Utilizing Cross-Border Insolvency Laws to Attack Fraud: An Analysis of How It Could Work in the British Virgin Islands, United States and Germany

By: Joseph J. Wielebinski (Co-author) and Davor Rukavina (Co-author)
October 2007

I. INTRODUCTION

The internationalization of commerce has had a profound impact on insolvency law and the law of fraud. It has become common practice for creditors to advance value to debtors who own assets all around the globe. The law has had to adapt to this growing phenomenon in order to accommodate cross-border litigation. States have been compelled to enact legislation based on the United Nations Commission on International Trade Law (UNCITRAL) Model Law on Cross-Border Insolvency (Model Law) in order to combat complex international fraud and its sequela – global money laundering and complex asset concealment schemes. The UNCITRAL Model Law is designed to assist states in implementing modern, harmonized, and fair insolvency regimes that effectively address cross-border insolvency. The Model Law offers solutions that help in several significant ways, including: foreign assistance for insolvency proceedings taking place in the enacting state, access to the courts of the enacting state for foreign representatives, recognition of foreign proceedings, cross-border cooperation, and coordination of concurrent proceedings. Currently, only a limited number of countries have adopted legislation based on the Model Law. While the British Virgin Islands (BVI) and the United States adopted it in 2005, the Germany decided to implement rules for international insolvencies rather based on the Council Regulation (EU) for Insolvencies.

This paper contains a comparative analysis of the cross-border effects of insolvency involving the BVI, the United States, and Germany based on a hypothetical fact-pattern.

A. HYPOTHETICAL FACT-PATTERN

Fraudsters Limited (Fraudsters) is a company formed in accordance with the laws of the BVI in the British West Indies.  Fraudsters has issued many different forms of promises and undertakings to thousands of investors in Norway, Ireland, the United Kingdom, Israel, Dubai, and elsewhere.  The total value of the outstanding liabilities of fraudsters to these investors is not yet known.  But it is clear that the amount involved exceeds U.S. $250 million.

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