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Efforts by Congress to adopt a law to help U.S. companies and their creditors better navigate cross-border bankruptcies have ground to a halt as movement on a sweeping bankruptcy reform legislation has been mired in delays. The international provision of the reform legislation is known as the Model Law on Cross Border Insolvency and would be enacted as a new Chapter 15 of the U.S. Bankruptcy Code if President Bush signs the reform legislation into law. But now that the reform legislation has become entangled in the changed balance of power in the Senate, there have been calls to carve out a separate bill just for Chapter 15. “There is some urgency to get it adopted,” said Tina Brozman, a former chief judge of the U.S. Bankruptcy Court for the Southern District of New York and now a partner at Bingham Dana who helped develop the Model Law that The United Nations Commission on International Trade Law (Uncitral) adopted in 1997. “There is more sentiment for [the Model Law] now than was previously.” The Model Law creates a universal procedure to coordinate international insolvencies, which are often marked by the same parties fighting over the same assets in two or more jurisdictions. So far, only Eritrea in East Africa has adopted the Model Law, and Japan is on the cusp of adopting it. South Africa has adopted a modified form of it, and the U.K. has introduced enabling legislation which would permit its adoption but hasn’t yet. The U.S. adoption of the Model Law will “act as a catalyst for other nations that are hanging back and waiting to see what the U.S. does,” said Brozman, who is known for making a series of precedent-setting decisions in the international bankruptcy arena while on the bench. She has testified before Congress urging a Chapter 15 carve-out if there is not agreement on the total bankruptcy reform bill. If other nations follow the lead of the U.S. and others, Brozman said it will greatly help U.S. creditors when they go to bankruptcy court overseas, a scenario that is happening increasingly as business becomes more global. Nonetheless, an unrelated stalemate in Congress has significantly delayed the U.S. from taking the lead role in advancing the Model Law’s cause. The template was inserted — without controversy — into the bankruptcy reform bill that passed the House and Senate separately by wide margins in April. However, movement on the bill came to an abrupt halt when the Senate, which at the time was evenly divided between Democrats and Republicans, could not fashion a conference committee to hammer out a compromise on the two versions of the bill. A source close to the legislation said Sens. Orrin Hatch, R-Utah, and Charles Grassley, R-Iowa, approached Republican House leaders late last week to urge them to adopt the Senate version of the bill so a conference could be avoided. Republican House leaders turned down the offer, the source said. The Senate and the House are expected to convene discussions about the makeup of the conference committee within the next few days, the source said. Known largely as a consumer bankruptcy bill, the legislation does include several significant corporate provisions. The most controversial of them are designed to shorten a company’s stay in Chapter 11 at the risk of forcing a liquidation. The legislation strips bankruptcy judges of their ability to use wide discretion in allowing a company to work out its problems under Chapter 11 of the U.S. Bankruptcy Code, which was last reformed in 1978. It also would impose a number of deadlines on corporate debtors that don’t exist under current law. Some bankruptcy experts and practitioners have called for Congress to carve the Chapter 15 provision out of the general reform legislation and pass it as an independent bill to avoid further delay. There is precedent for such an idea. Congress carved out a new Chapter 12 provision that now governs the insolvencies of farms. In the case of cross-border bankruptcies, the Model Law provides for: Cooperation between international courts; Greater legal certainty for trade and investment; Fair and efficient administration to protect the interests of creditors and debtors; Protection and maximization of the value of the debtor; A preference for rehabilitation over liquidation during insolvency proceedings. Adopting the Model Law in the U.S. would have the virtue of creating a brighter line rule, said Todd Zywicki, a law professor at George Mason University in Arlington, Va., who has advised Congress on general bankruptcy reform. The rub: It would also create a blanket rule, Zywicki said. “There is no big opposition to it because it is quite unclear what exactly it would do because of its vagueness,” he said. “Once it’s passed and judges start interpreting it, over time we will have more of a sense what it would do. “But the sense in the bankruptcy community is that issues involving cross-border insolvencies are so confused and chaotic right now, almost anything is better than nothing.” Copyright (c)2001 TDD, LLC. All rights reserved.

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