What is Cross Border Insolvency?

When multinational companies collapse, legal proceedings can be a lot more complex than domestic businesses. Having assets, creditors and ops scattered across multiple countries means balancing different legal systems, which adds an extra layer of complexity to something that’s already not an easy task.

These kinds of cases aren’t uncommon; more than 11,000 companies entered external administration for the first time in 2023/24 (according to ASIC’s annual data) with around 20 to 25% of them being cross border cases.

So what is cross border insolvency, and how does it work? Understanding Australia’s Cross-Border Insolvency Act 2008 and the UNCITRAL Model Law framework is the foundation for protecting creditor rights, ensuring fair asset distribution and navigating these kinds of international cases smoothly.

Having an experienced insolvency practitioner on your side can make cross border insolvency cases easier. Contact Macmillan Lawyers and Advisors today.

What does “Cross Border Insolvency” Mean?

Cross border insolvency (sometimes called international insolvency) is when an insolvent debtor has assets, operations or creditors in more than one country. For example, a company may have its head office in Australia, bank accounts in Singapore and suppliers in the British Virgin Islands. This often happens when:

• The business trades internationally and faces insolvency proceedings concerning contracts abroad.
• The debtor owns properties in various different countries.
• There are creditors in multiple foreign jurisdictions.

Each country (called jurisdictions) follows their own insolvency regulations, court systems and private international law rules, which makes these cases more complex than domestic ones. Cross‑border insolvency frameworks exist to help make things easier, but it’s often challenging to manage the involvement of multiple legal systems at once.

Australia’s Legal Framework for Cross Border Insolvency

Australia’s cross-border insolvency framework is set by the Cross-Border Insolvency Act 2008. The act makes the model law on cross border insolvency legally binding in Australia and sets out how Australian courts cooperate with foreign courts and their appointed representatives during insolvency cases. It also maps the model law to the bankruptcy legislation and Chapter 5 of the Corporations Act 2001.

Before 2008, responses to cross border issues leaned on common law and scattered statutes. The decision to adopt the model law brought in a single procedural structure that Australia applies with stated modifications.

As of 2024, Australia has been considering also adopting the UNCITRAL Model Law on Enterprise Group insolvency.

The UNCITRAL Model Law On Cross-Border Insolvency

The Model Law exists to improve cooperation, legal certainty and fair administration in these muli-jurisdiction cases. Developed in 1997 by the United Nations Commission on International Trade Law, it highlights cooperation between courts, protection of the debtor and creditors and value preservation.

The text of the model law sits in Schedule 1 to the Act. It defines a foreign proceeding, a foreign representative, a foreign court, and distinguishes foreign main and non-main proceedings. It also confirms a public policy exception and direct access for a foreign representative.

Cross Border Insolvency Act 2008 (Cth) (CBIA)

The Cross Border Insolvency Act 2008 explains how Australia actually applies the model law in real world cases. It covers the terms used in the model law, how recognition applications work, the relief available once a foreign proceeding is recognised and how the act fits with other insolvency law in Australia.

1. Preliminary (definitions and scope)

The Act states that the model law has the force of law in Australia and that references to “this State” are to Australia. It identifies the Australian laws that the model law refers to, namely the bankruptcy legislation and parts of Chapter 5 of the Corporations Act 2001.

The Act designates the courts competent to perform recognition and cooperation functions for a proceeding (the Federal Court of Australia and, for companies, State and Territory Supreme Courts).

The application clause confirms that the Act applies to proceedings under the bankruptcy law and Chapter 5 of the Corporations Act 2001.

2. Model Law on Cross-Border Insolvency

The model law on cross border insolvency sets out how Australian courts recognise and work with foreign proceedings. It defines key terms such as foreign proceeding and foreign representative, explains how recognition applications are made and updated, and outlines the relief available once recognition is granted.

It also requires cooperation with foreign courts and foreign representatives to ensure consistent outcomes in cross‑border insolvency proceedings. The following sections address the centre of main interests (COMI), the process for recognition of foreign proceedings and the resulting relief and effects of recognition.

a. Centre of Main Interests (COMI)

The centre of main interests identifies the location considered the debtor’s main place of business or economic activity. It’s presumed to be the debtor’s registered office unless evidence shows otherwise.

Determining COMI is essential to distinguish between a foreign main proceeding, which takes place at the COMI, and a foreign non-main proceeding, which is linked only to a secondary establishment. Australian courts follow international principles and case law, such as Akai Pty Ltd v People’s Insurance Co Ltd, when deciding COMI.

b. Recognition of Foreign Proceedings

Australian courts may recognise a foreign insolvency proceeding if it meets the requirements set out in the model law on cross‑border insolvency. Recognition is mandatory for foreign main proceedings located at the COMI and discretionary for non‑main proceedings where the debtor has an establishment but not its COMI.

