Chapter 15 Five Years Out - A Canadian Perspective: Treatment Of Cross-Border Insolvencies In United States Courts

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). However, the provisions of the Chapter also make it clear that nothing prevents a U.S. court from refusing to take an action governed by the Chapter if it would be manifestly contrary to the public policy of the United States (Section 1506). When Chapter 15 came into force, it was a matter of concern to Canadian lawyers as to how U.S. courts would accommodate the above purpose and apply the above restriction. The approach of the U.S. courts under the old Section 304 of the U.S. Bankruptcy Code was one of comity and cooperation that allowed all involved in cross-border matters to develop insolvency strategies with a degree of confidence in their result. When Chapter 15 was introduced, many of us on the Canadian side of the border were anxious to see whether the introduction of Chapter 15 and, specifically Section 1506, would result in a marked difference of approach or application by U.S. courts. Read more. (Subscription required.)