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.

NOTES

  1. 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."
  2. An establishment is a place of operations where the debtor carries out a long term economic activity. 11 U.S.C. § 1502(2).

Tue., September 18, 2012

Tue., September 18, 2012

Frustrated by Japanese chipmaker Elpida Memory Inc's plan to sell itself out of bankruptcy in Tokyo for a perceived pittance, the company's U.S. bondholders are bringing the fight back home, turning to a Delaware court in hopes of wresting control of the case, Reuters reported. Holders of some of Elpida's $5.6 billion in bonds will argue at a hearing on Monday in U.S. Bankruptcy Court in Wilmington, Del., that Elpida's plan to sell itself to U.S. rival Micron Technology Inc for about $2.5 billion drastically undervalues the company. Elpida in March had filed for so-called Chapter 15 protection in the Delaware court, a common move for companies restructuring outside of the United States....

Wed., September 5, 2012

Wed., September 5, 2012

China Medical Technologies Inc., a maker of diagnostic products, filed for Chapter 15 foreign-firm bankruptcy protection in New York, listing as much as $500 million in assets and debts, Bloomberg Businessweek reported. China Medical, which makes products to monitor various diseases including cancer, also listed foreign bankruptcy proceedings pending in the Cayman Islands, according to a petition posted in U.S. Bankruptcy Court in Manhattan. Chapter 15 helps shield overseas companies from U.S. lawsuits and creditor claims while a company continues the process abroad. The company in various documents lists operations in Beijing, Hong Kong and the Cayman Islands. “To date, the liquidators...

Tue., August 28, 2012

Tue., August 28, 2012

Gerova Financial Group Ltd., a Bermuda-based financial-services company, sought U.S. bankruptcy court protection listing debt of as much as $500 million, Bloomberg reported. The Hamilton-based firm, formerly known as Asia Special Situations Acquisition Corp., filed a Chapter 15 petition in Manhattan today to protect its U.S. assets from creditors. Assets were valued at more than $50 million, Gerova said. Gerova began liquidation proceedings July 20 in Bermuda. Chapter 15 shields foreign companies from U.S. lawsuits and creditor claims while a company continues the process abroad. The company said in January 2011 it acquired about $1.2 billion in insurance policies and loans and arranged...

Wed., August 1, 2012

Wed., August 1, 2012
The Senate Judiciary Committee yesterday held an hour-long hearing on President Barack Obama’s nomination of William J. Baer to be Assistant Attorney General in charge of the Department of Justice’s Antitrust Division (“DOJ”). The Antitrust Division is responsible for reviewing mergers, bringing civil litigation on behalf of the United States, and enforcing the criminal aspects of the antitrust laws. Mr. Baer, former director of the Federal Trade Commission’s (“FTC...

Thu., July 5, 2012

Thu., July 5, 2012

Sanko Steamship Co., the Japanese operator of 185 ships, asked a court to protect its U.S. assets after the company filed for bankruptcy protection in Japan, Bloomberg reported. Sanko listed assets and debt of more than $500 million in a Chapter 15 petition filed in U.S. Bankruptcy Court in Manhattan. Companies use Chapter 15 of the U.S. Bankruptcy Code to protect their U.S. assets while they reorganize operations under the jurisdiction of a foreign bankruptcy court. Sanko said yesterday that the Tokyo District Court granted the closely held company permission to keep operating. A trustee will be appointed to oversee a reorganization, the Tokyo-based company said in an e-mail statement...

Wed., June 27, 2012

Wed., June 27, 2012

Mexican glassmaker Vitro SAB is heading to a U.S. appeals court to save its restructuring at home from an assault by U.S. creditors in a case that could transport the U.S. bankruptcy code beyond that nation's borders, Reuters reported. The case pits one of Monterrey, Mexico's powerful and politically connected "Group of 10" businesses against U.S. hedge funds, which Latin American critics have reviled as "vultures" for their battle against Argentina's sovereign debt restructuring. Hanging in the balance is the use of Chapter 15. Foreign companies have used this 7-year-old piece of the U.S. bankruptcy code about 600 times to get an overseas insolvency proceeding enforced in the United...

Mon., March 21, 2011

Mon., March 21, 2011

In a case of first impression, Lavie v. Ran (In re Ran), 607 F.3d 1017 (5th Cir. 2010), the Fifth Circuit denied a petition for recognition of an Israeli bankruptcy proceeding under chapter 15 for an individual debtor because it did not qualify as a foreign main or foreign nonmain proceeding. The court found that neither the debtor’s “center of main interest” (“COMI”) nor his “establishment” were located in Israel at the time the petition for recognition was filed. Relying on both the statute’s use of the present tense and chapter 15’s stated purpose of international uniformity, the Fifth Circuit explicitly rejected the argument that the debtor’s COMI and his establishment should be...

Thu., March 10, 2011

Thu., March 10, 2011

In Fogerty v Petroquest Resources Inc (In re Condor Ins Ltd)(1) the Fifth Circuit Court of Appeals held that, pursuant to Section 1521 of the Bankruptcy Code, the foreign representatives of Condor Insurance Ltd (appointed by the Nevis court) could use Nevis law in a Chapter 15 case to avoid asset transfers by Condor to a US affiliate, even though the foreign representatives could not have avoided the transfers under US law. The court found that "[w]hatever its full reach, Chapter 15 does not constrain the federal court's exercise of the powers of foreign law it is to apply".

In doing so, the court reversed the judgment of the US District Court for the Southern District of...

Fri., February 4, 2011

Thu., November 4, 2010

Fri., September 3, 2010

Thu., May 27, 2010

Thu., May 27, 2010

On April 20, 2005, Chapter 15 of the U.S. Bankruptcy Code, governing cross-border insolvencies, came into force as part of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. In marking the fifth anniversary of that milestone, Lexology takes a look back on two major decisions that have confirmed the broad and consistent respect for Canadian insolvency process in United States courts: the MuscleTech case and the asset-backed commercial paper case.

Chapter 15 is meant to provide an effective way of dealing with cross-border insolvencies with the objective of cooperation between courts of the United States and those of foreign countries (Bankruptcy Code Section 1501...