Chapter 15
In today's global economy, enterprises may have assets, employees, and finances in many different countries. Managing an insolvency proceeding that crosses many borders presents special challenges as each county has different legal systems. Chapter 15 was added to the Bankruptcy Code in 2005 to encourage cooperation between the United States and foreign countries with respect to cross-border insolvency cases. Chapter 15 is based on a United Nations model law.
Chapter 15 provides assistance for a variety of cross-border situations including:
Venue for the filing of a chapter 15 case is where the debtor has its principal place of business or where its principal assets are located. In their absence, venue is proper in any district in which an action is pending against the debtor in state or federal court. In the absence of any litigation, venue is proper in any location in which venue will be "consistent with the interest of justice and the convenience of the parties, having regard to the relief sought by the foreign representative."
A foreign proceeding needs to qualify as either main or nonmain as a condition to recognition. "Recognition" is the entry of an order granting recognition of a foreign main proceeding or foreign nonmain proceeding under chapter 15. A "foreign main proceeding" is one pending in a country where the debtor has the "center of its main interests." (COMI). A "foreign nonmain proceeding" is one that is not a main proceeding but is at least pending in a country where the debtor has an "establishment." An establishment is any place of operation where the debtor carries out a nontransitory economic activity.
Generally the effect of recognition is that the foreign representative is deemed to have the capacity to sue and be sued in the courts of the U.S., may apply to any state or federal court for relief, and any court in which he appears must accord the representative comity or cooperation.
Recognition as Foreign Main Proceeding
Upon recognition as a foreign main proceeding, a range of procedural remedies is available to the foreign representative. The automatic stay applies with respect to the debtor and the property of the debtor that is within the U.S. Creditors have the right to seek relief from the automatic stay or to demand adequate protection of their interests. Section 363 applies with regard to property that is within the U.S. allowing the foreign representative to sell assets in the ordinary course of business or with court permission, outside of the ordinary course of business. Unless the court orders otherwise, the foreign representative is allowed to operate the debtor's business.
The foreign representative may initiate an involuntary or voluntary chapter 7 or 11 case. Such case would then be coordinated with the foreign main proceeding in which the foreign representative serves. Another party may also initiate a bankruptcy case. Chapter 15 provides for a presumption of insolvency upon the recognition of a foreign main proceeding.
Recognition as Foreign Nonmain Proceeding
If a foreign proceeding is recognized as a foreign nonmain proceeding, the automatic stay is not imposed and there is no automatic authorization to operate the debtor's business. The foreign representative may though affirmatively seek various relief, including a stay of actions against the debtor or its property, discovery regarding the debtor's assets and affairs, and the administration of the debtor's assets within the U.S.
Cooperation with Foreign Courts and Foreign Representatives
Chapter 15 provides for the cooperation with foreign courts and foreign representatives "to the maximum extent possible.. either directly or through the trustee." Some court have entered orders called "protocols" approving a set of procedures to address areas of potential conflict, to defer to another court for purposes of initiating a reorganization process, to coordinate claims resolution, and to coordinate the disposition of assets.
Chapter 15 provides assistance for a variety of cross-border situations including:
- A foreign representative of a foreign proceeding seeking assistance from U.S. Courts,
- A U.S. representative seeking authorization to obtain assistance from a foreign Court,
- Coordination of proceedings pending both in the U.S. and other countries, and
- Providing assurance that foreign creditors can participate in a U.S. proceeding.
Venue for the filing of a chapter 15 case is where the debtor has its principal place of business or where its principal assets are located. In their absence, venue is proper in any district in which an action is pending against the debtor in state or federal court. In the absence of any litigation, venue is proper in any location in which venue will be "consistent with the interest of justice and the convenience of the parties, having regard to the relief sought by the foreign representative."
A foreign proceeding needs to qualify as either main or nonmain as a condition to recognition. "Recognition" is the entry of an order granting recognition of a foreign main proceeding or foreign nonmain proceeding under chapter 15. A "foreign main proceeding" is one pending in a country where the debtor has the "center of its main interests." (COMI). A "foreign nonmain proceeding" is one that is not a main proceeding but is at least pending in a country where the debtor has an "establishment." An establishment is any place of operation where the debtor carries out a nontransitory economic activity.
Generally the effect of recognition is that the foreign representative is deemed to have the capacity to sue and be sued in the courts of the U.S., may apply to any state or federal court for relief, and any court in which he appears must accord the representative comity or cooperation.
Recognition as Foreign Main Proceeding
Upon recognition as a foreign main proceeding, a range of procedural remedies is available to the foreign representative. The automatic stay applies with respect to the debtor and the property of the debtor that is within the U.S. Creditors have the right to seek relief from the automatic stay or to demand adequate protection of their interests. Section 363 applies with regard to property that is within the U.S. allowing the foreign representative to sell assets in the ordinary course of business or with court permission, outside of the ordinary course of business. Unless the court orders otherwise, the foreign representative is allowed to operate the debtor's business.
The foreign representative may initiate an involuntary or voluntary chapter 7 or 11 case. Such case would then be coordinated with the foreign main proceeding in which the foreign representative serves. Another party may also initiate a bankruptcy case. Chapter 15 provides for a presumption of insolvency upon the recognition of a foreign main proceeding.
Recognition as Foreign Nonmain Proceeding
If a foreign proceeding is recognized as a foreign nonmain proceeding, the automatic stay is not imposed and there is no automatic authorization to operate the debtor's business. The foreign representative may though affirmatively seek various relief, including a stay of actions against the debtor or its property, discovery regarding the debtor's assets and affairs, and the administration of the debtor's assets within the U.S.
Cooperation with Foreign Courts and Foreign Representatives
Chapter 15 provides for the cooperation with foreign courts and foreign representatives "to the maximum extent possible.. either directly or through the trustee." Some court have entered orders called "protocols" approving a set of procedures to address areas of potential conflict, to defer to another court for purposes of initiating a reorganization process, to coordinate claims resolution, and to coordinate the disposition of assets.