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  Chapter 15 Bankruptcy -

     Among the many new provisions of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA"), was Chapter 15. This Chapter is designed to provide a framework for dealing with bankruptcy / reorganization / insolvency cases having assets, debtors, creditors, and other interested parties, in multiple countries.

Chapter 15 is designed to provide a framework for dealing with bankruptcy / reorganization / insolvency cases having assets, debtors, creditors, and other interested parties, in more than one country

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 A previous provision of the Bankruptcy Code dealing with such matters, Section 304, was repealed upon enactment of this new Chapter.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;

 1).  Encourage cooperation between (a) the U.S. Bankruptcy Courts, debtors, trustees, debtors in possession, the U.S. Trustee, and examiners, and (b) the courts and other competent authorities of foreign countries involved in cross-border insolvency cases. 
 2).  To further greater legal certainty for trade and investment 
 3).  Promote the fair and efficient administration of cross-border insolvencies, so as to protect the interests of the debtor, creditors, and other interested parties. 
 4).  Protect and maximize the value of the debtor's assets. 
Facilitate the rescue of financially distraught businesses, thereby protecting investment and preserving jobs.

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.

How to File
The Chapter 15 petition which shall be translated into English and must be accompanied by the following documents.
  A certified copy of the court order commencing the foreign case and appointing the representative 
  Certification from the foreign court that the case is still pending and that the representative is still authorized to act 
  A statement by the representative identifying all other foreign proceedings involving the debtor 


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.

Effect of Recognition of Foreign Proceeding
Once the court has entered its order recognizing the foreign proceeding, then:

The automatic stay of 11 U.S.C. Section 362(a) goes into effect to protect the assets of the estate.

 B). The foreign representative is given the power to use, sell or lease property, under Section 363 of the Bankruptcy Code. 
 C). The foreign representative is authorized to operate the debtor's business and is given certain selected rights of a trustee under the Bankruptcy Code. 
 D). The foreign representative can ask for additional relief from the bankruptcy court, and from state and federal courts. 
 E). The foreign representative can participate as a party in interest in other pending U.S. bankruptcy cases and can intervene in any other U.S. case where the debtor is a party. 
 F). The foreign representative can file a full (as opposed to simply ancillary or secondary) bankruptcy case; in this case, the U.S. Bankruptcy Court's jurisdiction will be limited to those assets that are located in the United States.  

Provisions Concerning Creditors

     In furtherance of the interest of comity amongst nations, Chapter 15:

  • Gives foreign creditors the right to participate in U.S. Bankruptcy cases;
  • Requires that notice be given to foreign creditors of the filing of a U.S. Bankruptcy case, and that the creditors be allowed to file claims therein; and
  • Prohibits discrimination against foreign creditors (with certain exceptions for foreign government and/or tax claims which may be subject to separate treaty).

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

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