Category: Comparative & Int’l Perspectives

  • Trump, Denmark and Greenland:  What Next?

    Posted by

    Mitu Gulati

    (This post draws directly from ideas from co authored work with Joseph Blocher; and particularly the numerous discussions we have had about the incentives that a market for sovereign control might create for nations to take better care of their minority populations in outlying areas (e.g., the US and Puerto Rico).  Mistakes in the discussion below, however, are solely mine).

    It seems like forever ago, but it has only been a few weeks since the news came out that our esteemed chief executive wanted the US to purchase Greenland.  The notion was widely ridiculed in the press and provided wonderful fodder for comics around the globe.  But as people looked beneath the surface, it quickly became apparent that there was nothing in international law that prohibited the purchase and sale of sovereign control over a territory.  Where Trump was wrong was in his assumption that he needed to purchase Greenland from the Danes.  Under post World War II international law, however, a former colony such as Greenland has the right of self determination.  To quote the Danish prime minister, responding to Trump, “Greenland is not Danish. Greenland belongs to Greenland.”

    The Danish PM also said “I strongly hope that this is not meant seriously.”  And, from her perspective of apparently wanting to keep the status quo of Greenland being part of Denmark, it makes sense that that’s what she hopes.  But let us focus on the words “Greenland is not Danish. Greenland belongs to Greenland.” If one thinks about those words just a little, they mean that Trump’s purchase (and maybe he should start calling this a “merger”, since that seems more polite) is perhaps a lot easier to execute than he initially thought.

    Trump and any other suitors that Greenland might have (Canada, China, Iceland, Russia, etc.) need to only focus their attention on making the Greenlanders happy; they don’t need to worry about the Danes. No need for Trump to do diplomatic trips to Copenhagen. Trips should be to Nuuk instead. After all, it is the approval of the 55,000 Greenlanders that he needs.

    How many Greenlander votes, specifically? (assuming that there would need to be a referendum first). International law doesn’t clearly say; but surely more than a majority – and ideally with a voting mechanism designed in such a way that the rights of the minority that might not want to be part of the merger being appropriately protected.

    The point is that if DJT and his supporters remain committed to the Greenland strategy – and it appears they do (see here) – the next step is will be to persuade the people of Greenland that this merger is in their interest. That way, the next time Trump offers a merger deal to the roughly 55,000 Greenlanders, they will react with enthusiasm rather than horror.  One would expect, therefore, to see the US taking steps to mount the charm offensive in Greenland. And, as it turns out, preliminary steps in this direction have already been announced with the US planning to open a consulate in Greenland and engage in various outreach programs as part of its broader arctic charm strategy (here).

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  • Coyle on Studying the History of a Contract Provision

    Posted by

    Mitu Gulati

    The way many of us teach interpretation in Contract Law, there is little role for history (admittedly, this is just based on casual observation). The meaning of a clause is a function of the words that make up that clause.  The parties to the transaction are assumed to have drafted it to document the key aspects of their transaction, to balance risks and rewards blah blah.  If a dispute arises, we might have an argument as to whether a strict textualist reading of the words accurately represent what the parties really meant by them or whether we need to also examine the context of the relationship. What we do not ever do, however, is to delve into the history of the clause from before these parties contemplated using it – that is, of what prior drafters of the original versions of this clause might have meant in using it.

    The foregoing makes sense in a world in which the contracts for each deal are drafted from scratch. But does anyone draft contracts from scratch?  What if we live in a world where 99.9% of contracts are made up of provisions cut and paste from prior deals; provisions that are assumed to cover all the key contingencies, but not necessarily understood (or even read)? In this latter world, where there are lots of provisions that the parties to the transaction never fully focused on (let alone understood), might there be an argument – in cases where there are interpretive disputes — for the use of a contract provision’s history? Might that history not sometimes be more relevant than the non-understandings of the parties as to what they did or did not understand they were contracting for? (Among the few pieces that wrestle with this question are these two gems: Lee Buchheit's Contract Paleontology here and Mark Weidemaier's Indiana Jones: Contract Originalist here)

    I’m not sure what the answer to the foregoing question is. But it intrigues me.  And it connects to a wonderfully fresh new body of research in Contract Law where a number of scholars have been studying the production process for modern contracts.  The list of papers and scholars here is too long to do justice to and I’ll just end up making mistakes if I try to do a list.  But what unites this group of contract scholars is that for them it isn’t enough to assume that contracts show up fully formed at the time of a deal, purely the product of the brilliant minds of the deal makers who anticipate nearly every possible contingency at the start.  Instead, understanding what provisions show up in a contract, and in what formulation, requires understanding the contract production process. (Barak Richman's delightful "Contracts Meet Henry Ford" (here) is, to my mind, foundational).

    It is perhaps too early to tell whether this research will catch on and revolutionize contract law. I hope it does, but I’m biased.

