hostility in foreign venues, preventing the repatriation of assets for U.S. creditors. Private efforts by international bar associations to have enacted standardized insolvency laws have failed because their proponents aimed to change substantive law, too weighty an undertaking for a first step. We are poised to dramatically improve that status quo.
In 1994, the United Nations Commission on International Trade Law, known by the acronym UNCITRAL, received a clarion call from a multinational group of bankers, judges, regulators, insolvency professionals and academics to develop a more modest solution -- one that would achieve three goals: cooperation between courts, recognition of foreign proceedings and access to foreign proceedings by estate representatives. Last year, UNCITRAL accomplished that objective, approving a Model Law for enactment by member states of the United Nations. The Model Law contains provisions which will accord relief to foreign representatives needing assistance in this country. But there are also three features of the Model Law which are especially important to the U.S. First, the Model Law recognizes debtors in possession as proper estate representatives. This outcome has been generally unavailable to bankruptcy judges, with the result that we have had to appoint examiners or trustees, at great expense to often modest estates, in order to even try to obtain foreign cooperation. In one case of mine with companion proceedings in France, notwithstanding that I appointed a trustee, it still took over two years just for the proceedings to be recognized - without any other relief being granted. The second important feature of the proposed law is that it contains an automatic stay once the foreign proceedings are recognized, ending the dissipation of assets by local creditors and staying the debtor from wholesale disposition or movement of assets. And third, the Model Law expresses as one of its fundamental goals enhancing the possibility of reorganization, thereby preserving value for out creditors as well as jobs. If we adopt the Model Law, spurring other nations to do so, this will go a long way toward furthering our national objectives and increasing stability for the banking community.
Under the auspices of UNCITRAL and INSOL International, I have led the initial and subsequent Multinational Judicial Colloquia On Transnational Insolvency. I am also the chair of the Judicial Section of INSOL International. At our first Judicial Colloquium, one theme was commonly articulated by judges from civil law jurisdictions, who have less discretion than judges from common law jurisdictions like our own; they all agreed that some form of legislation was critical to enable them to cooperate as they wish to do in transnational insolvency cases. In addition to my role with INSOL and UNCITRAL, I am the Chief Judge of the Bankruptcy Court for the Southern District of New York, which is home to a great many of our transnational cases, cases which are centralized on the coasts and in a few of the farm states. I have presided over numerous cross-border cases. I can assure you that legislation is just as desirable for U.S. judges as it is for foreign ones, because it would eliminate unnecessary and costly appeals respecting the power of the bankruptcy judge to harmonize the U.S. and foreign proceedings. In addition, the legislation would afford to our estate representatives the statutory authority to seek assistance in foreign courts, ending claims that they are exceeding their statutory prerogatives and adding immeasurably to our ability to repatriate assets in appropriate cases.
Our second Judicial Colloquium considered an actual draft of the Model Law shortly before the final draft received UNCITRAL's approval. At the conclusion of a day and one-half of discussion, one of our evaluators, U.S. Bankruptcy Judge Leif Clark, from Texas, summarized the conclusions of the group respecting the importance of a legislative solution:
"At the outset all of us agree on one basic point ... and that is that this effort and cooperation is vital in the cross-border arena. In most jurisdictions judges will in the main simply not feel comfortable inventing law on a case by case basis. Our hats must be off to the pioneers who dared to try something new and pave the way for this process. But the best way to ensure that most judges follow that lead is, it seems to us, to give them the statutory authority to do so. The express provision for judicial cooperation may thus appear to be innocuous on its face but is in reality one of the most important features of the UNCITRAL effort."
Notwithstanding the clear benefits which we will receive from enactment of the Model Law domestically, there is an even more important reason for its adoption. The international community is unlikely to embrace the Model Law if we do not do so. To date, only Eritrea has adopted the Model Law and the New Zealand Law Commission has recommended its adoption. If we do not act affirmatively on this legislation, I have grave fears that it will receive inadequate attention overseas. Just as we have led the way in creating ad hoc solutions for the problems of large transnational cases, we must lead the way in enacting a more comprehensive and long-lasting solution capable of governing not only the large, newsworthy cases but the smaller, less remarkable, multinational cases which, with the globalization of commercial enterprise, increasingly are becoming the bread and butter of our business bankruptcy dockets. No longer should U.S. creditors have to fear that they will lose out to creditors overseas who seize a bankrupt debtor's assets with impunity. No longer should our creditors have to worry that if a foreign enterprise fails, they will receive no notice of the right to participate in its insolvency proceedings. And no longer should our creditors be held hostage by shrewd debtors who can utilize technology to remove assets beyond the reach of our courts. Indeed, at our second Judicial Colloquium, one of our Norwegian judges expressed frustration about just such a case, where he was unable to follow the debtor's assets around the world as the debtor deftly moved them from nation to nation. If, through our leadership, we convince our trading partners to enact this legislation, we will have done a great deal to give confidence to the lending community, maximize asset values for all creditors, rehabilitate viable enterprises and preserve employment for our own citizens. In short, with the explosion of international commerce fostered by rapidly changing technology, a common European currency and initiatives such as NAFTA, coupled with the foreign business failures which may flow from the Year 2000 problem and the ills plaguing Asia, we simply cannot afford not to enact this legislation.
Which brings me to my final point. I appear today not to express any view on the omnibus bankruptcy bill, many of whose provisions I disdain and others of which I applaud, but to advocate in favor of delinking the Model Law from the more general bill. In the last Congress, the identical proposed legislation for our adoption of the Model Law was defeated, despite its unanimous recommendation by the National Bankruptcy Review Commission, because it was part of the omnibus bill. This legislation is too important to the business community, banks and insurance companies, vendors and manufacturers alike, to be held hostage to the fate of the broader, more contentious legislation. Whatever happens in the larger context, cross-border cases are an ever-increasing fact of economic reality. We must enable the courts and the bankruptcy professionals to preserve viable enterprises and maximize value for parties in interest free from the unproductive and expensive jurisdictional warfare which lurks as the enemy of an orderly insolvency regime.
I thank you for the opportunity of addressing you.