Is International Bankruptcy Possible?

Although international business firms proliferate, there is no international bankruptcy system. Instead, bankruptcy law remains a matter for individual states. The failure of a multinational firm therefore raises difficult questions of conflict and cooperation among national bankruptcy laws. In the discourse over the appropriate design for an international bankruptcy system, universalism has long held sway as the dominant idea, embraced nearly universally by bankruptcy scholars. Universalism offers a simple and elegant blueprint for international bankruptcy. Under universalism, the bankruptcy regime of the debtor firm’s home country would govern worldwide, enjoying global reach to treat all of the debtor’s assets and claimants. Despite its conceptual dominance and appeal, universalism has yet to find vindication in any concrete policy enactments. No universalist arrangements exist. While recent challenges to universalism have emerged, the current lively debate over universalism and rival proposals focuses almost exclusively on their comparative efficiencies. This Article provides a new perspective and a novel critique of universalism. Applying insights from elementary game theory and international relations theory, this Article shows that universalism suffers serious feasibility constraints: it is politically implausible and likely impossible. Even for states interested in establishing universalist arrangements, they will be unable to do so. They will find themselves in a prisoners’ dilemma with no ready solution. The Article concludes that universalism holds only dubious promise as a prescription for international bankruptcy cooperation.