Cross-Border Insolvencies: An Overview of Some Recent Legal Developments
| Jurisdiction | South Africa |
| Date | 25 May 2019 |
| Published date | 25 May 2019 |
| Citation | (1999) 11 SA Merc LJ 192 |
| Author | AD Smith |
| Pages | 192-209 |
Cross-Border Insolvencies: An Overview of
Some Recent Legal Developments
AD SMITH & DA AILOLA
University of South Africa
1 Introduction
Cross-border insolvency, or international insolvency, forms the overlap
between the law of insolvency and winding up, on the one hand, and
private international law (conflict of laws) on the other. In other words,
the sequestration or winding up of the debtor contains a foreign element,
such as assets located or debts owed in a jurisdiction other than the one in
which the sequestration or winding up has been ordered.
As an international area of interest to legislators, drafters of
conventions, and writers of books and articles, cross-border insolvency
is a huge field in several legal systems. So, for example, it provides the
material for detailed chapters (see eg Ian F Fletcher
The Law of
Insolvency
(1990) part III, ch 27-30), entire books (see eg Philip StJ
Smart
Cross-Border Insolvency
(1991), 2 ed (1997)), and conferences
('Symposium on International Bankruptcy Law: Comparative and
Transnational Approaches' (1998) 33
Texas International LJ
1-188).
This latter work has a bibliography in English, selectively updated to
1997 and classified under general aspects, North America, Central and
South America, Europe, and Asia (see Jonathan Pratter
International
Insolvency Bibliography: Commentary in Books and Journals
(Tarlton
Legal Bibliography Series No 40) (1995); Amy Pullen & Geralyn Trujillo
'Select Bibliography: International Insolvency: Secondary Sources in
English, 1995-1997' (1998) 33
Texas International LJ
227, omitting
Polonsky's article mentioned below). However, no section in the updating
bibliography by Pullen & Trujillo (op cit supra) is dedicated to
developments in Africa. This omission challenges local lawyers to enter
this international discussion.
2
Four Basic Principles at Work in the South African Common
Law
2.1 'Unity' Against 'Plurality% 'Universality' Against 'Territoriality'
Two conflicts arise at a doctrinal level in cross-border insolvency. In
the first, the 'unity of proceedings' principle allows only one set of pro-
ceedings to be launched against the debtor, but the 'plurality of
proceedings' principle allows several sets of such proceedings. In the
second conflict, the 'universality' principle extends the effect of one set of
proceedings internationally; while the 'territoriality' principle limits that
effect to the jurisdiction of the court granting the order involved (see
192
(1999) 11 SA Merc LJ 192
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CROSS-BORDER INSOLVENCIES: SOME RECENT LEGAL DEVELOPMENTS
193
Fletcher op cit at 542-543; Donald T Trautman, Jay Lawrence
Westbrook & Emmanuel Gaillard 'Four Models for International
Bankruptcy' (1993)
American J of Comparative Law
573 ('Trautman
et al') at 574-576).
2.2 These Principles in South African Common Law
These four principles are seen at play in our common law. The
universality and the territoriality principles both apply to the effects of a
sequestration order on the different types of property Immovable assets
in the insolvent estate are governed by the lex situs (the law of their
location) and therefore still vest in the insolvent (see
Mars The Law of
Insolvency in South Africa
8 ed (1988) by Elmarie de la Rey (Wars') at
177-178; for a discussion of South African law in this regard, see also
Patrick O'Brien 'Transnational Aspects in South African Insolvency
Law' in:
Conference on Reform of South African Insolvency Law
(Research
Unit for Banking Law: RAU (1995)). In this sense, the effect of the
sequestration order is limited territorially. For movables, however, if
the debtor's estate is sequestrated by the court of his domicile, he is
divested of all his movables worldwide. So the effect of the sequestration
order granted by the domiciliary court is in a sense universal. If such an
insolvent acquires a new domicile before his rehabilitation, any property
that he acquires there during sequestration remains his.
The trustee of the insolvent estate will need to obtain recognition from
the foreign court in whose jurisdiction the immovables are situated. For
movables the trustee needs such recognition only if the sequestration
order was granted by a court other than the domiciliary one.
The universality and the plurality principles are acknowledged in other
respects as well. For instance, if sequestration has been sought in several
countries, the proceedings first instituted should be finalised — even the
unity principle is applied in this respect — unless the creditors of the other
country or countries would lose a preference acquired before sequestra-
tion. Yet, if the trustee is not recognised by the foreign court, the
creditors would need to institute further sequestration proceedings under
the law of the relevant jurisdiction.
The recognition of a foreign trustee in South Africa is controlled by the
court in its discretion at common law (see Mars op cit at 178-179).
Comity and convenience are the watchwords in this exercise (see
Ex parte
BZ Stegmann
1902 TS 40;
Ex parte Steyn
1979 (2) SA 309 (0)
(mentioning only comity);
Moolman v Builders & Developers ( Pty) Ltd
(in provisional liquidation): Jooste Intervening
(mentioning convenience)). Equity has also been stated as a consideration
(see
Ward & Another v Smit & Others, In re Gurr v Zambia Airways
Corporation Ltd
[1998] 2 All SA 479 (A); 1998 (3) SA 175 (SCA)).
Since the matter is one for the exercise of the court's discretion, which
one would have thought should be exercised judicially without being
fettered, it is strange to see the addition of some further limitations. Thus,
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