U.S. courts have a long-standing tradition of recognizing or enforcing the laws and court rulings of other nations as an exercise of international "comity." It has been generally understood that recognition of a foreign bankruptcy proceeding under chapter 15 is a prerequisite to a U.S. court enforcing, under the doctrine of comity, an order or judgment entered in a foreign bankruptcy proceeding or a provision in foreign bankruptcy law applicable to a debtor in such a proceeding.

In cases under both chapter 15 of the Bankruptcy Code and its repealed predecessor, section 304, U.S. bankruptcy courts have routinely recognized and enforced orders of foreign bankruptcy and insolvency courts as a matter of international comity. However, U.S. bankruptcy courts sometimes disagree over the precise statutory authority for granting such relief, because the provisions of chapter 15 are not particularly clear on this point in all cases.

The EMEA Determinations Committee's recent bankruptcy determination involving Selecta CDS provides additional insight on the types of chapter 15 filings that are likely to trigger Credit Events.

In Short

The Situation: On August 11, 2020, a Credit Derivatives Determinations Committee for EMEA ("DC") unanimously determined that the Chapter 15 filing by British retailer Matalan triggered a Bankruptcy Credit Event under standard credit default swaps ("CDS").

The Result: The DC's decision diverged from its only prior decision (involving Thomas Cook) on whether a Chapter 15 petition constituted a Bankruptcy Credit Event.

Retail tenants are experiencing unprecedented difficulties stemming from the COVID-19 pandemic, including government shutdown orders for non-essential businesses and shelter-in-place rules that have virtually stopped all in-person shopping. Even as these restrictions are finally being relaxed to a limited degree, the dramatic effects of the pandemic will long be felt in the retail industry.

As a result of the current situation, we are advising clients who find themselves operating in the shadow of potential bankruptcies along the supply chain, in their customer base and their trading partners globally. Based on deep workout experience after past world crises, we can help clients to find and employ business strategies to minimize business disruption, salvage relationships and restructure financial facilities and business structures to facilitate ongoing trading .

Issues arising:

For the benefit of our clients and friends investing in European distressed opportunities, our European Network is sharing some current developments.

Recent Developments

On February 1, 2017, the Supreme Court of Singapore and the U.S. Bankruptcy Court for the District of Delaware announced that they had formally implemented Guidelines for Communication and Cooperation between Courts in Cross-Border Insolvency Matters (the "Guidelines"). The U.S. Bankruptcy Court for the Southern District of New York adopted the Guidelines on February 17, 2017.

The Act is a groundbreaking development in Singapore's corporate rescue laws and includes major changes to the rules governing schemes of arrangement, judicial management, and cross-border insolvency. The Act also incorporates several features of chapter 11 of the U.S. Bankruptcy Code, including super-priority rescue financing, cram-down powers, and prepackaged restructuring plans. The legislation may portend Singapore's emergence as a center for international debt restructuring.

In Short:

The Action: Courts in Singapore and the states of New York and Delaware have formally implemented Guidelines for Communication and Cooperation between Courts in Cross-border Insolvency Matters.

The Motivation: The Guidelines were developed to improve the efficiency and effectiveness of cross-border insolvency proceedings and to encourage coordination and cooperation among relevant courts.

Looking Ahead: Expect the Guidelines to be implemented in other significant jurisdictions.