Courts disagree over whether a foreign bankruptcy case can be recognized under chapter 15 of the Bankruptcy Code if the foreign debtor does not reside or have assets or a place of business in the United States. In 2013, the U.S. Court of Appeals for the Second Circuit staked out its position on this issue in Drawbridge Special Opportunities Fund LP v. Barnet (In re Barnet), 737 F.3d 238 (2d Cir. 2013), ruling that the provision of the Bankruptcy Code requiring U.S. residency, assets, or a place of business applies in chapter 15 cases as well as cases filed under other chapters.
The foundation of chapter 15 of the Bankruptcy Code and similar legislation enacted by other countries to govern cross-border bankruptcy cases is "comity" and cooperation among U.S. and foreign courts. The importance of these concepts was recently illustrated by a ruling handed down by the U.S. Bankruptcy Court for the Southern District of Florida. In In re Varig Logistica S.A., 2021 WL 5045684 (Bankr. S.D. Fla. Oct.
On Dec. 16, 2021, U.S. District Court Judge Colleen McMahon in the Southern District of New York vacated Purdue Pharma’s confirmed plan of reorganization after finding that the Bankruptcy Court below did not have statutory authority to issue a confirmation order granting non-consensual third-party releases — namely for the benefit of the Sackler family who owns Purdue. In re Purdue Pharma, L.P., Case No. 7:21-cv-08566 (S.D.N.Y. Dec. 16, 2021).
Despite the absence of any explicit directive in the Bankruptcy Code, it is well understood that a debtor must file a chapter 11 petition in good faith. The bankruptcy court can dismiss a bad faith filing "for cause," which has commonly been found to exist in cases where the debtor seeks chapter 11 protection as a tactic to gain an advantage in pending litigation. A ruling recently handed down by the U.S.
Chapter 15 petitions seeking recognition in the United States of foreign bankruptcy proceedings have increased significantly during the more than 16 years since chapter 15 was enacted in 2005. Among the relief commonly sought in such cases is discovery concerning the debtor's assets or asset transfers involving U.S.-based entities. A nonprecedential ruling recently handed down by the U.S. Court of Appeals for the Eleventh Circuit has created a circuit split on the issue of whether discovery orders entered by a U.S. bankruptcy court in a chapter 15 case are immediately appealable.
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.
Courts frequently dismiss creditor appeals of bankruptcy confirmation orders as equitably moot. However, the Eighth Circuit Court of Appeals recently departed from this historic practice. In reversing a District Court determination that confirmation of a plan rendered a creditor’s appeal equitably moot, the Eighth Circuit held that motions to dismiss for equitable mootness should be “rarely granted,” and it reversed and remanded the lower courts’ dismissal of a creditor’s appeal of a Plan Confirmation Order on equitable mootness grounds.
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.
On Oct. 27, 2020, Judge Marvin Isgur for the U.S. Bankruptcy Court for the Southern District of Texas held that (1) a make-whole premium was not interest or unmatured interest and thus not subject to disallowance, (2) a make-whole claim was enforceable as liquidated damages under New York law and (3) the solvent debtor exception survived the enactment of the Bankruptcy Code and the Noteholders were entitled to postpetition interest at the contractual default rate.
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.