CROSS-BORDER INSOLVENCIES AND A RECENT CHAPTER 15 … · 2013. 10. 17. · CROSS-BORDER...
Transcript of CROSS-BORDER INSOLVENCIES AND A RECENT CHAPTER 15 … · 2013. 10. 17. · CROSS-BORDER...
CROSS-BORDER INSOLVENCIES AND
A RECENT CHAPTER 15 CASE PENDING IN TEXAS:
In re Vitro, S.A.B. de C.V.
JUDITH W. ROSS
WILLIAM F. STUTTS
Baker Botts L.L.P.
2001 Ross Avenue
Dallas, Texas 75201
(214) 953-6605
State Bar of Texas
29th
ANNUAL
ADVANCED BUSINESS BANKRUPTCY COURSE
September 8-9, 2011
Houston
CHAPTER 20
Abu Dhabi Austin Beijing Dallas Dubai Hong Kong Houston London Moscow New York Palo Alto Riyadh Washington
J U D I T H R O S S
P a r t n e r
2001 Ross Avenue
Dallas, Texas 75201-2980
United States
+1.214.953.6605
+1.214.661.4605 fax
Education and Honors
J.D. (with honors), The University of
Texas School of Law, 1985
M.A., history, The University of
Texas, 1981
B.A. (summa cum laude ), history,
Miami University, 1979
Phi Beta Kappa
Listed in The Best Lawyers in
America, 2003 - 2010 and Chambers
USA, 2004 - 2010
Named one of the "Best Lawyers in
Dallas" by D Magazine, 2003, 2005,
2007 and 2008
Recognized as one of the Top 100
Dallas/Fort Worth Region Super
Lawyers, 2003 and 2004, as a Texas
Super Lawyer, 2003 - 2010, and one
of the Top 50 Female Super Lawyers
in Texas, 2003 - 2007
Listed in Who's Who Legal: Texas,
2008
Court Admissions and Affiliations
State Bar of Texas
United States Courts of Appeals for
the Fifth and Tenth Circuits
United States District Courts for the
Northern, Southern, Eastern and
Western Districts of Texas
American Bar Association, Business
Law Section
Courthouse Liaison Committee,
Northern District of Texas, past
President
Dallas Bar Association, Bankruptcy
and Commercial Law Section, past
Chair, 2000
Dallas Bar Foundation, Fellow
International Women's Insolvency
and Restructuring Confederation
(IWIRC), National Board of
Directors, 2000-2002
Concentration
Advice to and representation of debtors-in-possession and
creditors in complex business reorganizations; complex
commercial litigation in business bankruptcy cases
Summary
Judith Ross is widely respected for her extensive knowledge in all
areas of bankruptcy law. In the course of her varied and wide-
ranging practice, she has represented secured and unsecured
creditors and debtors in bankruptcy proceedings, as well as
creditors and debtors in out-of-court settlements.
In another important area of her work, Ms. Ross counsels clients
in all forms of bankruptcy-related litigation, including trial and
appellate litigation. She also assists sellers and acquirors of
businesses in bankruptcy, and helps creditors negotiate and
implement DIP financings.
Ms. Ross is currently vice-chair of the Current Developments
Task Force of the Business Bankruptcy Committee of the
American Bar Association.
Abu Dhabi Austin Beijing Dallas Dubai Hong Kong Houston London Moscow New York Palo Alto Riyadh Washington
W I L L I A M F . S T U T T S
P a r t n e r
98 San Jacinto Boulevard
Suite 1500
Austin, Texas 78701-4078
United States
+1.512.322.2542
+1.512.322.8338 fax
Education and Honors
J.D., University of Virginia School of
Law, 1976
Executive Editor, Virginia Law
Review
B.A. (with high honors), English,
The University of Texas, 1973
Junior Fellow, The University of
Texas at Austin, 1972-73
Listed in The Best Lawyers in
America, 1995 - 2010, most recently
in the areas of Banking Law,
Bankruptcy and Creditor-Debtor
Rights Law, Derivatives Law and
Equipment Finance Law
Recognized as a Texas Super
Lawyer, 2003 - 2005 and 2010
Listed in The Legal 500 for bank
lending, 2009
Court Admissions and Affiliations
American Law Institute
State Bar of Texas
United States Court of Appeals for
the Fifth Circuit
United States District Court for the
Western District of Texas
American Bankruptcy Institute
American Bar Association,
Committee on Developments in
Business Financing
American College of Investment
Counsel
Austin Bar Association, Director,
1995 to 1997
Texas Bar Foundation, Life Fellow
Concentration
Corporate finance, corporate reorganization and bank regulation
Summary
Bill Stutts focuses on corporate reorganization, bank regulation,
corporate finance, equipment finance and derivatives. In
reorganizations, he has handled licensor and licensee issues,
biotechnology, information technology and electronic commerce
and has worked with cross-border insolvency issues in many
situations (US/Canada, US/Cayman Islands, US/Peru,
US/England and Wales, US/Antigua, US/Switzerland).
Mr. Stutts' regulatory experience involves both structural
regulation for financial institutions (affecting mergers,
acquisitions, formations and regulatory status of foreign bank
operations), as well as operational regulation (including money
laundering and related sanctions). In other areas, he represents
end users and nondealer counterparties in a wide variety of
derivatives and he regularly represents aircraft owners and lessors
in various kinds of financing structures.
Following graduation from law school, Mr. Stutts served as a law
clerk to The Honorable Homer Thornberry of the United States
Court of Appeals for the Fifth Circuit. Since 1998, he has been an
adjunct professor at The University of Texas School of Law,
where he currently teaches a class on the regulation of financial
markets and has previously taught a class on the regulation of
money transfers, money laundering and terrorist financing.
Cross-Border Insolvencies and
A Recent Chapter 15 Case Pending in Texas: In re Vitro, S.A.B. de C.V. Chapter 20
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TABLE OF CONTENTS
I. Chapter 15 Overview ........................................................................................................................... 2
II. Actions by the United States Court to facilitate the progress and status of a foreign proceeding:
Recognition of a Foreign Representative. ............................................................................................ 3
A. The Elements of Chapter 15 Recognition ................................................................................ 4
B. Definitions ................................................................................................................................ 4
C. The Undefined Central Concept of COMI. .............................................................................. 5
D. Main vs Nonmain. .................................................................................................................... 6
E. Powers of and Protections for Foreign Representatives that are Recognized by the Court. .... 6
F. Treatment of Foreign Creditors ................................................................................................ 8
G. Foreign Proceedings that are Neither Main Nor Nonmain....................................................... 8
III. Assistance by the United States Court for United States debtor/trustee entities in foreign
jurisdictions. ......................................................................................................................................... 9
IV. Differences Between the Model Law & Chapter 15 ............................................................................ 9
V. In re Vitro, S.A.B. de C.V. .................................................................................................................. 10
VI. Concluding remarks. .......................................................................................................................... 11
Cross-Border Insolvencies and
A Recent Chapter 15 Case Pending in Texas: In re Vitro, S.A.B. de C.V. Chapter 20
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TABLE OF AUTHORITIES
Page(s)
CASES
In re Basis Yield Alpha Fund (Master),
381 B.R. 37 (Bankr. S.D.N.Y. 2008) ........................................................................................................................ 5
In re Bear Stearns High-Grade Structured Credit Strategies Master Fund, Ltd.,
374 B.R. 122 (Bankr. S.D.N.Y. 2007) .................................................................................................................. 5, 6
In re Condors Ins. Ltd.,
601 F.3d 319 (5th Cir. 2010) ................................................................................................................................ 3, 8
In re Gold & Honey, Ltd.,
410 B.R. 357 (Bankr. E.D.N.Y. 2009) ..................................................................................................................... 7
In re Innua Canada,
No. 09–16362, 2009 WL 1025090 (Bankr. D.N.J. Apr. 15, 2009) .......................................................................... 2
In re Loy,
380 B.R. 154 (Bankr.E.D.Va.2007) ......................................................................................................................... 5
In re MAAX Corp.,
No. 08-11443 (Bankr. D. Del. Aug. 5, 2008) ........................................................................................................... 2
In re Madill Equipment Canada,
No. 08-41426 (Bankr. W.D. Wa. Apr. 3, 2008) ....................................................................................................... 2
In re Metcalfe & Mansfield Alternative Invs.,
421 B.R. 685 (Bankr. S.D.N.Y. 2010) ...................................................................................................................... 7
In re Nortel Networks Corporation, et. al.,
No. 09-10164(KG) (Bankr. D. Del. Apr. 9, 2009) ............................................................................................... 2, 3
In re Qimonda AG Bankr. Litig.,
433 B.R. 547 (E.D. Va. 2010) .................................................................................................................................. 7
In re Ran,
607 F.3d 1017 (5th Cir. 2010) .................................................................................................................................. 5
In re SPhinX, Ltd.,
351 B.R. 103 (Bankr. S.D.N.Y. 2006) .............................................................................................................. 2, 5, 6
In re Stanford International Bank Ltd. et al.
