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JURISDICTIONAL COMPETITION AND FORUM SHOPPING IN INSOLVENCY PROCEEDINGS

Bankruptcy forum shopping, it appears, is a popular pastime in the United States particularly in reorganisation cases under Chapter 1 1 of the Bankruptcy Code. "Forum shopping" may be defined as a Chapter 1 1 filing in a court other than that which serves the location of the company's head office.1 In the US, there are a number of jurisdictional hooks and a large company has more or less free rein in terms of the venue for filing a case under the Bankruptcy Code. Manhattan and Delaware have become popular as shopping venues. On the other hand, bankruptcy law in the US is federal law and there should not be any difference in substantive law depending on the court in which the case is filed. In the European Community context there are greater incentives for forum shopping in that substantive bankruptcy law differs in each EC member States but the opportunities are superficially less given a more restricted basis for assuming jurisdiction. This paper asks whether the jurisdictional restraints can be overcome and whether bankruptcy forum shopping can become widespread in Europe in the wake of the European Insolvency Regulation (EIR) which allows for Europewide recognition of insolvency proceedings. It also looks at the desirability of the practice and whether safeguards can be put in place to mitigate any undesirable consequences and negative externalities. It concludes that the jurisdictional hooks are sufficiently fuzzy so as not to prevent forum shopping from potentially developing on a large scale and indeed there is evidence that the UK is becoming the restructuring capital of Europe. On to the other hand, there is little to prevent assetgrabbing by local creditors and rival jurisdictional claims by national courts. So the overall result is somewhat disappointing insofar as the efficient disposal of bankruptcy cases is concerned. A better approach may be to return to the practice whereby insolvencies are administered on a national territorial basis alongside cooperation with courts in other countries. The paper begins by examining the concepts of