    One of my favorite papers in this new body of contract scholarship showed up recently on ssrn. It is John Coyle’s “A History of the Choice-of-Law Clause” (here). I have rarely found a piece of legal scholarship so compelling.  The paper is not only a model of clarity in terms of the writing, but it is brave. It is completely unapologetic in not only taking on an entirely new mode of research (a painstaking documentation of the historical evolution of the most important terms in any and every contract), but in coming up with a cool and innovative research technique for unpacking that history (this project would have been impossible to do without that innovation).

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  • St. Petersburg Int’l Legal Forum & Insolvency Forum

    Posted by

    Jason Kilborn

    I've just returned from a really fantastic conference, the entire recorded proceedings of which are available online and might be of interest to Credit Slips readers. The St. Petersburg International Legal Forum takes place annually in the marvelous city of St. Petersburg, Russia, and nestled within the broader forum is a two-day International Insolvency Forum. The numerous panels for this forum were recorded, both in English with Russian simultaneous translation and in Russian with simultaneous English translation–it was a magnificently well-organized undertaking. The insolvency forum was held on Thursday and Friday (May 16 and 17) in the main auditorium, with an agenda including panels on implementation of a rescue culture in business reorganization (chaired by INSOL Europe), digital technology in insolvency proceedings, enforcement proceedings and involuntary bankruptcy petitions (which included a great introduction to Israel's new personal insolvency procedure by the Official Receiver of Israel, the always impressive David Hahn), consumer insolvency (chaired by a member of the State Duma, and including presentations by a Supreme Court justice and other impressive Russian and foreign experts–this was the panel on which I presented on the sticky issue of financing low-value personal insolvency cases), and asset tracing.

    The hosts and attendees of the forum were very grateful for and receptive to the exchange of ideas and opinions from non-Russian experts, and they seem eager to recruit more of this kind of exchange in the coming years. If you're interested in participating and/or presenting in May of next year, please let me know, and I'll coordinate and pass on the info to the organizers. St. Petersburg is an absolutely gorgeous place, and it is a very European-ized Russian city (as was Peter the Great's goal in founding the new capital there in the early 1700s). It has changed dramatically since I lived and studied there in college in the early 1990s; today, it is safe, clean, and easy to navigate, there is English on all the signs, most shop and restaurant employees speak English, and the restaurant scene is accessible, varied, and delicious, to say nothing of the world-class cultural opportunities.  Consider it!

  • Consumer Bankruptcy Reform … and American Xenophobia?

    Posted by

    Jason Kilborn

    I hope I'm not stepping on Bob's toes in announcing the public release of the long-awaited report of the ABI Commission on Consumer Bankruptcy. The Commission, with Credit Slips' own inimitable Bob Lawless as its reporter, was formed in December 2016 to explore revisions to the US consumer bankruptcy system that would improve the operation of its existing structure; that is, evolution, not revolution. With this explicitly limited charge, one would not necessarily expect to find much high-level discussion of how the US approach squares with or fits within the many recent global developments in consumer insolvency relief, and one would expect to see a concentration on local solutions for local stumbling blocks.

    That being said … and in no way to detract from the monumental amount and truly impressive nature of the work the Commission has done here … one might have expected to see a bit of discussion, if not even a touch of inspiration, from comparative sources. In 1970, the Bankruptcy Commission rejected any consideration of foreign developments in consumer bankruptcy, in part because there were few such developments, and in part because so little was known about the operation of non-US bankruptcy law at the time (for those younger than I, note that neither home computers nor the public Internet existed in 1970 …). Nearly 50 years later, we now have at our fingertips a mountain of comparative data and analysis on the development, operation, and revision of consumer insolvency systems around the world, much of it reported in English specifically to make it widely available to law reformers like the ABI Commission. Again, one would not have expected this comparative material to occupy center stage in a reform of largely US problems in the uniquely US consumer bankruptcy system. But in a bit part here and there, some comparative observations might have supported the Commission's already compelling recommendations.

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  • The Curious Persistence of Plan B (Bankruptcy Lite)

    Posted by

    Jason Kilborn

    I've come across a phenomenon numerous times over the years, again recently, that reveals the purpose of and resistance to discharge as the ultimate solution/relief for bankruptcy. In a discussion of the Chinese Supreme People's Court's struggles with "the enforcement difficulty" (执行难), the writers observe that, if a judgment debtor is found by the court enforcement division to have no available assets against which to collect a judgment, the enforcement action is terminated … but "the court will automatically check every six months whether the involved judgment debtors have new property." On the one hand, the termination of fruitless enforcement actions sounds something like bankruptcy relief. Assuming the process actually works like this, and assuming the court enforcement division is not overly aggressive in pursuing "new property," this seems to me to take some of the pressure off of the Chinese system to adopt a proper bankruptcy discharge to alleviate the suffering of insolvent judgment debtors. On the other hand, without a discharge, the "checking for new property" part ensures that debtors' incentives to be productive will remain perpetually depressed, and official resources will be perpetually wasted in interminable pursuit of phantom new assets. These debtors' productivity and entrepreneurialism is forever lost to Chinese society in an era in which global competition continues to heat up.