[2009] ....................................................................................................................................................................... 4
In re Tembec Ind., Inc.,
No. 08-13435 (Bankr. S.D.N.Y. Oct. 31, 2008) ....................................................................................................... 3
In re Tembec Ind., Inc.,
No. 08-13435 (Bankr. S.D.N.Y. Sept. 4, 2008) ........................................................................................................ 3
In re Tri-Continental Exchange,
349 B.R. 627 (Bankr. E.D. Cal. 2006) ...................................................................................................................... 5
In re Vitro Asset Corp., et al.,
No. 11-32600 (HDH) (Bankr. N.D. Tex. Nov. 17, 2010)....................................................................................... 10
In re Vitro, S.A.B. de C.V.,
Case No. 11-33335-hdh15 (Bankr. N.D. Tex. July 21, 2011) ................................................................................ 11
Cross-Border Insolvencies and
A Recent Chapter 15 Case Pending in Texas: In re Vitro, S.A.B. de C.V. Chapter 20
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In re Vitro, S.A.B. de C.V.,
No. 10-16619 (SHL) (Bankr. S.D.N.Y. Dec. 14, 2010) ......................................................................................... 10
In re Vitro, S.A.B. de C.V.,
No. 11-11754 (SCC) (Bankr. S.D.N.Y. Apr. 14, 2011) ......................................................................................... 10
In re Vitro, S.A.B. de C.V.,
No. 11-33335-hdh15 (Bankr. N.D. Tex. June 18, 2011) .................................................................................. 10, 11
Lavie v. Ran,
406 B.R. 277 (S.D. Tex. 2009) ................................................................................................................................. 5
O’Sullivan v. Loy (In re Loy),
432 B.R. 551 (E.D. Va. 2010) (Mark S. Davis, J.) ................................................................................................... 4
STATUTES
11 U.S.C. § 101(23) (2011) ............................................................................................................................................. 4
11 U.S.C. § 101(24) .................................................................................................................................................. 4, 11
11 U.S.C. § 305(a)(2)(B), (b) (2011) .............................................................................................................................. 3
11 U.S.C. § 306 (2011) ................................................................................................................................................... 3
11 U.S.C. § 1501(a) (2011) ............................................................................................................................................. 2
11 U.S.C. § 1501(b) ........................................................................................................................................................ 2
11 U.S.C. § 1502(2) ........................................................................................................................................................ 4
11 U.S.C. § 1502(7) (2011) ............................................................................................................................................. 3
11 U.S.C. § 1505 (2011) ............................................................................................................................................. 3, 9
11 U.S.C. § 1506 (2011) ................................................................................................................................................. 7
11 U.S.C. § 1507(a) (2011) ............................................................................................................................................. 7
11 U.S.C. § 1507(b)(1)-(5) .............................................................................................................................................. 7
11 U.S.C. § 1509 (2011) ............................................................................................................................................. 3, 9
11 U.S.C. § 1509(b)(1) .................................................................................................................................................... 3
11 U.S.C. § 1513(a) (2011) ............................................................................................................................................. 8
11 U.S.C. § 1513(b)(2)(A) .............................................................................................................................................. 8
11 U.S.C. § 1514 (2011) ................................................................................................................................................. 8
11 U.S.C. § 1515(b)(1)-(3) (2011) .................................................................................................................................. 3
11 U.S.C. § 1516(c) (2011) ....................................................................................................................................... 5, 10
11 U.S.C. § 1519 (2011) ............................................................................................................................................. 6, 9
11 U.S.C. § 1519(d), (e) & (f) ......................................................................................................................................... 9
11 U.S.C. § 1521(a)(1)-(7) .............................................................................................................................................. 7
11 U.S.C. § 1521(a)(7) (2011) .................................................................................................................................... 3, 8
11 U.S.C. § 1521(c) ........................................................................................................................................................ 6
11 U.S.C. § 1523 (2011) ................................................................................................................................................. 9
11 U.S.C. § 1529 (2011) ................................................................................................................................................. 9
11 U.S.C. § 1530 (2011) ................................................................................................................................................. 9
Cross-Border Insolvencies and
A Recent Chapter 15 Case Pending in Texas: In re Vitro, S.A.B. de C.V. Chapter 20
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28 U.S.C. section 140 .................................................................................................................................................... 10
28 U.S.C. section 1410 .................................................................................................................................................. 10
Bankr. Abuse Prevention and Consumer Protection Act of 2005 ................................................................................. 10
Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub. L. No. 109-8, § 801(a), 119 Stat. 23 ........ 2
Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (―BAPCPA‖) .................................................... 1
U.S.C. §§ 1525, 1526 & 1527 (2011) ............................................................................................................................. 9
OTHER AUTHORITIES
2005, U.S.C.C.A.N. ...................................................................................................................................................... 10
83 AM. BANKR. L.J. 165, 166 (2009) .............................................................................................................................. 8
Aaron L. Hammer & Matthew E. McClintock, Understanding Chapter 15 of the United States Bankruptcy Code:
Everything You Need to Know About Cross-Border Insolvency Legislation in the United States ........................... 6
Alesia Ranney-Marinelli, Overview of Chapter 15 Ancillary and Other Cross-Border Cases, 82 AM. BANKR. L.J.
269, 316 (2008) ........................................................................................................................................................ 2
Bankruptcy Rule 1014(b) .............................................................................................................................................. 10
Bill Rochelle, Vitro, Madoff, Timothy Blixseth, Asbestos Case: Bankruptcy ............................................................... 10
Bryan Stark, Chapter 15 and the Advancement of International Cooperation in Cross-Border Bankruptcy
Proceedings, 6 RICH. J. GLOBAL L. & BUS. 203, 214 (2006) ................................................................................... 2
FED. R. BANKR. P. 1007 .................................................................................................................................................. 3
FED. R. BANKR. P. 1014(b) ........................................................................................................................................... 10
H.R. Rep. No. 109-31, 109th Cong., 1st Sess. 108-109 (2005) ...................................................................................... 9
Principles of Cooperation Among the NAFTA Countries (the ―NAFTA Principles‖) .................................................... 4
Cross-Border Insolvencies and
A Recent Chapter 15 Case Pending in Texas: In re Vitro, S.A.B. de C.V. Chapter 20
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Commercial bankruptcies involving creditors or
assets in more than one country are not new. As long
as there have been business operations or financings
across a border, the insolvency systems of the two
countries have applied, and their interrelationship has
been a factor in planning and disputes. The impact of
the systems of those two (or more) countries affects not
only large cases—it affects businesses large and small.
And, for as long as there have been bankruptcies in
more than one country, the bankruptcy courts have
known that they must have a way to communicate with
each other.
From the enactment of the Bankruptcy Code until
2005, this was accomplished on an ad-hoc basis
between courts. In the U.S., the power to coordinate
and give effect to certain elements of a foreign
bankruptcy was a reason for section 304 of the
Bankruptcy Code. That section empowered the U.S.
court to enter protective orders and to recognize the
rights of foreign bankruptcy officials, but put the
decision within the court‘s discretion, to be guided by
several general principles helpfully identified in that
section. This process spawned many good (and some
not quite so good) methods of coordination, tiering of
interests and rights, and avoidance of harmfully
inconsistent results in the courts
Over the last several years, multi-jurisdictional
presence-- for smaller companies as well as
behemoths-- has exploded. With that has come the
increasing need for a more generally predictable
machinery for the coordination of cross-border
insolvencies. Since the European Union has been an
area that has been formally concerned with commerce
between its members for longer than most countries
and regions, it is not surprising that formal proposals to
establish uniform standards arose first in the EU.
