Struggling to figure out how to sell DVDs and CDs in a download-driven world, Toronto-based movie and music seller Cinram International Inc. has filed for bankruptcy protection while its executives move to sell its operations, Dow Jones DBR Small Cap reported. The company and several affiliates that it controls filed for Chapter 15 protection in U.S. Bankruptcy Court in Wilmington, Del., to block the consequences that it would face when its agreement with its biggest lenders expires on June 30....
Chapter 15 Database of U.S. Cross-border Cases
Chapter 15 is a new chapter added to the Bankruptcy Code by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. It is the U.S. domestic adoption of the Model Law on Cross-Border Insolvency promulgated by the United Nations Commission on International Trade Law ("UNCITRAL") in 1997, and it replaces section 304 of the Bankruptcy Code. Because of the UNCITRAL source for chapter 15, the U.S. interpretation must be coordinated with the interpretation given by other countries that have adopted it as internal law to promote a uniform and coordinated legal regime for cross-border insolvency cases.
The purpose of Chapter 15, and the Model Law on which it is based, is to provide effective mechanisms for dealing with insolvency cases involving debtors, assets, claimants, and other parties of interest involving more than one country. This general purpose is realized through five objectives specified in the statute: (1) to promote cooperation between the United States courts and parties of interest and the courts and other competent authorities of foreign countries involved in cross-border insolvency cases; (2) to establish greater legal certainty for trade and investment; (3) to provide for the fair and efficient administration of cross-border insolvencies that protects the interests of all creditors and other interested entities, including the debtor; (4) to afford protection and maximization of the value of the debtor's assets; and (5) to facilitate the rescue of financially troubled businesses, thereby protecting investment and preserving employment. 11 U.S.C. § 1501.
Generally, a chapter 15 case is ancillary to a primary proceeding brought in another country, typically the debtor's home country. As an alternative, the debtor or a creditor may commence a full chapter 7 or chapter 11 case in the United States if the assets in the United States are sufficiently complex to merit a full-blown domestic bankruptcy case. 11 U.S.C. § 1520(c). In addition, under chapter 15 a U.S. court may authorize a trustee or other entity (including an examiner) to act in a foreign country on behalf of a U.S. bankruptcy estate. 11 U.S.C. § 1505.
An ancillary case is commenced under chapter 15 by a "foreign representative" filing a petition for recognition of a "foreign proceeding." (1) 11 U.S.C. § 1504. Chapter 15 gives the foreign representative the right of direct access to U.S. courts for this purpose. 11 U.S.C. § 1509. The petition must be accompanied by documents showing the existence of the foreign proceeding and the appointment and authority of the foreign representative. 11 U.S.C. § 1515. After notice and a hearing, the court is authorized to issue an order recognizing the foreign proceeding as either a "foreign main proceeding" (a proceeding pending in a country where the debtor's center of main interests are located) or a "foreign non-main proceeding" (a proceeding pending in a country where the debtor has an establishment, (2) but not its center of main interests). 11 U.S.C. § 1517. Immediately upon the recognition of a foreign main proceeding, the automatic stay and selected other provisions of the Bankruptcy Code take effect within the United States. 11 U.S.C. § 1520. The foreign representative is also authorized to operate the debtor's business in the ordinary course. Id. The U.S. court is authorized to issue preliminary relief as soon as the petition for recognition is filed. 11 U.S.C. § 1519.
Through the recognition process, chapter 15 operates as the principal door of a foreign representative to the federal and state courts of the United States. 11 U.S.C. § 1509. Once recognized, a foreign representative may seek additional relief from the bankruptcy court or from other state and federal courts and is authorized to bring a full (as opposed to ancillary) bankruptcy case. 11 U.S.C. §§ 1509, 1511. In addition, the representative is authorized to participate as a party of interest in a pending U.S. insolvency case and to intervene in any other U.S. case where the debtor is a party. 11 U.S.C. §§ 1512, 1524.
Chapter 15 also gives foreign creditors the right to participate in U.S. bankruptcy cases and it prohibits discrimination against foreign creditors (except certain foreign government and tax claims, which may be governed by treaty). 11 U.S.C. § 1513. It also requires notice to foreign creditors concerning a U.S. bankruptcy case, including notice of the right to file claims. 11 U.S.C. § 1514.
