Chapter 15 Cross Border Insolvency

Chapter 15 provides foreign debtors who have initiated insolvency proceedings in other countries access to the U.S. Bankruptcy Courts to administer their U.S. assets and allows a representative to take action on the debtor’s behalf. The chapter was added to the U.S. Bankruptcy Code as part of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.

Chapter 15 adopts the model law devised by the United Nations Commission on International Trade Law to provide an effective mechanism for dealing with insolvency proceedings when the debtors, assets, creditors, or other parties are located in more than one country. Because the goal of adopting Chapter 15 was to promote the uniform treatment of cross-border insolvency cases, the U.S. Bankruptcy Courts must interpret its provisions in coordination with other countries that have adopted the model law.

Most cases brought under Chapter 15 supplement insolvency proceedings in other countries, usually in the debtor’s home country. If the debtor’s U.S. assets are sufficiently complex to merit a domestic bankruptcy case, the debtor may initiate an action in a U.S. Bankruptcy Court under Chapter 7 or Chapter 11.

A Chapter 15 case commences when a foreign representative files a petition in U.S. Bankruptcy Court seeking recognition of the foreign insolvency proceeding. The petition must be accompanied by documentation of the foreign proceeding showing that the foreign representative has the authority to represent the debtor.

After giving notice and conducting a hearing, the Bankruptcy Court may issue an order recognizing the foreign proceeding as either a “foreign main proceeding” or a “foreign non-main proceeding.” A foreign main proceeding takes place in the country where the main interests of the debtor are located. A foreign non-main proceeding is one taking place in a country where the debtor has an establishment but is not where its main interests are located.

When the Bankruptcy Court recognizes a foreign main proceeding, it will issue an automatic stay ending collection actions against the debtor and most other U.S. litigation. The foreign representative will also be authorized to conduct the day-to-day operations of the debtor’s business.

Once the foreign main proceeding has been recognized, a foreign representative may seek additional relief from either the Bankruptcy Court or through litigation in other state and federal courts. The representative is also allowed to file an action in the U.S. Bankruptcy Courts that is separate from the foreign proceedings.

Chapter 15 allows foreign creditors to participate in U.S. bankruptcy cases and prohibits any discrimination against those creditors except in matters that may be governed by treaty. Chapter 15 requires that notice be given to foreign creditors regarding the filing of a U.S. bankruptcy case and their right to file claims.

When a full bankruptcy case has been initiated by a foreign representative and a foreign main proceeding is pending in another country, the U.S. Bankruptcy Court’s jurisdiction is generally limited to the debtor’s U.S. assets. This promotes international cooperation by allowing foreign entities to protect their rights in the U.S. while not excessively interfering in a foreign country’s affairs. However, the U.S. Bankruptcy Court has the power to appoint a trustee or examiner in another country on behalf of the U.S. bankruptcy estate, if the court finds it necessary.

Chapter 15 bankruptcy actions are complex and involve insolvency proceedings in multiple countries. The bankruptcy attorneys at Thomas H. Curran Associates have deep experience with all facets of cross-border bankruptcy proceedings.