Even there, it took two tries to come up with a
standard. But that process also engendered
considerable thought and development. As that
process continued, other countries began to feel the
need for predictability beyond that which procedures
similar to section 304 provided. The United Nations
Commission on International Trade Law (UNCITRAL)
was a natural place for a multifaceted approach to
begin and, in 1997, it produced the Model on Law
Cross Border Insolvency. 1 The Model Law was
1 The stated purpose of the Model Law is to provide an
effective mechanism for dealing with cross-border
insolvency cases and to promote the objectives of: (i)
cooperation between domestic and foreign courts in cases of
cross-border insolvency; (ii) greater legal certainty for trade
and investment; (iii) fair and efficient administration of
intended to be a flexible mechanism, adaptable to
national circumstances, to facilitate international
cooperation and designed to promote adoption by
member states.2 The Model Law allows for its
provisions to vary at the national level so as to be
―acceptable to States with different legal, social, and
economic systems.‖3 But its structure carries with it a
more rigid legal regime that, it is hoped, leads to the
hoped-for predictability.
In 2005, after several attempts to get the attention
of the U.S. Congress (tied to the repeated attempts to
change the Bankruptcy Code in other ways), Congress
repealed Section 3044 and adopted the Model Law
(with some modifications) as part of the Bankruptcy
Abuse Prevention and Consumer Protection Act of
2005 (―BAPCPA‖).5 Bankruptcy lawyers know these
provisions as chapter 15 of the Bankruptcy Code.6
cross-border insolvencies that protects the interests of all
creditors and other interested persons, including the debtor;
(iv) protection and maximization of the value of the debtor‘s
assets; and (v) facilitation of the rescue of financially
troubled businesses, thereby protecting investment and
preserving employment. U.N. COMM. ON INT‘L TRADE LAW
(UNCITRAL), UNCITRAL MODEL LAW ON CROSS-
BORDER INSOLVENCY WITH GUIDE TO ENACTMENT, U.N.
Sales No. E.99.V.3 (1997). 2 Bryan Stark, Chapter 15 and the Advancement of
International Cooperation in Cross-Border Bankruptcy
Proceedings, 6 RICH. J. GLOBAL L. & BUS. 203, 214 (2006). 3 Id. 4 Although Chapter 15 is more comprehensive than former
section 304, it maintains ―and in some respects enhances‖
some elements of the flexibility granted to courts under
section 304. In re SPhinX, Ltd., 351 B.R. 103, 112 (Bankr.
S.D.N.Y. 2006). While section 304 was repealed, many of
its concepts have been retained in Chapter 15, albeit in a
manner that are more formal and less discretionary. For this
reason, many cases decided under section 304 remain
relevant in construing certain aspects of Chapter 15. Alesia
Ranney-Marinelli, Overview of Chapter 15 Ancillary and
Other Cross-Border Cases, 82 AM. BANKR. L.J. 269, 316
(2008). One such example is section 1507. Section 1507
provides that the bankruptcy court may make available
―additional assistance‖ to a foreign representative of a
recognized foreign proceeding. In determining whether to
provide such additional assistance section 1507 incorporates
the elements of former section 304. 5 See Bankruptcy Abuse Prevention and Consumer
Protection Act of 2005, Pub. L. No. 109-8, § 801(a), 119
Stat. 23. 6 In enacting Chapter 15, Congress provided in section
1501(a) an express statement of its purpose—―to incorporate
the Model Law on Cross-Border Insolvency so as to provide
effective mechanisms for dealing with cases of cross-border
insolvency.‖ 11 U.S.C. § 1501(a) (2011). Although Chapter
Cross-Border Insolvencies and
A Recent Chapter 15 Case Pending in Texas: In re Vitro, S.A.B. de C.V. Chapter 20
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I. Chapter 15 Overview
Chapter 15 of the Bankruptcy Code (―Chapter
15‖) governs the handling of cross-border insolvency
cases. Importantly, it is the mechanism for recognizing
in the United States a foreign bankruptcy. It has
nothing to say about the recognition of a United States
bankruptcy in a foreign jurisdiction--and, in truth, it
cannot--that is a matter of foreign law (which may or
may not be based on the Model Law). All the same,
there are important principles in Chapter 15 that relate
to the foreign treatment of United States persons, and
the ways in which United States persons act and have
the power to act regarding foreign proceedings--in this
respect, elements of Chapter 15 are perhaps closest to
the principles of Section 304. Understanding the
United States machinery for recognition of foreign
proceedings and officials also provides the material for
beginning to understand how other jurisdictions may
look at United States trustees and receivers in the
context of foreign bankruptcies.
Chapter 15 applies (i) when assistance is sought in
the United States by a foreign court or foreign
representative in connection with a foreign insolvency
proceeding; (ii) when assistance is sought in a foreign
country in connection with any case under Title 117;
(iii) when a foreign proceeding and a case under Title
11 with respect to the same debtor are pending
concurrently (as in the Nortel bankruptcy); or (iv)
when creditors or other interested persons in a foreign
country have an interest in requesting the
commencement of, or participation in, a case or
proceeding under Title 11.8
For the foreign debtor (or, more precisely, the
foreign representative of the debtor), there are several
reasons to use Chapter 15. First, and most broadly,
without recognition in the United States, a foreign
representative of a debtor has no power in the United
States. Unless U.S. courts recognize a person as
having authority over assets or claims, it makes little
15 incorporates much of the Model Law verbatim, some
differences exist. 7 As noted in the text, in order for this area of application to
have any effect in another jurisdiction, the courts of that
jurisdiction must give effect to the views or pronouncements
of the U.S. bankruptcy court. But in situations where there
is a question of the power of an estate representative
appointed under U.S. law to act in a foreign environment, or
in the case of the power and role of a U.S. bankruptcy judge
in cooperating with foreign tribunals, this chapter sets out
the rules and principles for the U.S. bankruptcy court and the
representatives it appoints. 8 11 U.S.C. § 1501(b).
difference what that person believes about her rights
regarding those assets in or claims emanating from the
United States. More specifically, however, Chapter 15
can be used by foreign representatives of foreign
debtors to protect their U.S. assets, bind their creditors,
and to do many of the things one would expect of
debtors in the United States, were the debtors‘
insolvency case proceeding under United States law.
Chapter 15 has been used to permit a foreign debtor to
use the cash collateral of its senior lender in the U.S.
and to facilitate asset sales approved in a foreign
proceeding. For example, in the case In re Madill
Corp., the bankruptcy court granted the foreign debtor
the right use cash collateral of the senior lender, in
exchange for which the senior lender received a
replacement lien on the debtor‘s property in the United
States.9 In the case of In re Maax Corp., the Canadian
liquidator filed a recognition petition in the District of
Delaware, in part, to give effect to a Canadian court
order authorizing the sale of Maax Corp‘s assets free
and clear of liens.10
Similarly, in the Nortel bankruptcy cases,
although the American subsidiaries of the Nortel parent
filed a petition under chapter 11 in the United States,
the Canadian parent company, Nortel Networks
Corporation (―NNC‖) and certain Canadian affiliates,
filed (on the same date as the U.S. petition) under the
Companies‘ Creditors Arrangement Act, in Canada.
Ernst &Young Inc. was appointed as the Canadian
Monitor. Thereafter, the Monitor, who was the
―foreign representative‖ of the Canadian debtors, filed
a Chapter 15 petition for recognition before the same
court that presided over the Chapter 11 case of the
United States Nortel companies. After the U.S.
Bankruptcy Court entered an order granting
recognition and related relief to the Monitor, it also
eventually entered a court order giving effect to a
Canadian Court order approving the sale of certain
assets of the Canadian companies, and specifically
ordered that ―the Canadian Sale Order is hereby given
full force and effect in the United States.‖11
Chapter 15 cases can be filed as well in order to
protect assets of foreign debtors that are located in the
United States from creditor attack. For example, in the
9 In re Madill Equipment Canada, No. 08-41426 (Bankr.
W.D. Wa. Apr. 3, 2008). 10 In re MAAX Corp., No. 08-11443 (Bankr. D. Del. Aug. 5,
2008). 11 See In re Nortel Networks Corporation, et. al., No. 09-
10164(KG) (Bankr. D. Del. Apr. 9, 2009) (enforcing the
Order of the Ontario Court Approving the Sale of Certain
Assets).
