Written by Glen Pitt in February, 2008

On the first day of the sitting of the Senate – Wednesday 13 February 2008 – the new Minister for Superannuation and Corporate Law, Senator Nick Sherry, re-introduced the Cross-Border Insolvency Bill 2008.

The purpose of this Bill is to bring Australia in line with the Model Law on Cross Border Insolvency developed by the United Nations Commission on International Trade Law (“UNCITRAL”). The significance to Australia in adopting the Model is in part reflected by its inception by Australia’s major trading partners including Japan, The United States and Great Britain, bringing together economic and legal synthesis.

The stated main objectives of the Model as discussed in the Preamble to the Bill include:

• develop greater cooperation between the legal jurisdictions, courts and the insolvency professions internationally;

• provide guidance and clarity concerning the rights of creditors to become involved in insolvency proceedings conducted within external jurisdictions; and;

• allow for the coordination of insolvency proceedings across jurisdictions.

An example of its application is the ability of an external creditor to apply to the court within the Australian Jurisdiction (Federal or Supreme) to grant a stay of proceedings against the assets of the insolvent local debtor.

A further example is the ability of a foreign practitioner to bring actions of an equal standing to those of a resident practitioner under the Bankruptcy Act 1966 (Cth) (“BA”) or the Corporations Act 2001 (Cth) (“CA”). Moreover, the effect that the adoption of the Model by Australia will have is further evidenced at 21 and 22 of the Bill (Interaction with other Acts) where in the case of there being any clash with the existing provisions of either the BA or the CA, the model law will prevail.

An interesting qualification, which is generally standard in the inception of international law is whether the law will infringe upon public policy grounds. Article 6 states of the Bill states that “Nothing in the present Law prevents the court from refusing to take an action governed by the present Law if the action would be manifestly contrary to the public policy of this State”.

One concern with this is the time to adjudicate on what infringes upon public policy, and whether such a delay potentially erodes the claims by the external creditor/ practitioner to bring a case. It is conceivable that only by trial and error will this situation become clear.

The Model Law’s application has also been mooted to extend beyond the insolvency and legal profession to also incorporate insurers and deposit taking institutions, subject to successful cross border arrangements.

It is clear that the passage of the Model Law through the Senate will bring significant change to the way in which the insolvency profession as a whole will operate, expanding the rights of external parties to claim within the Australian Jurisdiction, and vice-versa. It will be interesting to see how it works within the existing legislation and what, if any, public policy issues arise that defeat its application.