One of the most important goals of chapter 15 is to promote cooperation and communication between U.S. courts and parties of interest with foreign courts and parties of interest in cross-border cases. This goal is accomplished by, among other things, explicitly charging the court and estate representatives to "cooperate to the maximum extent possible" with foreign courts and foreign representatives and authorizing direct communication between the court and authorized estate representatives and the foreign courts and foreign representatives. 11 U.S.C. §§ 1525 - 1527.If a full bankruptcy case is initiated by a foreign representative (when there is a foreign main proceeding pending in another country), bankruptcy court jurisdiction is generally limited to the debtor's assets that are located in the United States. 11 U.S.C. § 1528. The limitation promotes cooperation with the foreign main proceeding by limiting the assets subject to U.S. jurisdiction, so as not to interfere with the foreign main proceeding. Chapter 15 also provides rules to further cooperation where a case was filed under the Bankruptcy Code prior to recognition of the foreign representative and for coordination of more than on foreign proceeding. 11 U.S.C. §§ 1529 - 1530.
The UNCITRAL Model Law has also been adopted (with certain variations) in Canada, Mexico, Japan and several other countries. Adoption is pending in the United Kingdom and Australia, as well as other countries with significant international economic interests.
- A "foreign proceeding" is a "judicial or administrative proceeding in a foreign country ... under a law relating to insolvency or adjustment of debt in which proceeding the [debtor's assets and affairs] are subject to control or supervision by a foreign court for the purpose of reorganization or liquidation." 11 U.S.C. § 101(23). A "foreign representative" is the person or entity authorized in the foreign proceeding "to administer the reorganization or liquidation of the debtor's assets or affairs or to act as a representative of such foreign proceeding."
- An establishment is a place of operations where the debtor carries out a long term economic activity. 11 U.S.C. § 1502(2).
Wed., June 27, 2012
Fri., June 15, 2012
A U.S. federal judge refused Wednesday to enforce Mexican glass maker Vitro SAB's controversial debt restructuring in a closely watched bankruptcy case that threatened to sever the cross-border business cooperation between the two nation's legal systems, The Wall Street Journal reported. Judge Harlin D. "Cooter" Hale of the U.S. Bankruptcy Court in Dallas sided with bondholders in rejecting Vitro's bid, in what has been called one of the most important cases decided under Chapter 15, the section of the U.S. Bankruptcy Code governing international insolvencies. Judge Hale said in a 29-page opinion that Vitro's Mexican restructuring plan, which extinguishes guarantee claims of the...
Fri., June 8, 2012
Vitro SAB’s bid to enforce its Mexican bankruptcy plan in the U.S. is set to be decided by a judge next week after the glassmaker clashed with bondholders in court over the plan, Bloomberg reported. U.S. Bankruptcy Judge Harlin DeWayne Hale in Dallas said in court today that he plans to rule on Vitro’s enforcement motion next week, probably by June 13. Vitro, which has won approval for the bankruptcy plan in Mexico, is seeking an order from Hale enforcing the restructuring and stopping litigation by bondholders who have been fighting the plan in the U.S. and Mexico in an effort to collect on $1.2 billion in defaulted bonds. Andrew Leblanc, an attorney for Vitro, said in his closing...
Fri., May 18, 2012
Investors and financial analysts have their eyes on a bankruptcy case, pending in a Dallas courtroom, that they say could systematically shift how American firms do business with Mexican companies, KETK reported. The case also comes at a time when business interests from both sides of the Rio Grande are pushing to include Mexico in the current Trans-Pacific Partnership negotiations. Mexican glass company Vitro S.A.B filed for voluntary bankruptcy in December 2010, after defaulting on about $1.2 billion in bond debt held by foreign banks, including American interests. But in its reorganization plan, the company aimed to place its internal shareholders in first order for bankruptcy...
Wed., March 21, 2012
Humpuss Sea Transport Pte Ltd., a Singapore-based unit of an Indonesian shipping company, filed for Chapter 15 bankruptcy protection in the U.S., Bloomberg reported. The unit of Jakarta-based PT Humpuss Intermoda Transportasi is already under the control of liquidators in Singapore, where it was incorporated in 1996, according to Monday’s filing in U.S. Bankruptcy Court in Manhattan. Debt and assets were listed at more than $100 million. “Following the global financial crisis in 2008, shipping rates (HST’s primary source of revenue) sharply decreased,” Jason Aleksander Kardachi, a liquidator for the company in Singapore, said in court papers. Proceedings against Humpuss Sea to make...
Tue., March 20, 2012
A judge affirmed packaged ice company Arctic Glacier International Inc.'s right to receive the benefits of Chapter 15 protection in the U.S. as its restructuring plays out in Canada, Dow Jones DBR Small Cap reported. Judge Kevin Gross of the U.S. Bankruptcy Court in Wilmington, Del., Friday signed off on the company's petition for protection under Chapter 15, which allows companies to seek the U.S. court's recognition of a foreign bankruptcy case. Read more. (Subscription required.)