Cross-Border Insolvencies and
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3
case In re Innua Canada,12 a receivership proceeding
was initiated in Canada. The receiver filed an
application for recognition in the United States under
Chapter 15 in order to protect certain of the foreign
debtor‘s inventory located in warehouse containers in
New Jersey and Texas.
Also, foreign representatives have used Chapter 15
in order to establish procedures for U.S. creditors to
follow for filing proofs of claim against the foreign
debtor. This was done in the Nortel case as well as
other cases. Finally, Chapter 15 cases have been
commenced in order to bind creditors to the terms of a
restructuring plan approved and implemented in a
foreign proceeding. In connection with the Tembec
Industries case, a Canadian proceeding, Tembec‘s
foreign representative filed a chapter 15 case in the
Southern District of New York bankruptcy court in
order to implement a Canadian court-approved
restructuring plan in the United States and thus, to
make the plan binding on all U.S. creditors of the
Canadian entity.13
Recent cases have permitted foreign
representatives to exercise in the United States rights
under home-country clawback rules (particularly
―fraudulent transfer‖ or ―transfers at undervalue‖).14
This is a notable power because foreign representatives
are prohibited from filing proceedings under sections
547 and 548 (and other sections) of the United States
Bankruptcy Code unless they file a separate
bankruptcy proceeding against the debtor in the United
States.15
A point that sometimes escapes notice is that a
Chapter 15 petition may be granted (and the foreign
representative granted powers in the United States)
even though no Chapter 7, 11 or other proceeding was
pending in the United States. One interesting result of a
recognition in this situation is the opening of the
United States courts as venues for the substantive
litigation over avoidance liability under a foreign
regime.
12 No. 09–16362, 2009 WL 1025090 (Bankr. D.N.J. Apr. 15,
2009). 13 See Verified Petition for Recognition of a Foreign Main
Proceeding and Motion for Permanent Injunction and
Related Relief, In re Tembec Ind., Inc., No. 08-13435
(Bankr. S.D.N.Y. Sept. 4, 2008); Order Granting
Recognition of a Foreign Main Proceeding and Permanent
Injunction and Related Relief, In re Tembec Ind., Inc., No.
08-13435 (Bankr. S.D.N.Y. Oct. 31, 2008). 14 See In re Condors Ins. Ltd., 601 F.3d 319, 329 (5th Cir.
2010). 15 11 U.S.C. § 1521(a)(7) (2011).
The other arm of Chapter 15 (not as thoroughly
litigated in United States courts) is the power and
support that the United States courts supply to trustees
in United States bankruptcies in foreign environments.
First, as a matter of United States law, this Chapter
provides that it ―applies‖ in those outward-looking
situations. Secondly, it confirms that a court can
authorize a trustee or entity to act in a foreign country
on behalf of a bankruptcy estate, to the extent
permitted by the foreign law that may apply.16
Sections 1529 and 1530 deal expressly with situations
involving the bilateral exchange of information,
advice, and the coordination of relief.
II. Actions by the United States Court to
facilitate the progress and status of a foreign
proceeding:17
Recognition of a Foreign
Representative.
Chapter 15 gives a foreign representative (through
recognition) direct access to courts of the United
States. A Chapter 15 proceeding is initiated by filing a
petition for recognition.18 ―Recognition‖ is the entry of
an order granting recognition of a foreign main or
foreign nonmain proceeding under Chapter 15.19
Importantly, most of the rights and benefits under
Chapter 15 become available only after a foreign
proceeding is granted recognition. Following
recognition, a foreign representative has the capacity to
16 11 U.S.C. § 1505 (2011). 17 In some circumstances, recognition proceedings under
Chapter 15 are referred to as ―ancillary‖ proceedings. We
have not adopted that approach here because it is possible
for a Chapter 15 proceeding to exist where there is no other
proceeding pending under Title 11--there is nothing under
Title 11 to which the Chapter 15 proceeding could be
―ancillary‖. 18 11 U.S.C. § 1509 (2011). A petition for recognition must
be accompanied by either (i) a certified copy of the decision
commencing the foreign proceeding and appointing the
foreign representative; (ii) a certificate from the foreign
court affirming the existence of such foreign proceeding and
of the appointment of the foreign representative; or (iii) in
the absence of such certificates, any other evidence
acceptable to the court of the existence of such foreign
proceeding and the appointment of the foreign
representative. 11 U.S.C. § 1515(b)(1)-(3) (2011). The
foreign representative must file with the petition a list of
names and addresses of all administrators in the foreign
proceedings of the debtor, all parties to U.S. litigation in
which the debtor is a party, and all entities against whom
provisional relief is sought. See FED. R. BANKR. P. 1007. A
petition for recognition should also indicate whether
recognition is being sought as a main or nonmain
proceeding. 19 11 U.S.C. § 1502(7) (2011).
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sue and be sued in a court in the United States.20 A
foreign representative may also seek the dismissal or
suspension of a related Title 11 case if the purpose of
Chapter 15 ―would be best served by such dismissal or
suspension.‖21
A. The Elements of Chapter 15 Recognition
The nature and scope of a Chapter 15 recognition
proceeding depends on several core elements. The
proceeding must involve a debtor, which is a defined
term, and which may very well not be exactly the same
sort of person that could be a ―debtor‖ under the
United States Bankruptcy Code. There must be a
―foreign proceeding‖; there must be ―foreign
representatives‖; and, depending on where the ―center
of main interest‖ (―COMI‖) lies, there will be a
determination whether the foreign proceeding is
―foreign main‖ or ―foreign nonmain.‖ Each of these
concepts is critical, and all concepts other than COMI
are defined. Determining a company‘s COMI is a fact
specific inquiry.
In interpreting Chapter 15, courts often examine
non-U.S. sources, including decisions rendered by
foreign courts construing the Model Law and the report
of UNCITRAL and the Guide to Enactment of the
UNCITRAL Model Law on Cross-Border Insolvency
(the ―U.N. Guide‖), certain provisions of Council
Regulation (EC) No. 1346/2000 of May 29, 2000 (the
―EC Regulation‖), decisions construing the EC
Regulation, reports and commentary on the EC
Regulation22, and the Principles of Cooperation Among
the NAFTA Countries (the ―NAFTA Principles‖).23 In
other words, as explained by one district court judge,
―[a]s each section of Chapter 15 is based on a
corresponding article in the Model Law, if a textual
provision of Chapter 15 is unclear or ambiguous, the
Court may then consider the Model Law and foreign
interpretations of it as part of its ‗interpretive task.‘‖24
20 11 U.S.C. § 1509(b)(1) (2011). 21 11 U.S.C. § 305(a)(2)(B), (b) (2011). In filing a motion
under section 305, a foreign representative does not subject
himself to the jurisdiction of any court in the U.S. for any
other purpose. 11 U.S.C. § 306 (2011). 22 The weightiest of these seems to be the Virgos-Schmit
Report on the Convention on Insolvency Proceedings, which
predates the EC Regulation but remains authoritative
because of its closeness to the sources of the EC Regulation.
See generally GABRIEL MOSS ET AL., THE EC REGULATION
ON INSOLVENCY PROCEEDINGS (2d Ed. 2009). 23 See Ranney-Marinelli, supra note 4, at 273. 24 O’Sullivan v. Loy (In re Loy), 432 B.R. 551, 560 (E.D. Va.
2010).
However, a note of strong caution is urged here—
in several situations, guidance from the EU and under
the English version of the Model Law is pointedly
inconsistent with United States cases—and some
courts in England have gone out of their way to
achieve a particular result that could be reached only
by ignoring United States law.25 Such an approach
may be consistent with the development of law in
England, but it should not bind a party in the United
States or a United States court where there is helpful
United States authority.
B. Definitions
A foreign proceeding is a collective judicial or
administrative proceeding in a foreign country,
including an interim proceeding, under foreign
insolvency laws pursuant to which the assets and
affairs of the debtor are subject to control or
supervision by a foreign court, for the purpose of
reorganization or liquidation.26 Significant elements of
this definition are: ―collective‖(that is, not general
litigation); ―judicial or administrative proceeding‖
(need not be pending before a court as US law would
require it), control of all assets and affairs of the debtor
(a limited scope of jurisdiction or limited dispute will
not qualify), for ―reorganization or liquidation‖ (not
limited to a general determination of ownership,
liability or responsibility).
