Should Australia Enact the UNCITRAL Model Law


This part of the paper considers in general terms the advantages and disadvantages for Australia in proceeding to adopt the UNCITRAL Model Law.

Views of international commentators on the UNCITRAL Model Law

In April 2001, the World Bank published a paper, Principles and Guidelines for Effective Insolvency and Creditor Rights Systems. It noted that insolvency proceedings may have international aspects, and insolvency laws should provide for rules of jurisdiction, recognition of foreign judgments, cooperation among courts in different countries and choice of law.2 Insolvency laws should provide for:

  • foreign insolvency administrators to have direct access to courts and other relevant authorities;
  • a clear and speedy process for obtaining recognition of foreign insolvency proceedings opened in accordance with internationally recognized standards of jurisdiction;
  • a moratorium or stay at the earliest possible time in every country where the debtor has assets;
  • no discrimination between creditors, regardless of the nationality, residence or domicile of the parties concerned; and
  • courts and administrators to cooperate in international insolvency proceedings, with the goal of maximizing the value of the debtor's worldwide assets, protecting the rights of the debtor and creditors, and furthering the just administration of the proceedings.

The World Bank paper stated that the most effective and expeditious way to achieve these objectives was to enact the UNCITRAL Model Law on Cross Border Insolvency.

The International Monetary Fund also expressly supported the enactment of the Model Law. In its 1999 Report on Orderly & Effective Insolvency Procedures it concluded that, in light of the growing importance of cross-border insolvencies, measures should be introduced to facilitate the recognition of foreign proceedings and cooperation and coordination among courts and administrators of different countries. The enactment by countries of the Model Law prepared by UNCITRAL would provide an effective means of achieving these objectives.3

The UNCITRAL Model Law has also received almost universal endorsement from leading practitioners and academics around the world. Some examples of the views on the Model Law are that it:

  • 'will help alleviate the current difficulties arising when attempts are made to effect rescue of an ailing enterprise in more than one jurisdiction' - Canada;
  • '[offers a] reasonable equilibrium between the ideal of a single international insolvency and the protection of local creditors' interests within a foreign insolvency' - Switzerland;
  • '[is] a significant contribution to the effort to solve the international problem of insolvencies' - Chile;
  • 'is ambitious and measured. Ambitious because [it] seeks to propose to States common rules for the treatment of international insolvencies... Measured, because the rules do not require States to introduce profound legislative changes...' - France; and
  • 'represents perhaps the most important step taken thus far in trying to achieve a truly international framework for cooperation in insolvencies, in contrast to the limitations of uniquely domestic legislation as well as previous efforts on a regional scale, not all of which have met with success.' - Malaysia.4

Finally, while noting some matters requiring consideration (discussed further below), a leading Australian academic in the field of cross-border insolvency concluded that 'the Model Law has the potential to advance cooperation and coordination in Australian cross-border insolvencies'.5

Why should Australia enact the Model Law?

Despite the apparent widespread praise for the Model Law, one might ask what the concrete benefits are for Australia in its enactment? It might be argued that enacting the Model Law does more to assist foreign administrations than it does to assist domestic ones.

A leadership role for Australia

The major benefits, in terms of equality of treatment for Australian creditors, ease of recovering assets from foreign jurisdictions and more efficient treatment of international insolvencies involving Australian businesses, will come only if other jurisdictions also enact the Model Law. The Model Law does not rely on reciprocity for effectiveness. However, many jurisdictions may adopt a 'wait and see' approach, and not proceed to enact the Law until a critical mass of jurisdictions have done so.

At the government level, there has been movement toward enactment although not at the pace that might have been expected. Since 1997, only a handful of nations have enacted the Model Law.6 A number of other nations have made positive statements at government level about incorporating the Model Law into their legal systems, including the United States,7 the United Kingdom, Canada, New Zealand and Malaysia.

