Cases Filed and Decided under Chapter 15 of the Bankruptcy Code

Case Filed Under § 304 – discussing Chapter 15

In re Atrimm, S.r.L., 335 B.R. 149 (Bankr. C.D. Cal. 2005)

Although decided under §304 of the Bankruptcy Code, the court also analyzed the effect that chapter 15 would have on the outcome of the case if the case had been decided under the then-enacted chapter 15 of the Bankruptcy Code. The case centers around a settlement for the distribution of proceeds of a motion picture between an Italian debtor in a bankruptcy proceeding pending in Rome and TriStar Pictures Inc. The settlement agreement provided that the distribution proceeds would be directed to the Italian debtor’s trustee. The movie’s producer opposed sending all of the proceeds to the debtor’s trustee, claiming he was entitled to be paid from the proceeds as well.

Under section 304, which emphasizes deference to the foreign court, the bankruptcy court found that settlement funds owed to the debtor should be turned over to the debtor’s Italian trustee. The court found that anyone claiming an interest in such settlement funds, in particular the film producer, must prosecute his claim in the Italian proceeding.

The court noted that a fundamental change between section 304 and chapter 15 is that chapter 15 directs the court to cooperate with the foreign court or representative “to the maximum extent possible.” The court noted, however, that section 1521(b) of the Bankruptcy Code, like section 304(c), also requires the court to ensure “sufficient protection to U.S. creditors.” The court found that there would be little difference in the outcome of this case if it were decided under chapter 15, except that the certificate from the foreign court affirming the existence of a foreign proceeding would have had to been filed with an English translation, pursuant to section 1515(d), which was not required under Section 304.

Chapter 15 Recognition is the Exclusive Remedy for Extending Injunctive Relief

United States v. J.A. Jones Construction Group, LLC, 333 B.R. 637 (E.D.N.Y. 2005)

The interim receiver in the Canadian bankruptcy proceeding of LBL Systems (U.S.A.) Inc. requested an injunction from the United States District Court for the Eastern District of New York to stay an action commenced by the United States government against the Canadian debtor. The court refused to grant such an injunction and held that, unlike the prior scheme under section 304 of the Bankruptcy Code, chapter 15 is intended to be an exclusive remedy for a foreign representative to enforce an injunction issued by a foreign bankruptcy or insolvency court. The court explained that if a foreign representative meets the requirements to be recognized as a foreign main proceeding by satisfying the requirements of chapter 15, “a wide range of relief available under American bankruptcy law immediately becomes applicable, including the automatic stay provision in section 362 of the Code,” pursuant to Section 1520 of the Bankruptcy Code. Moreover, if the foreign proceeding is recognized as a foreign nonmain proceeding, pursuant to Section 1521 of the Bankruptcy Code, the foreign representative may obtain a stay or injunction where the foreign representative can demonstrate that the injunction is necessary to effectuate the purposes of chapter 15 and to protect the interests of the debtor or the creditors. Pursuant to section 1519(a), the foreign representative may also obtain a stay from the bankruptcy court from the date the petition for recognition is filed until the court rules on the petition if the representative can demonstrate that such relief is “urgently needed to protect the assets of the debtor or the interests of the creditors. The court granted the Canadian receiver a 60-day stay to allow the receiver to file a chapter 15 case for recognition as a foreign proceeding.

Interpretation of Section 1506 of the Bankruptcy Code “Manifestly Contrary to the Public Policy of the United States”

In re Ephedra Products Liability Litigation, 349 B.R. 333 (S.D.N.Y. 2006)

The appointed monitor in the Muscletech Canadian proceeding filed a chapter 15 petition seeking recognition as a foreign main proceeding. The Muscletech case was removed to the district court and consolidated with the multi-district litigation including other manufacturers and retailers of ephedra-based products encaptioned “In re Ephedra Products Liability Litigation.” The Canadian court had already instituted a claims resolution procedure in the Muscletech Canadian bankruptcy proceeding.

In the district court, the ephedra claimants argued that the Muscletech Canadian claims resolution procedure, which included mandatory mediation, should be refused recognition pursuant to 11 U.S.C. § 1506, which provides that a bankruptcy court considering a chapter 15 petition may refuse “to take an action governed by [chapter 15] if the action would be manifestly contrary to the public policy of the United States.” The ephedra claimants argued that the lack of a jury trial in the Canadian claims resolution procedure was manifestly contrary to public policy. The district court held that the lack of a right to a jury trial did not rise to the level of being “manifestly contrary to public policy” and instead considered whether the Canadian claims resolution procedure was a “fair and impartial proceeding.” After requesting certain amendments to the Canadian claims resolution procedure, and having those recommended amendments proposed by the Canadian monitor to and accepted by the Canadian court, the district court recognized the Muscletech Canadian proceeding as a foreign main proceeding.

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