Chapter 15 Bankruptcy -
Model Law on Cross-Border Insolvency
Chapter 15 is based on the "Model Law on Cross-Border Insolvency", enacted in 1997 by the United Nations Commission on International Trade Law ("UNCITRAL"). The Model Law has been adopted by Mexico, Canada, Japan, and several other countries, and several other countries, including the United Kingdom and Australia, are considering its adoption. A previous provision of the Bankruptcy Code dealing with such matters, Section 304, was repealed upon enactment of this new Chapter. Since it is based on a law enacted by the United Nations, the legal decisions of other countries will be relevant when it comes to interpreting the law's provisions.
The Spirit of Chapter 15
The spirit of Chapter 15 is to encourage cooperation and communication between U.S. Bankruptcy Courts and their officials and those same courts and officials in foreign countries. Bankruptcy Code Sections 1525, 1526, and 1527 all emphasize this concept, including encouraging our court officials to "cooperate to the maximum extent possible with a foreign court or a foreign representative, either directly or through the trustee".
Under Bankruptcy Code Section 1501(a), there are 5 objectives of Chapter 15;
Who Can File a Chapter 15 Ancillary Case?
Most Chapter 15 cases are "ancillary" cases, filed by debtors who are already in a primary bankruptcy in their home country. Chapter 15 is really the gateway for foreign companies to have access to the U.S. Courts in matters of insolvency. Under Bankruptcy Code Section 1504, a Chapter 15 case starts when a petition for recognition of a "foreign proceeding" is filed by a a "foreign representative" under Bankruptcy Code Section 1515. A "foreign proceeding" is defined as a judicial or administrative proceeding in a foreign country under a law relating to insolvency or debt adjustment, in which the debtor's assets are subject to the control of the court for reorganization or liquidation. A "foreign representative" is defined as the person or entity authorized in the foreign case to administer the liquidation or reorganization of the debtor's assets, or to act as its representative.
Hearing on Petition for Recognition of Foreign Proceeding
Under Bankruptcy Code Section
1517, the court holds a hearing on the Petition, after notice to all creditors
and interested parties. Pending the hearing on the petition, under Bankruptcy
Code Section 1519(a), the court is authorized to enter emergency relief as needed
to protect the debtor's assets. If at the hearing the Court finds that the foreign
case is a proper "foreign main proceeding" or "foreign non-main
proceeding" within the meaning of Bankruptcy Code Section 1502, that the
representative is authorized to bring the petition, and that all documents required
by Section 1515 of the Bankruptcy Code are in proper order, then the court shall
enter its order recognizing the foreign proceeding. The foreign proceeding will
be recognized as either a (a) foreign main proceeding", i.e., a case pending
in a country where the debtor's business interests are centered; or (b) as a "foreign
non-main proceeding", i.e., a case pending in a country where the debtor
has an established business, but not its main center of interests. Under 11 U.S.C.
Section 1506, the court can refuse to recognize the foreign proceeding if doing
so would be manifestly contrary to the public policy of the United States of America.
Provisions Concerning Creditors
In furtherance of the interest of comity amongst nations, Chapter 15:
Global Economy and International Corporations
With the new global economy and the proliferation of international corporations, coupled with the explosion of commerce in China and other nations, it is proper for countries to enact laws to facilitate the orderly liquidation and reorganization of multinational businesses. The U.S. has done so by its adoption of the United Nations' "Model Law on Cross-Border Insolvency", as Chapter 15 in the Bankruptcy Code. Its goal is to encourage cooperation and communication between officials in the U.S. Bankruptcy Court system and their counterparts in other countries.
Cases Pending in Other Countries
As part of this spirit, debtors whose main bankruptcy
cases are pending in other countries are permitted to file secondary,
or ancillary, cases in the United States. Such filings are designed
to help preserve assets, rescue failing businesses, provide greater
legal certainty for trade and investment, and promote the fair and
full administration of cross-border insolvency cases.
Written by Henry Rendler
Written by Henry Rendler
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