Chapter 15 Bankruptcy - Ancillary and Other Cross-Border Cases

Chapter 15 is a new Chapter added to the Bankruptcy Code by the Bankruptcy
Abuse Prevention and Consumer Protection Act of 2005. It is the U.S. domestic
adoption of the Model Law on Cross-Border Insolvency promulgated by the
United Nations Commission on International Trade Law ("UNCITRAL") in 1997,
and it replaces section 304 of the Bankruptcy Code.  Because of the UNCITRAL
source for Chapter 15, the United States interpretation must be coordinated with
the interpretation given by other countries that have adopted it as internal law to
promote a uniform and coordinated legal regime for cross-border insolvency
cases.

The purpose of Chapter 15, and the Model Law on which it is based, is to
provide effective mechanisms for dealing with insolvency cases involving
debtors, assets, claimants and other parties in interest involving more than one
country. This general purpose is realized through five objectives specified in the
statute:

1)  To promote cooperation between the United States courts and parties in
interest and the courts and other competent authorities of foreign countries
involved in cross-border insolvency cases.

2)  To establish greater legal certainty for trade and investment.

3)  To provide for the fair and efficient administration of cross-border
insolvencies that protects the interests of all creditors and other interested
entities, including the debtor.

4) To afford protection and maximization of the value of the debtor's assets.

5)  To facilitate the rescue of financially troubled businesses, thereby protecting
investment and preserving employment. 11 U.S.C. § 1501.

Generally, a Chapter 15 case is ancillary to a primary proceeding brought in
another country, typically the debtor's home country. As an alternative, the
debtor or a creditor may commence a full Chapter 7 or Chapter 11 case in the
United States if the assets in the United States are sufficiently complex to merit a
full-blown domestic bankruptcy case. 11 U.S.C. § 1520(c). In addition, under
Chapter 15 a US court may authorize a trustee or other entity (including an
examiner) to act in a foreign country on behalf of a US Bankruptcy estate. 11
U.S.C. § 1505.

An ancillary case is commenced under Chapter 15 by a "foreign representative"
filing a petition for recognition of a "foreign proceeding." (1) 11 U.S.C. § 1504.
Chapter 15 gives the foreign representative the right of direct access to US
courts for this purpose. 11 U.S.C. § 1509. The petition must be accompanied by
documents showing the existence of the foreign proceeding and the appointment
and authority of the foreign representative. 11 U.S.C. § 1515. After notice and a
hearing, the court is authorized to issue an order recognizing the foreign
proceeding as either a "foreign main proceeding" (a proceeding pending in a
country where the debtor's center of main interests are located) or a "foreign
non-main proceeding" (a proceeding pending in a country where the debtor has
an establishment, but not its center of main interests). 11 U.S.C. § 1517.  
Immediately upon the recognition of a foreign main proceeding, the automatic
stay and selected other provisions of the Bankruptcy Code take effect within the
United States. 11 U.S.C. § 1520. The foreign representative is also authorized to
operate the debtor's business in the ordinary course.  The US court is authorized
to issue preliminary relief as soon as the petition for recognition is filed. 11
U.S.C. § 1519.

Through the recognition process, Chapter 15 operates as the principal door of a
foreign representative to the federal and state courts of the United States. 11
U.S.C. § 1509.  Once recognized, a foreign representative may seek additional
relief from the bankruptcy court or from other state and federal courts and is
authorized to bring a full (as opposed to ancillary) bankruptcy case. 11 U.S.C. §§
1509, 1511.  In addition, the representative is authorized to participate as a party
in interest in a pending US insolvency case and to intervene in any other US
case where the debtor is a party. 11 U.S.C. §§ 1512, 1524.

Chapter 15 also gives foreign creditors the right to participate in US bankruptcy
cases and it prohibits discrimination against foreign creditors (except certain
foreign government and tax claims, which may be governed by treaty). 11 U.S.C.
§ 1513. It also requires notice to foreign creditors concerning a US bankruptcy
case, including notice of the right to file claims. 11 U.S.C. § 1514.

One of the most important goals of Chapter 15 is to promote cooperation and
communication between US courts and parties in interest with foreign courts and
parties in interest in cross-border cases. This goal is accomplished by, among
other things, explicitly charging the court and estate representatives to
"cooperate to the maximum extent possible" with foreign courts and foreign
representatives and authorizing direct communication between the court and
authorized estate representatives and the foreign courts and foreign
representatives.  11 U.S.C. §§ 1525 - 1527.

If a full bankruptcy case is initiated by a foreign representative (when there is a
foreign main proceeding pending in another country), bankruptcy court
jurisdiction is generally limited to the debtor's assets that are located in the
United States. 11 U.S.C. § 1528. The limitation promotes cooperation with the
foreign main proceeding by limiting the assets subject to US jurisdiction, so as
not to interfere with the foreign main proceeding.  Chapter 15 also provides rules
to further cooperation where a case was filed under the Bankruptcy Code prior
to recognition of the foreign representative and for coordination of more than on
foreign proceeding. 11 U.S.C. §§ 1529 - 1530.

The UNCITRAL Model Law has also been adopted (with certain variations) in
Canada, Mexico, Japan and several other countries.  Adoption is pending in the
United Kingdom and Australia, as well as other countries with significant
international economic interests.


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