A foreign representative is a person or body,
including a person or body appointed on an interim
basis, authorized in a foreign proceeding to administer
the reorganization or the liquidation of the debtor‘s
assets or affairs or to act as a representative of such
foreign proceeding.27
A foreign proceeding may be recognized and
afforded the benefits of Chapter 15 only if the
proceeding is a foreign main proceeding or a foreign
nonmain proceeding. A foreign main proceeding is a
proceeding in a country where the debtor has its center
of main interest (―COMI‖). A foreign nonmain
proceeding is any foreign proceeding that is not a main
proceeding and that is pending in a country where the
debtor has an ―establishment.‖ A location may be an
―establishment‖ for the purposes of Chapter 15
recognition if the debtor has a ―place of operations‖
there and carries out ―nontransitory economic activity‖
25 See, e.g., In re Stanford International Bank Ltd. et al.
[2009] EWHC 1441 (Ch.) (addressing whether a liquidation
in Antigua satisfied the COMI test under the English version
of the Model Law). 26 11 U.S.C. § 101(23) (2011). 27 11 U.S.C. § 101(24) (2011).
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at the location.28 The distinction between a foreign
main proceeding and a foreign nonmain proceeding is
important because in a foreign main proceeding the
petitioning foreign representative typically is
automatically given many of the powers of a Chapter
11 or 7 debtor or trustee, often without further order of
the bankruptcy court.29 In a foreign nonmain
proceeding the petitioning foreign representative is
granted only those powers explicitly approved by the
bankruptcy court and as reflected in the order granting
recognition.30 In other words, a foreign representative
of a foreign main proceeding is granted more power
than a foreign representative of a foreign nonmain
proceeding.31 It is conceivable that a foreign
proceeding might exist in a jurisdiction in which the
debtor has neither COMI, nor an establishment. A
proceeding in such a jurisdiction should not, under the
reasoning of Bear Stearns, be recognized in the United
States.32
C. The Undefined Central Concept of
COMI.
While Chapter 15 does not define COMI, section
1516(c) provides that ―[i]n the absence of evidence to
the contrary, the debtor‘s registered office, or habitual
residence in the case of an individual, is presumed to
be the center of the debtor‘s main interests.‖33 Courts
28 11 U.S.C. § 1502(2) (2011). 29 Bruce Nathan & Eric Horn, Demystifying Chapter 15 of
the Bankruptcy Code, BUSINESS CREDIT 2 (June 2009). 30 Id. 31 Under section 1511, more power is granted to a foreign
representative of a foreign main proceeding than a foreign
representative of a foreign nonmain proceeding. ―The
concept is reinforced by the grant under section 1520 of
automatic effects to recognition of a foreign main
proceeding (including application of sections 361, 362 and
363).‖ COLLIERS ON BANKRUPTCY 1502[4] (16th ed. 2011). 32 See In re Bear Stearns High-Grade Structured Credit
Strategies Master Fund, Ltd., 374 B.R. 122 (Bankr.
S.D.N.Y. 2007). In Bear Stearns, official liquidators for two
hedge funds registered as Cayman Islands limited liability
companies sought chapter 15 recognition for liquidation
proceedings opened in the Cayman Islands. Aside from
being registered in the Cayman Islands, the bankruptcy court
had found that the Funds had no other ―adhesive connection‖
with that country. Id. at 129–30. Further, no managers or
employees were located in the Caymans, the Funds were
administered from offices located in the United States, and
neither the books and records of the Funds, nor the Funds'
assets, were held in the Caymans. Id. The Cayman Islands
proceeding was not entitled to recognition as a foreign main
proceeding because the Funds existed in the Caymans as
merely shells or ―letterbox‖ companies. Id. at 130 n. 8. 33 11 U.S.C. § 1516(c) (2011).
tend to give substantial deference to this presumption.
The foreign representative, however, bears the burden
of proof as to the debtor‘s COMI and, if evidence is
introduced to the contrary, the burden shifts and a court
may find that the debtor‘s COMI is elsewhere.34
In Tri-Continental Exchange, for example, the
court considered whether joint liquidations of
insurance companies in St. Vincent and the Grenadines
should be recognized in the United States as foreign
main or nonmain proceedings. The Tri-Continental
Exchange debtors were organized under the laws of St.
Vincent and the Grenadines, where they maintained
registered offices. The debtors had been in the
business of selling fraudulent insurance policies to
purchasers in the United States and Canada. The
liquidators in St. Vincent and the Grenadines sought
recognition of the joint liquidations as foreign main
proceedings. A creditor objected and argued that the
debtors‘ COMI was really in the United States. Most
of the scam occurred and most of the debtors‘ creditors
were located in the United States. The court, relying
on a number of sources including the EC Regulation
and cases and regulations interpreting it, held that the
location of the registered office ―does not otherwise
have special evidentiary value and does not shift the
risk of nonpersuasion, i.e. the burden of proof, away
from the foreign representative seeking recognition as
a main proceeding.‖35
The Bankruptcy Code does not prescribe the type
of evidence courts should consider in the COMI
analysis. Courts have therefore looked to an array of
factors that could be probative in determining the
COMI of an entity:36 ―the location of the debtor‘s
34 See In re Tri-Continental Exchange, 349 B.R. 627 (Bankr.
E.D. Cal. 2006). 35 Id. at 635. 36 American courts have defined COMI primarily in the
context of corporate debtors. Lavie v. Ran, 406 B.R. 277,
283 (S.D. Tex. 2009). The relevant factors to determine the
COMI of an individual debtor—who has no registered
office, headquarters, or holding company—may be
somewhat different. See In re Ran, 607 F.3d 1017, 1024
(5th Cir. 2010). Factors relevant with respect to an
individual debtor include (1) the location of the debtor‘s
primary assets; (2) the location of the majority of the
debtor‘s creditors; and (3) the jurisdiction whose law would
apply to most disputes. Id. (citing In re Loy, 380 B.R. 154,
162 (Bankr.E.D.Va.2007)). Of note, per the Ran court, is
the time focus of the inquiry--the question is where the
debtor‘s COMI was at the time of the commencement of the
proceeding. European courts generally have found that the
individual debtor‘s COMI is his habitual or permanent
residence. Lavie, 406 B.R. at 283 (citing Pedro Magdalena
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headquarters; the location of those who actually
manage the debtor (which conceivably could be the
headquarters of a holding company); the location of the
debtor‘s primary assets; the location of the majority of
the debtor‘s creditors or of a majority of the creditors
who would be affected by the case; and/or the
jurisdiction whose law would apply in most
disputes.‖37 As noted by Judge Gerber in Basis Yield
Alpha Fund, ―[w]hile certainly not exhaustive or all
necessarily applicable . . . these objective factors are
indicative of the facts a court might find relevant in a
COMI determination.‖
Thus, while courts give substantial deference to
the presumption that a debtor‘s COMI is located where
it maintains a registered office, a court will not ―rubber
stamp‖ a recognition petition. The burden of proof as
to whether a proceeding is main or nonmain belongs to
the party seeking recognition.38
D. Main vs Nonmain.
A foreign proceeding that is neither main nor
nonmain cannot be recognized under Chapter 15.39 A
―recognition hearing‖ will typically be held within 30
days of the Chapter 15 filing to determine whether the
foreign proceeding should be recognized as a ―foreign
main‖ or ―foreign nonmain‖ proceeding.40
A court may deny recognition as a foreign main
proceeding where it appears that the Chapter 15
petition has been filed for improper reasons, as was the
case in SPhinX.41 SPhinX involved the voluntary
winding up in the Cayman Islands of the hedge fund
group SPhinX Funds. The joint official liquidators of
the Cayman Islands liquidation sought recognition of
those proceedings as foreign main proceedings. The
debtors were organized and maintained a registered
office in the Cayman Islands. Although established in
the Cayman Islands, SPhinX was managed by a
Delaware corporation located in New York. The
creditors were also largely located in the United States.
The court found that the primary purpose in seeking
Fernandez v. Commission of the European Communities (C–
452/93) [1994] ECR 4295 (ECJ 3rd Chamber 1994)). 37 In re Basis Yield Alpha Fund (Master), 381 B.R. 37, 47
(Bankr. S.D.N.Y. 2008) (quoting SPhinX, 351 B.R. at 117.). 38 Aaron L. Hammer & Matthew E. McClintock,
Understanding Chapter 15 of the United States Bankruptcy
Code: Everything You Need to Know About Cross-Border
Insolvency Legislation in the United States, 14 LAW & BUS.
