Lloyd's Maritime and Commercial Law Quarterly
PARALLEL PROCEEDINGS FOR INSOLVENCY AND LIMITATION OF LIABILITY
Martin Davies*
Several shipping operators have gone into insolvency proceedings of one kind or another in recent years. A common feature of such proceedings is that they lead to an automatic stay of other proceedings against the insolvent debtor, to achieve the result that all those with claims against the debtor must participate in the insolvency proceedings. Handling this process on an international stage is one of the principal aims of the UNCITRAL Model Law on Cross-Border Insolvency, which has been adopted by about 20 countries. A similar process of “concursus”, bringing all claims together into one forum, is to be found in the international Conventions limiting shipowners’ liability, both for claims in general, and for pollution claims in particular. This paper examines the relationship between the two regimes of insolvency and limitation and explains how, in some cases, the mandates of the two regimes are fundamentally inconsistent. Neither regime was fashioned with any thought for the other. Ideally, both should be amended so that they interlock more efficiently, although that seems unlikely in practice.
1. INTRODUCTION: THE BASIC PROBLEM
Insolvency proceedings generally lead to an automatic stay of all other proceedings against the insolvent debtor. This is so whether the proceedings are for liquidation or for some form of rehabilitation, in which the insolvent debtor is given the chance to “trade out” of its insolvency. The automatic stay of other proceedings against the insolvent debtor is fundamental to the operation of insolvency proceedings. It is said to be for the benefit of both the debtor and its creditors. It gives the insolvent debtor “breathing space”, by putting claims by creditors on hold, and it benefits the creditors by ensuring that none can be disadvantaged by other, more aggressive, creditors getting judgment and satisfaction—and thereby priority—from the debtor’s dwindling assets simply by the speed with which their claim is pursued.1 The automatic stay freezes all claims in other forums and requires
* Admiralty Law Institute Professor of Maritime Law, Tulane University School of Law; Director, Tulane Maritime Law Center. The ideas expressed in this paper were first presented at a colloquium of the Comité Maritime International (CMI) in Dublin, Ireland, on 1 October 2013. The author gratefully acknowledges the comments of the participants at that session of the colloquium and in subsequent communications, including, in particular, Gen Goto in Japan, and William Sharpe in Canada. Invaluable help was also given by: Erik Røsæg, of the Scandinavian Institute of Maritime Law; my research assistant, Richard Leishman; and my Tulane Law School colleague Adam Feibelman.
1. See, eg, Bronson v US (1995) 46 F 3d 1573 (Fed Cir), 1579 (“The stay protects the debtor by allowing breathing space and also protects creditors as a class from the possibility that one creditor will obtain payment on its claims to the detriment of all others.”)
PARALLEL PROCEEDINGS FOR INSOLVENCY AND LIMITATION OF LIABILITY
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