A Qualified Defence of the Rule in Gibbs

Abstract This article concerns the ‘rule in Gibbs’: a controversial principle of English private international law which provides that a debt is only discharged in a foreign insolvency proceeding if the contract is governed by the law of that proceeding. Critics of the rule consider that it undermines the foundation of corporate insolvency as a unitary process in which individual collection efforts are replaced by a collective proceeding for all creditors. This article offers a qualified defence of the rule. It suggests that it could be abandoned in ‘true’ insolvency cases, in which the company’s assets are sold to a third party and the proceeds distributed to its creditors, but only if the rule is replaced with a cross-border insolvency law framework. It also suggests, however, that Gibbs is the ‘right’ rule in a cross-border corporate restructuring, in which only some of the company’s creditors stay with the firm to benefit from any future upside that the third party would otherwise capture in a sale. It argues that European Union private international law adopts this approach to a restructuring and that the Gibbs rule is, therefore, not nearly as exceptional as it is sometimes made out to be.