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Balance between an Emerging Regional Legal Order and Inter-regional Cross-border Insolvency – Challenges Faced by CICIA

In pursuit of solutions to China’s inter-regional cross-border insolvency cooperation, my doctoral dissertation provides 10 original recommendations accompanied with comments, which are entitled “China’s Inter-regional Cross-border Insolvency Arrangement” (CICIA).

Xinyi Gong
27 September 2016
Leiden Repository

The idea of CICIA reflects an ongoing trend concerning harmonization of cross-border insolvency law through internal legislation of regional institutions and also best practices set out in soft law, including guidelines and principles contributed by the international organization (UNCITRAL), non-governmental organizations (III, INSOL etc.) and even private parties active in the area of restructuring and insolvency law. That trend is a response to regional integration and globalization, which make inter-regional and international legal interaction intensify and the need for one jurisdiction to always apply its own law gradually reduced. Such harmonization is accompanied with challenges.

Sovereignty and Autonomy

Cross-border legal cooperation requires proper balance between “retention of forum-state regulatory authority and acknowledgment of the equal authority of other states within their own territory”. The classic perspective of cross-border insolvency went a bit further, which demands such cooperation abide by the principle of universality that attaches importance to concentration of insolvency proceedings within one forum. To follow the classic approach, it entailed that the states needed to compromise their sovereign authority for cooperation in cross-border insolvency. That approach has been only partly achieved in the EU, where, through its decade-long integration process, the Member States has delegated part of their “sovereign” function of law-making to the regional institutions on the basis of common values and legal principles. China’s reunification is based on the commitments that the Mainland would partly restrict its sovereign authority to guarantee the high degree of autonomy of the SARs. There is no sign of any further compromise in that regard so far.

Cooperation and Trust

In the more globalized societies of today, insolvency proceedings requires cooperation across more different jurisdictions around the world, which needs the balance on the varied level of trust among the jurisdictions. Without geographic advantages and shared culture, we no longer live enmeshed in such “thick trust relationships” as the EU legal system relies on. Against that background, the Model Law created an interconnected network structure via cooperation and communication between the judges and practitioners from various jurisdictions. That coordinated approach corresponds to the way the different jurisdictions interact with each other in a flattened globalized world and promote mutual understanding through directly exchange of information and opinions. Even though within a country, it is acknowledged that mutual trust is pretty much at the primary stage in China’s regional legal system. Therefore, CICIA chose to adopt the coordinated approach, which is not established on the basis of solid trust relationship but out of pragmatic necessity.

Integration and Conflicts

Integration is accompanied with uncertainty over the future. Whether or not the creditors can recover their claims in the event of trans-regional insolvency could be a conflict trigger. Given the fact that there is government interference, in particular local protectionism, on the insolvency proceedings in the Mainland, CICIA takes into account the balance between two equally important political considerations, i.e. the local prosperity and stability and the sound and sustainable development of regional integration. It thus recommends establishing a functional dispute settlement mechanism on the basis of inter-regional court-to-court cooperation and communication so as to keep the balance.

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