- Uncitral Model Law on Cross-Border Insolvency with Guide to Inactment
- BAPCPA Legislative Summary
- (P.L. 109-8)
- Senate Bill 256 (as introduced)
- Senate Hearing 109-1014
- H.Res. 211
- House Report 109-31 (Part 1)
- House Debate 4-14-05
- Senate Debate 3-10-05
- Senate Debate 3-09-05
- Senate Debate 3-08-05
- Senate Debate 3-07-05
- Senate Debate 3-04-05
- Senate Debate 3-03-05
- Senate Debate 3-02-05
- Senate Debate 3-01-05
- Senate Debate 2-28-05
This database collects and summarizes U.S. opinions issued in or related to chapter 15 cases. The database does not include every written decision issued in such cases, however. In addition, nothing herein is intended to provide legal advice, and no legal or business decision should be based on its content.
|Case Name||Foreign proceeding||Locations||Bankruptcy Provisions||Summary|
|In re Fairfield Sentry Ltd., 440 B.R. 60 (Bankr. S.D.N.Y. 2010)||British Virgin Islands proceeding.||British Virgin Islands, North America, Road Town||1502, 1517, 1521||Bankruptcy Court entered order recognizing foreign proceeding as foreign main proceeding and staying all actions regarding the foreign debtor’s rights and assets, including any purported derivative actions asserted by objecting parties, with limited exception.|
|In re Bozel S.A., 434 B.R. 86 (Bankr. S.D.N.Y. 2010)||British Virgin Islands proceeding.||British Virgin Islands, North America||1501||Bankruptcy court found, among other things, that chapter 15 was not applicable in a case that involved a shareholder, who also happened to be a liquidator in a separate and distinct foreign insolvency proceeding, attempting to exercise his corporate governance rights in the chapter 11 case of a wholly-owned subsidiary.|
|In re Bozel S.A., 434 B.R. 86 (Bankr. S.D.N.Y. 2010)||British Virgin Islands proceeding.||British Virgin Islands, North America, Road Town||1501||Bankruptcy Court found, among other things, that chapter 15 was not applicable in a case that involved a shareholder, who also happened to be a liquidator in a separate and distinct foreign insolvency proceeding, attempting to exercise his corporate governance rights in the chapter 11 case of a wholly-owned subsidiary.|
|Mircon Tech., Inc. v. Qimonda AG (In re Qimonda AG Bankr. Litig.), 433 B.R. 547 (E.D. Va. 2010)||German insolvency proceeding.||Berlin, Europe, Germany||1506, 1509, 1520, 1521, 1522, 365||District Court affirmed in part, and remanded in part, an order of the Bankruptcy Court finding that (a) the Bankruptcy Court did not adequately articulate its reasons for modifying – by removing section 365(n) protections for intellectual property licenses – its earlier order granting discretionary relief in a Chapter 15 case; (b) section 365, which governs the assumption and rejection of executory contracts, did not apply automatically in a Chapter 15 case upon recognition of a foreign main proceeding, but rather, could be granted as discretionary relief; and (c) the Bankruptcy Court must consider whether the different treatment of intellectual property rights under German insolvency law violates fundamental U.S. public policies as embodied in section 365(n) of the Bankruptcy Code.|
|O’Sullivan v. Loy (In re Loy), 432 B.R. 551 (E.D. Va. 2010).||UK personal bankruptcy.||Europe, London, United Kingdom||1508, 1520, 549||District Court affirmed Bankruptcy Court order holding that the “commencement of a case” for purposes of applying Sections 549 (avoidance of unauthorized postpetition transfers) and 1520(a)(2) (rendering section 549 applicable in Chapter15 cases) was the date of filing in the United States bankruptcy court of a petition for recognition of the foreign insolvency proceeding, not the date of the commencement of the foreign proceeding itself, or the date of recognition in the United States bankruptcy court.|
|Lavie v. Ran (In re Ran), 607 F. 3d 1017 (5th Cir. 2010)||Israeli involuntary personal bankruptcy.||Israel, Jerusalem, North Africa/Middle East||1501, 1502, 1516, 1517||Court of Appeals for the Fifth Circuit affirmed lower court rulings denying recognition of a foreign proceeding under Chapter 15, where individual debtor, who was the subject of an involuntary bankruptcy in Israel but was living in the U.S. at the time the Chapter 15 petition was filed, was accordingly not the subject of a foreign main or nonmain proceeding and was thus ineligible for Chapter 15 relief. Among other things, the Court held that both a debtor’s “center of main interest” and the location of a debtor's "establishment" should be determined at the time the Chapter 15 petition for recognition was filed.|