Modified universalism

Similarly, Chapter 15 of the US Bankruptcy Code (which is based upon the UNCITRAL Model Law) is heavily predicated on the concept of modified universalism.

[T]he United States in ancillary bankruptcy cases has embraced an approach to international insolvency which is a modified form of universalism accepting the central premise of universalism, that is, that assets should be collected and distributed on a worldwide basis, but reserving to local courts discretion to evaluate the fairness of home country procedures and to protect the interests of local creditors.

In English law the concept of universalism is usually used in contrast to the alternative theory of judicial cooperation in cross-border insolvencies referred to as the doctrine of unity.

In 1834 Story referred to the theory that assignments under bankrupt or insolvent laws were, and ought to be, of universal operation to transfer movable property, in whatever country it might be situate, and concluded that there was great wisdom in adopting the rule that an assignment in bankruptcy should operate as a complete and valid transfer of all his movable property abroad, as well as at home, and for a country to prefer an attaching domestic creditor to a foreign assignee or to foreign creditors could 'hardly be deemed consistent with the general comity of nations ... [T]he true rule is, to follow out the lead of the general principle that makes the law of the owner's domicil conclusive upon the disposition of his personal property,' citing Solomons v Ross as supporting that doctrine: Story, Commentaries on the Conflict of Laws, 1st ed (1834), pp 340-341, para 406.

In English law in cases as ancient as Solomons v Ross (1764) 1 H Bl 131n and Re African Farms 1906 TS 373 there has been tacit recognition of the principle.

In the latter case Lord Hoffman opined: The English common law has traditionally taken the view that fairness between creditors requires that, ideally, bankruptcy proceedings should have universal application.

Whilst some legal commentators applauded the attempt to develop a system of comity to ensure the fair treatment of claimants in international bankruptcies, others criticised the decision for subverting domestic law and for the unstructured and philosophical reasoning which lead to broad principles rather than defined rules.

In Cambridge Gas he relied upon the availability of a scheme of arrangement under Manx law as a basis for recognising a Chapter 11 judgments in the United States where the US court had not been in a position to exercise jurisdiction over all of the parties.

Lord Hoffman rationalised this on the basis that the purpose of insolvency is not to determine rights (like a conventional civil judgment) but rather to implement a system for the administration of claims.

The momentum which was generated towards a broad modified universalism at common law was abruptly arrested in a subsequent majority decision of the Privy Council in Rubin v Eurofinance SA.

In particular they rejected Lord Hoffman's suggestion that the availability of a scheme of arrangement under domestic law made it appropriate to recognise the Chapter 11 relief from abroad.

Modified universalism as a concept is still a fundamental part of a number of codified legal systems, whatever the limits applied to the common law doctrine in Rubin.