REV. AM. 257, 274 (2008). 39 See Bear Stearns, 374 B.R. at 132. 40 See Nathan & Horn, supra note 28. 41 SPhinX, 351 B.R. 103.
recognition of the Cayman liquidation proceedings as
foreign main proceedings was to frustrate a large
settlement against SPhinX, which gave ―the clear
appearance of improper forum shopping.‖42 After
acknowledging the presumption that the debtors‘
COMI was in the Cayman Islands, the court considered
factors that may be relevant to rebutting the
presumption: location of the debtors‘ headquarters and
those who managed its business, location of the
primary assets, location of a majority of the creditors,
and the jurisdiction whose law would apply to most
disputes. The court held that the Cayman proceedings
were foreign nonmain proceedings, and not foreign
main proceedings as requested by the debtors.
E. Powers of and Protections for Foreign
Representatives that are Recognized by the
Court.
The filing of a chapter 15 petition does not trigger
the protection of the automatic stay. In fact, most of
the rights and benefits of Chapter 15 are not available
until an order of recognition is entered. The foreign
debtor is therefore not protected during the time period
between the filing of the Chapter 15 petition and the
recognition hearing. This period is sometimes referred
to as the ―Chapter 15 gap period.‖43 To protect itself
during the Chapter 15 gap period, a foreign
representative may request ―provisional relief‖ from
the bankruptcy court pending the recognition
determination when such relief is ―urgently needed to
protect the assets of the debtor or interests of the
creditors.‖44 Provisional relief may be denied however
if it ―would interfere with the administration of a
foreign main proceeding.‖45 In addition, provisional
relief may not (i) be granted with respect to any
deposit, escrow, trust fund, or other security required
or permitted under any applicable state insurance law
or regulation for the benefit of claim holders in the
United States; (ii) include relief available under certain
other sections (i.e. sections 522, 544, 545, 547, 548,
550 and 724(a)); (iii) enjoin a police or regulatory act
of a governmental unit; or (iv) stay the exercise of
certain rights which are excluded from the automatic
stay.46
In a proceeding recognized as a foreign main
proceeding, Chapter 15 relief is available as a matter of
right. However, in a proceeding recognized as a
42 Id. at 121. 43 See Nathan & Horn, supra note 28. 44 11 U.S.C. § 1519 (2011). 45 Id. 46 Id.
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nonmain proceeding, relief is only available on a
discretionary basis.47 In nonmain proceedings courts
have significant discretion to grant ―any appropriate
relief.‖48 Discretionary relief may include, but is not
limited to:
1) Staying the commencement or
continuation of individual actions or
proceedings related to the debtor‘s assets,
rights, obligations or liabilities.
2) Staying execution against the debtor‘s
assets.
3) Suspending or terminating the right to
transfer, encumber, or otherwise dispose
of assets of the debtor.
4) Providing for the examination of
witnesses, taking of evidence or the
delivery of information concerning the
debtor‘s assets, affairs, rights, obligations
and liabilities.
5) Entrusting the administration or
realization of all or part of the debtor‘s
U.S. assets to the foreign representative.
6) Extending any interim relief previously
granted.
7) Additional relief the court deems
appropriate (other than relief relating to
avoidance actions).49
Section 1507 authorizes the court, following
recognition, to ―provide additional assistance to a
foreign representative under this title or under other
laws of‖ the United States.50 A court is therefore
permitted to go beyond Chapter 15 in cooperating with
a foreign court.51 The court, in determining whether to
provide additional assistance, must consider whether
such assistance is consistent with the principles of
comity and will reasonably assure:
1) just treatment of all holders of claims
against or interests in the debtor‘s
property;
2) protection of claim holders in the United
States against prejudice and
inconvenience in the processing of claims
in such foreign proceeding;
3) prevention of preferential or fraudulent
disposition of property of the debtor;
47 See 11 U.S.C. § 1521(c). 48 See, e.g., SPhinX, 351 B.R. at 122. 49 11 U.S.C. § 1521(a)(1)-(7). 50 11 U.S.C. § 1507(a) (2011). 51 See Ranney-Marinelli, supra note 4.
4) distribution of proceeds of the debtor‘s
property substantially in accordance with
the order prescribed by Title 11; and
5) if appropriate, the provision of an
opportunity for a fresh start for the
individual that such foreign proceeding
concerns.52
Relief under section 1507 is subject to specific
limitations stated elsewhere in Chapter 15.
In deciding whether to enforce relief granted to a
foreign debtor in its foreign proceeding, courts analyze
whether the procedures applied by the foreign court
were fair, not whether the result reached by the foreign
court was ―proper‖53 or consistent in all aspects with
United States law. In Metcalfe, the court considered
whether a Chapter 15 debtor‘s extraordinary injunctive
and other relief in its Canadian bankruptcy was
enforceable in the U.S. despite the fact that such relief
could not be granted under U.S. law. The Metcalfe
court explained that when considering whether to
enforce a foreign court order under Chapter 15, a court
should not examine whether similar relief is available
under U.S. law, but instead whether or not principles of
comity support enforcement.54 A foreign debtor in a
Chapter 15 case therefore may receive relief that is not
available under other chapters of the Bankruptcy Code.
Although a foreign debtor in a Chapter 15 case
may receive extraordinary relief consistent with
principles of comity, section 1506 limits certain types
of relief. Section 1506 provides ―[n]othing in this
chapter prevents the court from refusing to take an
action governed by this chapter if the action would be
manifestly contrary to the public policy of the United
States.‖55 In deciding whether to apply section 1506,
courts have focused on two factors: (i) whether the
foreign proceeding was procedurally unfair; and (ii)
―whether the application of foreign law or the
recognition of a foreign main proceeding under
Chapter 15 would ‗severely impinge the value and
import‘ of a U.S. statutory or constitutional right, such
that granting comity would ‗severely hinder United
States bankruptcy courts‘ abilities to carry out . . . the
most fundamental policies and purposes‘ of these
rights.‖56 In Qimonda AG, the court explained that the
52 11 U.S.C. § 1507(b)(1)-(5). 53 In re Metcalfe & Mansfield Alternative Invs., 421 B.R.
685 (Bankr. S.D.N.Y. 2010). 54 Id. at 696. 55 11 U.S.C. § 1506 (2011). 56 In re Qimonda AG Bankr. Litig., 433 B.R. 547, 568-569
(E.D. Va. 2010) (quoting In re Gold & Honey, Ltd., 410
B.R. 357, 372 (Bankr. E.D.N.Y. 2009)).
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cases dealing with section 1506 make clear that the
following three principles guide courts in analyzing
whether an action taken in a Chapter 15 proceeding is
manifestly contrary to the public policy of the United
States:
1) The mere fact of conflict between foreign
law and U.S. law, absent other
considerations, is insufficient to support
the invocation of the public policy
exception.
2) Deference to a foreign proceeding should
not be afforded in a Chapter 15
proceeding where the procedural fairness
of the foreign proceeding is in doubt or
cannot be cured by the adoption of
additional protections.
