Forum shopping

Forum shopping (법정지/法廷地 쇼핑) is usually referred to a litigants' practice to get their legal case, in particular insolvency case, heard in the court deemed likely to provide a favorable judgment.

Since Korean companies are expanding overseas business bases, there are increasing possibilities for Korean businesses to undergo international insolvency proceedings. The former insolvency regime of Korea was based upon the strict territorialism. But the newly established Act on Debtor's Rehabilitation and Bankruptcy, effective as from April 2006, has adopted the modified universalism.

Chapter 5 of the Act was considerably affected by the UNCITRAL Model Law on Cross-Border Insolvency and the Japanese law relating to the recognition and assistance for foreign insolvency proceedings.

Key words
forum shopping, bankruptcy proceedings, universalism, territorialism, debtor in possession (DIP)

Comparative Analysis
The European Union has implemented its regulation on insolvency proceedings based upon the universalism since 2002. In 2005, the United States adopted the UNCITRAL Model Law by establishing Chapter 15 in the Bankruptcy Code. As Japan and the United Kingdom incorporated the UNCITRAL Model Law into their legal systems, it seems that the universalism prevails in the international insolvency cases. Against this backdrop, Professor LoPucki at UCLA School of Law argues that the universalism allows the insolvent debtor to choose a favorable forum and thus cause economic harm to the creditors and shareholders compared to the cooperative territorialism.

Universalism
Under the universalist bankruptcy law, when a court at the home country, i.e., the main court of a global company opens the insolvency proceedings, the other courts are required to stay their proceedings or support the main proceeding.

The home country is determined on the basis of the center of debtor's main interests (COMI). When the main assets, business operations, headquarters or registered place of incorporation are respectively located in different countries, it would be difficult to identify the home country. As the relationship between the multinational corporations and the home country is growing diluted, the chances of international venue shopping could be on the increase.

In addition, the competition among the courts of relevant countries is getting tough. The beneficiaries of the forum shopping will be the executives of the insolvent company, professional advisors and post-petition lenders. They are inclined to act for the benefits of themselves rather than to preserve the interests of the debtor company. Therefore, international insolvency proceedings are in great need of cooperation between the relevant courts in the form of judicial protocols, and balanced decision of the main court.

Territorialism
Turning back to the territorial system might lead to separating and dismantling of corporate assets and operations piece by piece and thereby lowering the overall value of the whole business. It would bring in a significant loss to creditors and investors alike.

In this context, it is required to implement the cross-border insolvency proceedings in such a manner as to enhance the harmonization of international insolvency regimes and to restore the spirit of international comity.

On the occasion of the Korea-U.S. Free Trade Agreement, the Korean government felt it necessary to amend the current insolvency law in conformity with the U.S. bankruptcy law. In view of the potential harm caused by the forum shopping in the United States, it is not advisable to adopt the universalism as provided for in Chapter 15 of the Bankruptcy Code.

Prospects
From the standpoint of creditors, it is essential to prepare for how the foreign courts and creditors cope with the cross-border insolvency proceedings, while the bankruptcy court properly takes into consideration the individual interests of a debtor company, its debtor-in-possession (DIP) executives, professional lawyers as well as creditors and shareholders. Preventing an intentional forum shopping from transferring the insolvency case to foreign countries calls for the following programs to be carried out immediately:
 * to encourage professionals to accumulate databases on cross-border insolvency cases in specific countries;
 * to understand the foreign insolvency regimes and the relevant know-hows; and
 * to establish international cooperative relationship including judicial protocols.