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  • More Data, Please!

    Posted by

    Jason Kilborn

    Effective reform requires detailed knowledge of exactly what's being reformed. This is especially true of complex systems like corporate and individual insolvency regimes, with numerous inputs and outputs and carefully counterbalanced policy objectives. Two recent papers accentuate an acute weakness in global insolvency reform development–a lack of reliable and comprehensive data on the operation of existing systems, which will of course infect future planned procedures, as well. The global insolvency team at the IMF notes this problem in the context of its current advisory operations, and Adam Feibelman anticipates this problem with respect to India's developing insolvency and bankruptcy law. Both suggest a solution in more careful attention to data production and tracking. Both papers are interesting reading for those concerned with a more responsible approach to global insolvency policy-making, where for far too long it seems the old joke about empirical analysis has rung true: anecdote is not the singular of data.

  • Developing Personal Insolvency Crises in China and India

    Posted by

    Jason Kilborn

    What is it like to be desperately insolvent with no access to a relief system like the bankruptcy discharge? Many, many people are likely to find out in the coming months in China and India in light of recent developments in these mammoth markets. Neither country currently offers individuals effective relief from financial distress, though both have been actively but languidly considering the adoption of such relief for a long time. That relief can't come soon enough, though I'm not optimistic about its arrival anytime in the near future.

    In China, the government is stepping up its efforts to all but eliminate P2P lending platforms, the only reliable source of finance for most individuals and small businesses. I'm afraid Bob Lawless's "paradox of consumer credit" will apply here: a rapid constriction in the supply of consumer/small business credit will lead to a spike in financial distress that can't be avoided by refinancing … leading to even greater need for an individual bankruptcy remedy that China still lacks. To be sure, many of these P2P lending networks have been ponzi schemes, victimizing innocent investor-lenders and needing to be shut down, but I fear an over-correction here. Resolving 1.22 trillion RMB ($176 billion) in loans extended by 50 million investor-lenders to goodness knows how many small borrowers will be no small feat, especially with no formal insolvency framework to organize the effort. 

    Meanwhile in India, the hot mess of corporate debt has begun to cool off, leaving debt buyers hungry for even riskier loans to purchase and pursue. So they're refocusing on defaulted consumer debt. The short-term target is debt secured by homes and cars, likely to produce greater returns from the collateral, but what of the inevitable deficiencies? Unsecured personal liability for deficiency judgments will certainly be on the to-do list of these buyers in the near term, and they are already making plans for the longer term to expand to unsecured education and credit card loans.

    While India and China have both made admirable progress in reforming their business insolvency systems, the tragedy unfolding in the consumer and small business sectors cries out for serious attention. These debtors are not deadbeats whom authorities can be content to leave to their chosen fates; they are the victims of global economic volatility, the lifeblood of developing economies, and the center of harmonious societies. China and India would advance and humanize their development in a massive way by finally addressing the gaping hole in their insolvency frameworks to add proper treatment for individual debtors.

  • Seeking nominations for the Grant Gilmore Award

    Posted by

    Melissa Jacoby

    GilmoreThe American College of Commercial Finance Lawyers seeks nominations for scholarly articles to be considered for the Grant Gilmore Award. It is not awarded every year, but when it is, the main criteria is "superior writing in the field of commercial finance law."  I am chairing the award committee this year, so please email me or message me on Twitter before December 14 to ensure your suggestion is considered. Especially eager to get suggestions of articles written by newer members of the academy that might otherwise be missed.

  • World Bank Group’s Proposals on Small Business Insolvency

    Posted by

    Jason Kilborn

    At long last, the World Bank Group's insolvency and debt resolution team has finally released to the public its report on the treatment of the insolvency of micro-, small-, and medium-sized enterprises, Saving Entrepreneurs, Saving Enterprises : Proposals on the Treatment of MSME Insolvency. The team worked for over a year on this report, concluding with a meeting of its Insolvency & Creditor/Debtor Regimes Task Force in May in Washington, D.C., where the report and its proposals were vetted. There was a surprising degree of consensus on the proposals developed here, and the final version reflects a fairly widely shared viewpoint on three key points.

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  • Passing of Ian Fletcher

    Posted by

    Bob Lawless

    It is with great sadness that the news reached my desk of the passing of Professor Ian Fletcher of University College London. Ian was a leading international insolvency expert, well known to all of us at Credit Slips, and we extend our condolences to his family and friends. Professor Bob Wessels has a tribute.