The European Union goes Comi-tose: hazards of harmonizing corporate insolvency laws in the global economy.

As federal bankruptcy law developed in America, legislation continued to evince a more pro-debtor view than did English legislation. (154) When Congress passed the first permanent federal bankruptcy laws in 1898, American bankruptcy policy continued to extend eligibility for those wishing to file voluntary bankruptcy, and creditors had fewer grounds for petitioning a court to open an involuntary bankruptcy proceeding against a debtor. (155) While continuing developments throughout the twentieth century appeared to provide more relief to debtors, these developments, such as the right to file voluntary cases, did not extend to corporate debtors until 1910. (156) The Great Depression and subsequent legislation continued this trend of pro-debtor bankruptcy law. (157) The Bankruptcy Act of 1978 marked the first time Congress enacted bankruptcy legislation that was not a response to a national financial disaster. (158) Such an undertaking demonstrates America's clear deviation from its English ancestry with respect to treatment of creditors and debtors.

IV. DIAGNOSIS: MODERN LAWS

A. The Pro-Debtor America

Under Chapter 11 of the modern Bankruptcy Code, (159) a debtor, or "debtor in possession" may remain in control of the administration of the corporation. (160) In addition, a debtor in possession has the right under Chapter 11 to submit a plan of reorganization. (161) Other rights of a debtor in possession include the right to receive compensation as if the company were not insolvent. (162)

While the insolvency laws in Europe are becoming more akin to American bankruptcy laws, (163) European countries' underlying policies that have led to current insolvency reform differ from American bankruptcy policy. (164) Though American policy also wishes to see its creditors replenished, the policy behind the bankruptcy procedure in America has always been to provide debtors with a fresh start. (165) Forgiveness of debtors is ingrained in American bankruptcy history dating back to the Constitutional Convention. (166)

B. Uncle Italy's Governmental Interests

The flaws in the pre-existing Italian insolvency procedures led to the development and use of the extraordinary administration procedure (167) as used in the Parmalat and Eurofood cases. The chief aim of this procedure is to sell off the debtor company's assets and distribute the proceeds in satisfaction of the company's debts, saving the company only where possible and where it would be in the best interest of the economy. (168)

In late 2003 and early 2004, Italian insolvency laws underwent additional reforms, commonly known as the Marzano laws. (169) Under this system, the extraordinary administrator is placed in charge of the corporation and has 180 days to devise a plan of reorganization. (170) In March of 2005, two additional procedures became available in the hopes of averting the use of formal insolvency procedures. (171) These procedures provide incentives to debtors or potential debtors to avoid insolvency. The procedures allow unsecured creditors to agree on an out-of-court plan and allow significant secured creditors to agree on a court-sanctioned plan should the company become insolvent at a later time. (172) While the Marzano laws have helped debtors reorganize and avoid liquidation, these procedures are not quite the same as Chapter 11 procedures. (173) These differences may be interpreted to mean that Italian insolvency policy favors governmental interests over debtors' and creditors' interests.

C. Cousin Ireland Looking Out for Creditors

While American insolvency policy favors the debtor (174) and Italian policy arguably favors governmental interests, (175) Irish policy favors the creditors. (176) Rather than appointing an administrator as Italian law provides, (177) Irish insolvency law opts for a compulsory liquidation and places a liquidator in charge of the debtor as soon as the debtor becomes insolvent. (178) In addition to liquidations, separate legislation allows corporate entities to engage in arrangements with their creditors, much like compositions. (179) The option for the debtor to stay in business and reorganize was not introduced into Irish legislation until 1990. (180)

The fact that Ireland has only recently allowed a corporate debtor to reorganize demonstrates Ireland's long-standing policy of ensuring its creditors have justified expectations, and Ireland's desire to immediately benefit the creditors further illustrates Ireland's pro-creditor policy. (181) The Eurofood case is a standard example of the lengths Irish courts are willing to go to maintain control over a debtor's assets and to prevent any potential mistreatment of creditors, whether local or foreign. (182)

D. No Family Reunion in Sight

America has the mentality that a debtor corporation should be entitled to file bankruptcy as it chooses. (183) Most corporate bankruptcies filed in the United States are done so voluntarily. (184) Thus, a corporation has the option to liquidate or reorganize under Chapters 7 or 11. (185) The Italian system has changed drastically over the past few years into a scheme where reorganization, especially for multinational corporations such as Parmalat, is preferred if in the government's best interests. (186) Why then would it matter if an Italian court hosts the main insolvency proceeding rather than an American bankruptcy court?

Without declaring either country's approach as better than the other, the point is that a country's policy goals will greatly affect the outcome for the parties involved in the insolvency, as well as the economy, depending on the debtor. (187) Take, for example, a multinational corporation based in Italy, presumably with its COMI in Italy as well. If the creditors are all American, and the main insolvency proceeding was opened in an Italian court, the American creditors would be left to abide by the decisions of the Italian administrator, especially for assets within Italy. The Italian corporate debtor, assuming it does business in the United States and has assets to recover in the United States, may then file a secondary proceeding in the United States under Chapter 15 to take advantage of the automatic stay over assets within the United States. (188) If a U.S. bankruptcy court determines that the proceeding in Italy is a foreign main proceeding, (189) the American creditors may receive far less equal treatment than they would receive if the U.S. bankruptcy court had hosted the main proceeding. Certainly, the Italian court would not like its own economy damaged by the fall of such a commercial giant, especially at the hands of foreign (American) creditors.

If the main proceeding was held in the United States under Chapter 11--because the Italian corporate debtor successfully argued to a U.S. bankruptcy court that it does all its business and holds most of its assets in the United States--the outcome may be tremendously different. With the main proceeding in the United States, the creditors would have a stake in the reorganization plan. (190) In this hypothetical scenario, the E.U. Insolvency Regulation would not apply because the United States is not a member state. (191) However, one could imagine a real scenario where two member states are battling for jurisdiction over the main insolvency proceeding, each having very different policy goals. (192) The purpose of this scenario is to demonstrate how one court's procedural determination may affect the substantive rights of the debtor, creditors, and other parties of interest.

The presence of differing policy goals emphasizes the need to create a system where forum shopping is less available and prominent. Though many countries are conforming to the same or similar procedures for winding up or reorganizing a corporate debtor, (193) two identical laws in countries with contrasting policy goals could be as different as night and day. (194)

V. PROGNOSIS: GUIDELINES AND PANELS

There are many theories predicting what will come of the current E.U. Insolvency Regulation. With the recent ECJ opinion handed down on the Eurofood battle, there may now be an increase in court competition over the main proceeding. (195) The "first to file" strategy appears to be the rule, at least for E.U. member states. (196)

Universalists stand by the E.U. Insolvency Regulation and claim that, with a few modifications, it will be successful. (197) For example, the race to open the first insolvency proceeding may be controlled by delaying the determination of which country is the true COMI until all parties have notice and sufficient time to respond and present evidence. (198) Furthermore, adding mechanisms to prevent an insolvent corporation from moving its COMI will prevent forum shopping as well. (199)