Only a foreign representative like a liquidator, trustee or administrator can apply for recognition. Courts may refuse recognition if it would conflict with Australian public policy, and recognition may be granted without notice (ex parte) where urgent relief is needed.

c. Relief and Effects of Recognition

Recognition of a foreign main proceeding triggers automatic relief, including a stay on creditor actions and restrictions on the debtor’s ability to transfer assets or change contracts. Australian courts may also grant discretionary relief, such as ordering the handover of assets or the provision of information, to ensure the insolvency is properly managed.

3. Interaction with Other Acts

The Cross Border Insolvency Act 2008 (Cth) operates alongside Australia’s domestic insolvency laws, primarily the Bankruptcy Act 1966 (Cth) and the Corporations Act 2001 (Cth).

If there’s any inconsistency, the provisions of the model law on cross border insolvency prevail. This approach integrates foreign insolvency proceedings recognised under the Model Law into the existing insolvency framework, preventing legal conflict and supporting the efficient administration of cases involving Australian debtors or assets.

4. Regulations

The Cross Border Insolvency Act 2008 (Cth) allows regulations to be made to support its operation. These regulations address procedural matters that help courts, insolvency practitioners, and foreign representatives manage cross‑border insolvency proceedings effectively.

Together with the Act, they promote cooperation with foreign courts, protect creditor interests, preserve asset value and uphold the objectives of the model law.

Interaction with Domestic Insolvency Laws

The Cross‑Border Insolvency Act 2008 (Cth) works with Australia’s domestic laws, not against them. It covers concurrent proceedings under the Corporations Act when a recognised foreign proceeding runs at the same time as an Australian proceeding.

It confirms that foreign creditors have the same standing as local creditors when they take part in Australian regimes. Courts may also order ancillary winding‑up or appoint local agents to deal with Australian assets while coordinating with a foreign representative under the Corporations Act 2001.

1. Corporations Act 2001 (Cth)

The Corporations Act 2001 (Cth) covers corporate insolvency. The Cross‑Border Insolvency Act 2008 (Cth) (CBIA) gives the model law on cross‑border insolvency effect alongside the Corporations Act.

If there’s any inconsistency, the CBIA provisions prevail, but the Corporations Act continues to set out the priorities that apply in local insolvencies, including the protection of employee entitlements.

2. Bankruptcy Act 1966 (Cth)

The Bankruptcy Act 1966 (Cth) applies to personal insolvency. The CBIA extends the model law on cross‑border insolvency to individuals, so that recognised foreign proceedings can be coordinated with Australian bankruptcy processes. In the case of an inconsistency, the CBIA provisions take priority over the Bankruptcy Act.

3. Sector-Specific Regimes

The CBIA allows certain sectors to be excluded from the model law on cross‑border insolvency. APRA‑regulated banks and insurers are excluded, and cross‑border issues affecting them are addressed under separate financial services legislation. This separation ensures that industry specific protections remain intact.

What Courts are Involved in the Cross Border Insolvency Process?

In Australia, cross border insolvency cases are handled by the Federal Court of Australia and the Supreme Courts of each State and Territory. These courts decide on applications for recognition of foreign proceedings, supervise local actions subject to the Act and coordinate with foreign courts to ensure assets are protected and creditors are treated fairly.

Federal Court and Supreme Court Jurisdiction

In Australia, the Federal Court of Australia is the main forum for applications for recognition of foreign insolvency proceedings under the Cross‑Border Insolvency Act 2008 (Cth).

For personal insolvencies, only the Federal Court has jurisdiction, while in corporate insolvencies, both the Federal Court and the Supreme Courts of each State and Territory have concurrent jurisdiction. This arrangement allows parties flexibility in where cross‑border insolvency cases are heard and helps align outcomes across courts in cross‑border insolvency matters.

Cooperation Between Courts

Australian courts will most likely need to communicate and cooperate directly with foreign courts during cross‑border insolvency cases. Article 25 of the UNCITRAL Model Law facilitates this cooperation, ensuring coordination between jurisdictions.

To facilitate cross‑border administration, courts often follow recognised international best practices, including the INSOL International Guidelines and the Judicial Insolvency Network (JIN) Guidelines. These protocols support information sharing and consistency, strengthening outcomes in global restructuring efforts.

Parallel Proceedings

Australian courts may commence or continue local insolvency proceedings while recognising a foreign process, provided the action is subject to the Act.

