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UNCITRAL Legislative Guide on Insolvency Law, Part Three

Treatment of Enterprise Groups in Insolvency

image of UNCITRAL Legislative Guide on Insolvency Law, Part Three
Adopted in 2010, this text is designed to provide timely guidance to States on how to develop and improve the administration of the insolvency of enterprise groups, both domestically and in the cross-border context. It recognizes that the business of corporations is increasingly conducted, both domestically and internationally, through enterprise groups, which are therefore an important feature of the global economy and significant to international trade and commerce. Notwithstanding that significance, and the importance of knowing how a group will be treated in insolvency if its business fails, as well as the need for fast and efficient resolution of its financial difficulties, the Commission noted that very few, if any, States recognized enterprise groups as distinct legal entities or had a comprehensive regime for their treatment in insolvency.

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Addressing the insolvency of enterprise groups: International issues

The introduction to the UNCITRAL Practice Guide47 notes that although the number of cross-border insolvency cases has increased significantly since the 1990s, the adoption of legal regimes, either domestic or international, equipped to address cases of a cross-border nature has not kept pace. The lack of such regimes has often resulted in inadequate and uncoordinated approaches that are unpredictable in their application and have not only hampered the rescue of financially troubled businesses and the fair and efficient administration of cross-border insolvencies, but also impeded the protection and maximization of the value of the assets of the insolvent debtor. Moreover, the disparities in and, in some cases, conflicts between national laws have created unnecessary obstacles to the achievement of the basic economic and social goals of insolvency proceedings. There has often been a lack of transparency, with no clear rules on recognition of the rights and priorities of existing creditors, the treatment of foreign creditors and the law that will be applicable to cross-border issues. While many of these inadequacies are also apparent in domestic insolvency regimes, their impact is potentially much greater in cross-border cases, particularly where reorganization is the goal.

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