Modified Universalism and Cross-Border Insolvency of Shipping Companies

The distribution of the assets of an insolvent debtor where the assets are located in more than one country creates normative and practical problems, exacerbated when the assets move between jurisdictions, as is the case of ships. The existing cross-border insolvency laws, namely the UNCITRAL Model Law on Cross-Border Insolvency and Regulation (EU) 2015/848, support the insolvency proceedings at the place where the debtor “has the centre of its main interests”, a choice that is justified by procedural convenience and by the theory of universalism which is considered economically optimal. By contrast, a long-standing system for securing maritime creditors depends on the arrest the judicial sale of the ship by a national court and the subsequent distribution of the proceeds in accordance with a priority system that favours debts related to the ship over debts related solely to the shipping company, a process, favouring the location of the asset. This article compares the two approaches on normative, theoretical and practical grounds. It is argued that because of (1) the existing normative differences between states; (2) the difficulties theoretical constructions have with cross-border insolvency; (3) the potential impact to vulnerable local creditors; and (4) the commercial and corporate realities of the shipping sector the application of the Model Law can only be justified for shipping companies in exceptional circumstances. The maritime claim enforcement approach provides a better system favouring the efficient liquidation of the insolvent company’s asset, provides certainty and access to local and foreign claimants on equal basis, protects the most vulnerable claimants over institutional creditors, reduces transactional costs and is underpinned by internationally recognised principles and policy objectives. In fact, the admiralty enforcement proceedings and the judicial sale of ships correspond better to true universalism than the Model Law does. It follows that ship arrest should be allowed to proceed against shipping companies in all but very rare cases, and even then additional assurances to maritime claimants should be provided. © 2020 Thomson Reuters and Contributors.