3) An action should not be taken in a
Chapter 15 proceeding where taking such
action would frustrate a U.S. court‘s
ability to administer the Chapter 15
proceeding and/or would impinge
severely a U.S. constitutional or statutory
right, particularly if a party continues to
enjoy the benefits of the Chapter 15
proceeding.57
Following recognition of a foreign proceeding as a
foreign main proceeding, the foreign representative has
powers similar to those granted to a Chapter 11 debtor
in possession or trustee.58
For example, the debtor‘s
foreign representative is permitted to manage the
affairs of the business and may sell assets. The foreign
representative may also seek court approval to examine
witnesses, obtain relief that a bankruptcy trustee could
seek, sue or be sued in any U.S. court, intervene in any
lawsuits in which the debtor is a party and obtain relief
necessary to protect the debtor‘s assets or creditors‘
interests.59
Bankruptcy courts may also offer avoidance relief
to a foreign representative under foreign law in a
Chapter 15 proceeding.60 In Condors, the U.S. Court
of Appeals for the Fifth Circuit held that section
1521(a)(7), which limits a foreign representative‘s
ability to avoid transfers in a Chapter 15 case under
U.S. avoidance laws, does not prohibit a foreign
representative from asserting an avoidance action
under foreign law.61 The Condors court reversed the
bankruptcy and district courts and held that Chapter 15
57 Id. at 570. 58 See, e.g., Hammer & McClintock, supra note 37. 59 See Nathan & Horn, supra note 28. 60 In re Condors Ins. Ltd., 601 F.3d 319, 329 (5th Cir. 2010). 61 Id.
does not exclude the brining of avoidance actions
under foreign law.62
F. Treatment of Foreign Creditors
Foreign creditors generally have the same rights as
domestic creditor to commence and participate in all
cases under Title 11.63 Section 1513 mandates the
nondiscriminatory treatment of foreign creditors.64
Section 1513 does not however change or modify
present law on the allowability of foreign revenue or
public law claims.65 Section 1513 therefore recognizes
the foreign revenue rule,66 under which courts refuse to
recognize or enforce certain tax and other claims of
foreign sovereigns.67 Section 1514 provides that the
notice requirements under Title 11 apply to foreign
creditors.68
G. Foreign Proceedings that are Neither Main
Nor Nonmain
As discussed above, Chapter 15 applies (albeit
differently) to foreign main and foreign nonmain
proceedings. However, Chapter 15‘s classification of
foreign insolvency proceedings as either main or
nonmain fails to account for all foreign insolvency
proceedings. A ―tertiary proceeding‖ is a foreign
insolvency proceeding that fails to qualify for
recognition as either a main proceeding or a nonmain
proceeding under Chapter 15.69 Foreign tertiary
proceedings which do not qualify as a main or a
nonmain proceeding under Chapter 15 include: (i) an
ancillary foreign proceeding similar to a chapter 15
case itself; (ii) a foreign proceeding for a foreign bank
that has a branch or agency in the U.S.; (iii) a foreign
62 The court found that although section 1521(a)(7) expressly
carves out avoidance actions under United States law as a
form of relief that a bankruptcy court can grant to a foreign
representative, it does not necessarily mandate a conclusion
that Congress also intended to deny the foreign
representative avoidance powers supplied by applicable
foreign law. The court explained that ―[i]f Congress wished
to bar all avoidance actions whatever their source, it could
have stated so; it did not.‖ Id. 63 11 U.S.C. § 1513(a) (2011). 64 Id. 65 11 U.S.C. § 1513(b)(2)(A). 66 The foreign revenue rule is a discretionary common law
doctrine that prohibits courts from enforcing foreign tax
judgments or entertaining actions that are tantamount to
enforcing the tax laws of foreign countries. 67 See Ranney-Marinelli, supra note 4, at 318. 68 11 U.S.C. § 1514 (2011). 69 Samuel L. Bufford, Tertiary and Other Excluded Foreign
Proceedings Under Bankruptcy Code Chapter 15, 83 AM.
BANKR. L.J. 165, 166 (2009).
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proceeding for a foreign railroad; (iv) a foreign
proceeding in a country where the debtor lacks both an
establishment and its COMI; (v) a proceeding for a
foreign individual debtor eligible for a case under
chapter 13; and (vi) a proceeding for a foreign
stockbroker or commodity broker.70 The rights of a
foreign representative in a proceeding which is neither
main nor nonmain are unclear.71 But, it is fair to state
that absent recognition, the foreign representative
cannot take any action in the United States at all.
III. Assistance by the United States Court for
United States debtor/trustee entities in
foreign jurisdictions.
While the area is not so thoroughly litigated in the
United States (and would not be expected to be ),
Chapter 15 contains concepts that assist United States
trustees, examiners and other bankruptcy officials in
foreign proceedings. First, it confirms that a court can
expressly empower a trustee or ―other entity (including
an examiner)‖ to act (legally) in another jurisdiction.72
Armed with an order that sets out the trustee‘s ―or
other entity‘s‖ powers in the U.S. proceeding that
trustee or entity can then prove to a foreign tribunal
that he or it has the capacity as a matter of U.S. law to
appear in the foreign tribunal. If the trustee or entity
cannot demonstrate that it has that power, it faces
additional hurdles in a foreign court in seeking to
obtain recognition in that court.73
Chapter 15 contemplates coordination of United
States cases and foreign cases. This concept can apply
both where a foreign representative is recognized in the
United States (and when a United States bankruptcy
proceeding is pending), and in situations in which the
United States court presides over a case in which the
trustee or case official is acting outside of the United
States. Here, several points deserve note: (a) a United
States court is required to seek cooperation and
coordination when bankruptcy proceedings are pending
in two places covering the same debtor;74 (b) both
limitations on the scope of a recognized foreign
representative and abstention are specifically
recognized; (c) direct communications between each of
domestic court to foreign court, domestic court to
70 Id. 71 See Ranney-Marinelli, supra note 4, at 298. 72 11. U.S.C. § 1505. 73 See H.R. Rep. No. 109-31, 109th Cong., 1st Sess. 108-109
(2005). 74 11 U.S.C. § 1529 (2011). It is notable that the terms of
this section refer to proceedings under the Bankruptcy Code;
its does not refer to ―insolvency proceedings‖ generally
pending in the United States.
foreign representative, and domestic trustee to foreign
court is specifically contemplated (subject, in the case
of a domestic court to foreign representative, to the
rights of a party in interest to notice and
participation).75 The last of these three points is the
area that reinforces the use of ―protocols‖, between the
courts, which was a practice that flourished under
Section 304. There have been examples of protocols
increasingly significantly the ease of administration of
cases, and fostering efficiency. Some of the protocols
have worked well; some have not.76
The prospect of more than one foreign proceeding
pending against a debtor also receives some treatment
in Chapter 15. The statute in some instances requires
the United States court to be consistent in its rulings
with the laws of the foreign main proceeding.77
IV. Differences Between the Model Law &
Chapter 15
While Chapter 15 incorporates much of the Model
Law verbatim, some differences exist. The most
important difference between the Model Law and
Chapter 15 is that ―the Model Law, unlike Chapter 15,
does deny a foreign representative‘s ability to seek
comity or relief when the underlying foreign
proceeding cannot be recognized‖ as a foreign main or
nonmain proceeding.78 For example, Article 23 of the
Model Law, which grants to the foreign representative
the authority to avoid acts detrimental to creditors,79
exists with certain limitations as section 1523. Under
section 1523, a foreign representative has standing to
bring an avoidance action, but only in a case pending
under another chapter of Title 11.80 A representative
cannot utilize the avoidance provisions contained in
Sections 544, 547 and 548 of the U.S. Bankruptcy
Code unless a regular bankruptcy case is filed. The
foreign representative thus risks loss of control over
the case to a trustee.81
Article 19 of the Model Law, which provides for
the grant of relief upon application for recognition, is
similarly incorporated but limited in section 1519.
75 11. U.S.C. §§ 1525, 1526 & 1527 (2011). 76 The International Insolvency Institute has accumulated
several forms of protocol, including those used under
Section 304 practice; some of those can be located at the
Institute‘s website, www.iiiglobal.org. 77 11 U.S.C. § 1530 (2011). 78 Id. at 270. 79 See UNCITRAL Model Law on Cross-Border Insolvency
(1997), Article 23. 80 11 U.S.C. § 1523 (2011). 81 See 11 U.S.C. § 1509.
Cross-Border Insolvencies and
A Recent Chapter 15 Case Pending in Texas: In re Vitro, S.A.B. de C.V. Chapter 20
10
Article 19 authorizes injunctive and other relief when
―urgently needed to protect the assets of the debtor or
the interests of the creditors.‖82 Section 1519 adopts
this general approach but contains certain limitations,
including (i) a prohibition on enjoining police or
regulatory acts; (ii) adoption of the standards,
procedures and limitations applicable to injunctions;
and (iii) prohibition on the staying of certain rights
exempted from the automatic stay in section 362.83
Other minor differences and alterations of the Model
Law exist throughout Chapter 15.
It is also worth noting that some differences
between Chapter 15 and the Model Law are cosmetic
only and intended to apply United States usage to
Model Law terms, without changing the meaning. One
example is the use of the phrase ―absence of evidence
to the contrary‖ in the statement of the COMI
presumption in Section 1516 (c) , as opposed to the
phrase ―absence of proof to the contrary‖ in the Model
Law84.