Courts apply choice of law rules to balance the interests of Australian and foreign creditors, ensuring local proceedings complement rather than disrupt the foreign process. This approach protects creditors’ rights and promotes efficient administration across foreign countries involved in cross‑border trade.

Challenges with Cross Border Insolvency

Cross-border insolvency matters are complex because multiple legal systems are involved. Courts must decide which country has jurisdiction, how to manage overlapping proceedings and how to protect creditors while working with foreign courts.

1. Jurisdictional Conflicts and Choice of Law

Determining which country’s law governs the main insolvency proceedings is one of the biggest challenges in cross border insolvency cases. Conflicts often arise over where the centre of main interests (COMI) is located, the place of incorporation or where the debtor’s key assets are held.

These differences can lead to disputes about which court has jurisdiction, inconsistent outcomes, and even forum shopping, where parties choose the most favourable foreign jurisdiction. Such conflicts can also impact the recognition and enforcement of security interests, distribution priorities and the treatment of foreign creditors.

2. Lack of Uniformity and Divergent Legal Systems

Cross-border insolvencies involve countries with different insolvency laws, policies and procedures. These differences create practical and legal barriers to coordination and cooperation and coordination between courts.

For example, some systems prioritise employee entitlements while others prioritise secured creditors. Disparities around transaction avoidance, set‑off and netting provisions can result in unequal outcomes for creditors and increase the complexity of insolvency matters.

3. Recognition and Enforcement of Judgments

Effective recognition of foreign proceedings and judgments is essential for managing assets across different jurisdictions. But many countries lack uniform standards for recognition and enforcement, and public law claims or sovereign immunity can further limit recoveries.

Although the Cross Border Insolvency Act 2008 (Cth) and the UNCITRAL Model Law on Cross-Border Insolvency offer a framework, not all common law jurisdictions or trading partners have adopted it, limiting its reach in global cases.

4. Coordination, Communication, and Information Sharing

Cross-border insolvency proceedings require cooperation between the Federal Court of Australia, state and territory Supreme Courts and foreign courts. Differences in legal systems, languages and procedural requirements can delay cases and increase costs.

Timely and accurate information sharing between insolvency practitioners, liquidators, trustees and foreign representatives is critical but often hampered by legal restrictions, confidentiality obligations, or technology gaps.

5. Asset Recovery and Protection

Tracing and recovering assets across foreign jurisdictions remains a serious challenge for insolvency administrators.

Complex corporate structures and secrecy laws in some countries can make it difficult to locate or recover assets for the benefit of creditors. Accessing or enforcing security over property held overseas may also require ancillary insolvency proceedings concerning local law, increasing timeframes and costs.

6. National Sovereignty and Public Policy Limits

Courts may refuse to recognise or provide relief if doing so would breach Australian public policy under Article 6 of the model law on cross-border insolvency.

While this safeguard protects local priorities such as employee entitlements, it can also limit international cooperation with foreign courts and the harmonisation efforts of the United Nations Commission on International Trade Law.

7. International Enterprise Groups

The growing complexity of multinational corporate groups raises questions about the appropriate insolvency regime to apply and how to coordinate main proceedings across different jurisdictions.

Cases often involve multiple parallel proceedings, competing creditors, and conflicting domestic priorities. This complexity makes coordinated administration difficult, particularly when key trading partners such as China and India have yet to adopt the UNCITRAL Model Law on Cross-Border.

FAQs on What is Cross Border Insolvency?

What role do insolvency practitioners play in cross border insolvency cases?

Insolvency practitioners, like Macmillan Lawyers and Advisors, oversee a debtor’s assets across jurisdictions, work with foreign courts and ensure creditor claims are managed consistently. Contact us if you need advice or help for cross border insolvency cases.

What evidence is needed for cross border insolvency cases?

A foreign representative must provide certified proof of the foreign insolvency proceeding and their authority, evidence showing the debtor’s main connection to the foreign jurisdiction (COMI or establishment) and a sworn affidavit confirming these facts.

The application must be served on the debtor, advertised to creditors, and include certified translations if needed. This ensures Australian courts have clear, verified information to decide on recognition and relief.

How long does it take to obtain recognition?

Recognition of a foreign insolvency proceeding in Australia usually takes between three and six months, depending on court schedules and any objections. Urgent cases may be decided faster, but most require several months from application to decision.

How are overseas immovable property assets treated in Australian cross border insolvency?

Foreign insolvency proceedings generally cannot override local property law. Courts in the jurisdiction where the immovable is located usually have the final say on distribution and enforcement.

Can foreign creditors start insolvency proceedings in Australia?

Yes, under Article 13 of the Model Law, foreign creditors have the same rights as local creditors to participate in and commence insolvency proceedings in Australia.

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