Worldwide: Cross-Border Investigations And Comity: A Tool Kit For Insolvency Practitioners And Restructuring Advisors

Acknowledgment

INSOL International is pleased to publish this new technical paper, "Cross-border Investigations and Comity: A Tool Kit for Insolvency Practitioners and Restructuring Advisors", written by a team from Kroll comprised of Colin Wilson, Mitchell Mansfield, Michael Chan, Ivan Chong and David Prager.

The paper provides a comprehensive analysis of the underlying legal framework and the statutory and common law powers in the British Virgin Islands, the Cayman Islands, Hong Kong, Singapore and the United States available to insolvency practitioners and restructuring advisors for the purpose of pursuing investigations and maximising the value of assets available for distribution to creditors.

It is now commonplace to see business conducted via complex corporate group structures – typically with entities and assets located in different offshore jurisdictions. This paper therefore provides a timely analysis of the cross-border recognition and cooperation challenges faced by practitioners and advisors in pursuing their investigations. The complexity of the task faced by practitioners is enhanced due to the different legal approaches taken by offshore jurisdictions to investigatory powers, and the various stages of adoption and implementation of the UNCITRAL Model Law on Cross-Border Insolvency and related judicial cooperation protocols.

INSOL International thanks the authors for their time and expertise in writing this paper, and for coordinating across a number of jurisdictions to enhance the analysis provided in a manner that will be of great interest to our global membership.

1. Introduction

The investigations carried out by insolvency practitioners and restructuring advisors (together referred to in this paper as IPs) involve identifying and taking control of entities and establishing the circumstances surrounding the failure of a business. This will maximise recoveries for stakeholders. IPs rely on various statutory and common law powers to facilitate these investigations, both in the local jurisdiction and internationally – including, where adopted in some form, the UNCITRAL Model Law on Cross-Border Insolvency (Model Law).

IPs typically have broad investigative powers, including (often subject to court approval) the ability to publicly examine both past and present officers of a company and to seek the delivery of books and records from service providers and other relevant parties, such as auditors, custodians, banks and agents. The range and versatility of these investigative powers vary from one jurisdiction to another.

Companies incorporated in offshore jurisdictions are often used in group structures, in which the offshore company functions as the holding company. In such circumstances, only limited information may be held in the offshore jurisdiction of the holding company, with the majority of the books and records held in another jurisdiction, requiring the IP to seek information in those foreign jurisdictions.

IPs may encounter difficulties pursuing their investigative powers where business functions are spread across different jurisdictions and a foreign IP's powers in the local jurisdiction are limited or curtailed. This can affect which parties are obliged to provide books, records and information, as well as the types of books, records and information to be made available. In certain jurisdictions, parties may refuse to comply with orders from foreign jurisdictions and insist that the IP obtains a winding up or other order in the local jurisdiction compelling compliance with the IP's requests. This is often costly, but many jurisdictions are developing practical jurisprudence to deal with this.

This paper provides a summary of the legal framework, statutory and common law powers available and limitations faced by IPs in the British Virgin Islands, Cayman Islands, Hong Kong, Singapore and the United States, to collect information and books and records, including the types of information and books and records available, and the ability of IPs to examine relevant parties.

An analysis is provided of each jurisdiction's willingness to assist a foreign officeholder, including whether formal recognition of the officeholder is first required and whether the jurisdiction will apply an officeholder's local powers and / or those powers available in the foreign jurisdiction (which may not be available in the local jurisdiction).

The involvement of each jurisdiction's courts in the Judicial Insolvency Network (JIN) and, where applicable, the implementation of relevant JIN protocols, is also discussed. JIN, formed in October 2016, is a network of insolvency judges from across the world.1 At its initial meeting, JIN developed Guidelines for Communication and Cooperation Between Courts in Cross-Border Insolvency Matters (JIN Guidelines). The JIN Guidelines address key aspects of, and the modalities for, communication and cooperation among courts, insolvency representatives and other parties involved in cross-border insolvency proceedings, including the conduct of joint hearings.

To read this Technical Paper in full, please click here.

Originally published February 2023

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.