V. In re Vitro, S.A.B. de C.V.
An ongoing case, In re Vitro, S.A.B. de C.V., in the
Bankruptcy Court for the Northern District of Texas
provides a view into an ongoing Chapter 15 case that
illustrates many of the points significant to the Chapter.
Vitro, S.A.B. de C.V. (―Vitro SAB‖) , a Mexican
corporation, is a holding company that conducts
substantially all of its operations through its
subsidiaries both outside and within the United States.
Vitro SAB, along with its subsidiaries (collectively
―Vitro‖ or the ―Vitro Entities‖), is the largest
manufacturer of glass containers and flat glass in
Mexico and has manufacturing facilities in 11
countries. The global recession triggered a drop in
business and losses on derivatives caused Vitro to
struggle to pay its debt.85 Consequently, on December
14 2010, Vitro SAB commenced bankruptcy
proceedings in Mexico, in which it sought to
implement a complex pre-packaged reorganization
plan in Mexico (the ―Concurso‖) under Mexican
bankruptcy law to restructure approximately $3.4
billion in debt. However, prior to the Mexican
reorganization, on November 17, 2010, creditors of
certain U.S. subsidiaries of Vitro SAB (the ―Subsidiary
Debtors‖) commenced Chapter 11 cases against the
82 See UNCITRAL Model Law, supra note 58, Article 19. 83 11 U.S.C. § 1519(d), (e) & (f). 84 Bankr. Abuse Prevention and Consumer Protection Act of
2005, Pub. L. No. 109-8, 2005, U.S.C.C.A.N. (119 Stat.)
175. 85 ―Mexico‘s Vitro says prepacked bankruptcy approved,‖
Reuters.com (Apr. 11, 2011).
Subsidiary Debtors in the United States Bankruptcy
Court for the Northern District of Texas.86
Concurrently with the Mexican filing, a purported
foreign representative of Vitro SAB filed a petition for
recognition of foreign main proceeding under Chapter
15 in the Bankruptcy Court for the Southern District of
New York.87
The Mexican Concurso is a form of cram-down,
which achieved in this instance the necessary approvals
only because of the affirmative vote of members of the
Vitro group who held debt of other members of the
group. Bondholders holding more than 60 percent of
Vitro SAB‘s $1.2 billion in defaulted bonds oppose the
Mexican reorganization and argue that it would be a
misuse of Chapter 15 because Vitro SAB intended to
cram a plan down on noteholders by using votes
arising from $1.9 billion in inter-company claims.88
On January 6, 2011, the Mexican court denied
Vitro SAB‘s voluntary petition and shortly thereafter,
Vitro SAB withdrew its Chapter 15 petition in the U.S.
Vitro SAB appealed the Mexican court‘s decision and
although its initial appeal was denied, on April 8, 2011,
a Mexican appellate court reversed and found that
Vitro SAB‘s voluntary Mexican petition satisfied the
requirements under the Mexican Business
Reorganization Act. On April 14, 2011, Vitro SAB
filed its second Chapter 15 petition for recognition of
foreign main proceeding in the Bankruptcy Court for
the Southern District of New York.89
In seeking relief
under Chapter 15, Vitro SAB sought to ensure the
enforcement of any reorganization approved in the
Mexican bankruptcy proceeding.90
The petitioning creditors of the Texas Chapter 11
cases of the Debtor Subsidiaries filed a motion
requesting the Chapter 15 case be transferred to the
Bankruptcy Court for the Northern District of Texas so
that it may be jointly administered with the involuntary
Chapter 11 cases. Under Bankruptcy Rule 1014(b), the
bankruptcy court in Texas has the right to decide if it
86 See In re Vitro Asset Corp., et al., No. 11-32600 (HDH)
[Jointly Administered] (Bankr. N.D. Tex. Nov. 17, 2010). 87 See In re Vitro, S.A.B. de C.V., No. 10-16619 (SHL)
(Bankr. S.D.N.Y. Dec. 14, 2010). 88 See, e.g., Bill Rochelle, Vitro, Madoff, Timothy Blixseth,
Asbestos Case: Bankruptcy, Bloomberg BusinessWeek
(May 6, 2011). 89 See In re Vitro, S.A.B. de C.V., No. 11-11754 (SCC)
(Bankr. S.D.N.Y. Apr. 14, 2011). 90 It is worth noting that the venue statute for a Chapter 15
proceeding in the United States (28 U.S.C. section 1410)
differs from the general bankruptcy venue statute (28
U.S.C. section 140).
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A Recent Chapter 15 Case Pending in Texas: In re Vitro, S.A.B. de C.V. Chapter 20
11
will take the related Chapter 15 case because it is the
jurisdiction with the first-filed affiliate cases.91 Vitro
SAB opposed the transfer to Hon. Harlin D. Hale;
however, the order transferring the case was entered on
May 13, 2011. The recognition hearing was held on
July 14, 2011. The Noteholders opposed recognition
and argued that the party seeking recognition is an
insider of the debtor and is not authorized under
Mexican law or the Bankruptcy Code to take action on
behalf of the debtor.92 The Noteholders therefore
maintained that the Petitioner is not a ―foreign
representative‖ of Vitro‘s Mexican insolvency
proceeding and that recognition should be denied.93
The central issue for the court was whether a
debtor in a Mexican proceeding can name its own
―foreign representative.‖ Section 101(24) of the
Bankruptcy Code explains that ―[t]he term ‗foreign
representative‘ means a person or body, including a
person or body appointed on an interim basis,
authorized in a foreign proceeding to administer the
reorganization or the liquidation of the debtor‘s assets
or affairs or to act as a representative of such foreign
proceeding.‖
Vitro argued that the court should recognize a
foreign debtor in possession (or its appointee) as a
proper foreign representative. Vitro explained that in a
Mexican concurso proceeding, unless the judge orders
otherwise, a Mexican debtor retains the authority to
manage its enterprise during the proceeding‘s
conciliation stage, similar to a debtor in possession.94
The objecting parties argued that only the examiner,
conciliator or the sindico appointed by the court in
Mexico, may act as a foreign representative, and once
an insolvency declaration has been entered, this task
falls on the consiliator exclusively. The court sided
with Vitro and granted recognition. The court noted
that in all of the ancillary proceedings filed in U.S.
Bankruptcy Courts in relation to Mexican concurso
proceedings the petitioner was appointed by the
Mexican debtor. In all of these cases the courts have
granted recognition.95
This case points out several of the challenges of
cross border insolvency in the United States: (a) the
actions of the foreign representative (or putative
foreign representative) depend very much on what
91 See FED. R. BANKR. P. 1014(b). 92 See In re Vitro, S.A.B. de C.V., No. 11-33335-hdh15
(Bankr. N.D. Tex. June 18, 2011). 93 Id. 94 See In re Vitro, S.A.B. de C.V., Case No. 11-33335-hdh15
(Bankr. N.D. Tex. July 21, 2011). 95 Id.
happens in the home jurisdiction, so the actions taken
or not taken in the United States must be measured in
light of foreign proceedings; (b) venue can differ
between Cases under other chapters of Title 11, in part
because venue statutes differ; (c) in making
determinations as to the application of United States
law in Chapter 15, frequently the court must address
interpretations (often competing interpretations) of
foreign law; (d) the scope of the power of the foreign
representative recognized under a foreign main
proceeding is significant and a great threat to
opponents.
Mexico has adopted its own version of the Model
Law and over time it can be expected that the United
States court and the Mexican court will enter into
arrangements for cooperation and coordination of the
cases, even though they involve different entities in the
same corporate group. The rules under the Model Law
(and Chapter 15) remain murky in the area of corporate
groups, so much will need to be resolved outside the
clear scope and reach of the statutes.
VI. Concluding remarks.
Chapter 15 reflects and incorporates many
elements of its predecessors and relatives-Section 304,
the Model Law, the EC Regulation and principles of
comity. Fundamentally, it exists to avoid the chaos
that can impede the administration of a single estate (or
closely related estates), by providing a mechanic for
allocating responsibility powers and protections to
representative, domestic and foreign who have the
charge of reorganizing or liquidating estates. This
Chapter contains several specific definitions, and some
clear directions to courts about how to apply principles.
It retains a notable amount of flexibility and
encourages a rare form of court to court
communication.