Australia has a solid history of promoting sound insolvency policies in the Asia-Pacific region and beyond. It has been, and continues to be, active through UNCITRAL and other forums such as APEC and the OECD in encouraging nations to develop effective and efficient insolvency frameworks. A number of Australian insolvency practitioners are well regarded around the world and they have tended to feature prominently in leadership groups of international insolvency-related organisations.8

Given Australia's active involvement in developing the Model Law and its position in the international insolvency community, other jurisdictions will be monitoring progress of Australia's consideration of the Model Law's implementation. If Australia were not to proceed with enactment in the near to medium term, this is likely to have a direct influence on the position of other countries, particularly in the Asia-Pacific. New Zealand, for example, proposes to enact the Model Law but will not commence it until Australia implements the law.

Difficulties with alternative approaches

Although Australia already has some laws dealing with cross-border insolvency cases, they are not well suited to dealing with all of the consequences and complexities of cross-border insolvencies. The current system is dealt with in more depth in later parts of this paper. Enactment by Australia will support development of a well-understood, uniform, internationally recognised framework for administering cross-border insolvencies. An international model endorsed by UNCITRAL and known to the courts and authorities of many countries is more likely to attract support and cooperation from other countries than the current mechanisms of the law which have been adopted unilaterally.

Conventions, treaties or bilateral agreements can provide some solution to cross-border insolvency difficulties but they are not easy to negotiate, especially when the insolvency laws and commercial laws and policies of the various jurisdictions are fundamentally different. Australia is not currently a party to a multilateral convention on cross-border insolvency and there is no convention which it could appropriately enter into for this purpose. For Australia, the UNCITRAL Model Law is the leading initiative on this issue.

A question of sovereignty?

If Australia enacts the Model Law it will become part of Australia's domestic law like any other law. Though it is open to an enacting State to enact the Model Law as it sees fit in conformity with its national law and procedural system, states are encouraged to make as few changes as possible in incorporating the Model Law into their legal systems in order to achieve a satisfactory degree of harmonisation and certainty, and uniformity of interpretation.

The question of whethe
r enacting a text developed elsewhere into domestic law is a diminution of the sovereignty of the State was considered by the New Zealand Law Reform Commission in its report on the Model Law.9 This issue was dismissed on the grounds that to ignore global commercial trends may discourage foreign investment. Moreover, the Model Law was procedural in nature and did not purport to affect substantive domestic laws in any case. A further factor in this regard may be that Australia, like New Zealand, played a role in developing the Model Law.


Proposal 1

It is proposed that Australia should enact the UNCITRAL Model Law on Cross-Border Insolvency, subject to the proposals below regarding the details of implementation.


2 World Bank Principles and Guidelines for Effective Insolvency and Creditor Rights Systems, Principle 24, page 52, retrieved from

3 International Monetary Fund, (1999). Report on Orderly & Effective Insolvency Procedures, page 54, retrieved from

4 Paul J. Omar, (2000, May). 'International Insolvency Co-Operation: The UNCITRAL Model Law', Malayan Law Journal, retrieved August 16, 2002 from

5 Rosalind Mason, 'Implications of the UNCITRAL Model Law for Australian Cross-Border Insolvencies', 8(2) International Insolvency Review 83, 107.

6 Eritrea, Mexico, South Africa, Montenegro, Japan and India.

7 The USA introduced the law in a Bill but it failed to progress due to reasons unconnected with the Model Law.

8 For example, Mr Ron Harmer, recognised as the chief architect of Australia's voluntary administration system, is a leading figure in international insolvency reform and was a major contributor to the development of the UNCITRAL Model Law through work with INSOL International, the International Federation of Insolvency Professionals. Another practitioner of Australian origin (now working in Hong Kong), Mr John Lees, is current President of INSOL International. Mr Terry Gallagher, Inspector-General of the Insolvency and Trustee Service Australia, is current President of the International Association of Insolvency Regulators (IAIR).

9 New Zealand Law Commission, Report 52, Cross-border insolvency: Should New Zealand adopt the UNCITRAL Model Law on Cross-Border Insolvency?, Wellington, New Zealand, February 1999.