Chapter 15 Bankruptcy- Foreign Insolvency

History

Like a Chapter 11 bankruptcy, a Chapter 15 bankruptcy can be filed by a high net worth individual or a business. Chapter 15 replaced section 304 of the Bankruptcy Code and is geared toward curing cross-border insolvency. 11 U.S.C. § 1500 et seq. Along with Chapter 9 bankruptcies, Chapter 15 bankruptcies are one of the rarest types of filings in the United States. Insolvency is defined in the Bankruptcy Code as “financial condition such that the sum of such entity’s debts is greater than all such entity’s property, at a fair valuation […].” 11 U.S.C. § 101(32). The origins of Chapter 15 Bankruptcy can be traced back to the United Nations Commission on International Trade Law (“UNCITRAL”) in 1997. This law has been adopted (in different variation) in Canada and Mexico. The UNCITRAL Model Law has been adopted in 85 countries in a total of 118 jurisdictions. However, the law has identical intent across all borders, regardless of the form of the law that is adopted.

Legislative Intent

Although the primary thrust of Chapter 15 of the Bankruptcy Code is to cure foreign insolvency, there are several ancillary purposes: (1) Chapter 15 Bankruptcy is designed to increase cooperation between debtors and courts in international proceedings; (2) Chapter 15, like Chapter 11, is designed to help rescue financially distressed businesses and protect employment; (3) These types of bankruptcy should protect debtor assets while maximizing their value; (4) Chapter 15 bankruptcies are intended to increase the certainty of legal outcomes surrounding the bankruptcy proceedings; and (5) Chapter 15 is intended to improve judicial economy and efficiency surrounding cross-border bankruptcy proceedings. See 11 U.S.C. § 1501(a).

General

Unlike other bankruptcy proceedings, Chapter 15 bankruptcies are generally a secondary proceeding to a foreign filing of bankruptcy. The primary proceeding in a Chapter 15 takes place in the debtor’s foreign country of residence. This requires recognition of a “foreign proceeding” being commenced, which is shown by a “foreign representative” filing a petition for recognition. 11 U.S.C. §§ 1504, 1509. Once this petition is filed, the court may offer preliminary relief. See 11 U.S.C. § 1519. Once a Chapter 15 bankruptcy proceeding has commenced, parties are required to “cooperate to the maximum extent possible.” See 11 U.S.C. § 1525(a). Once a full bankruptcy proceeding has commenced, the U.S. bankruptcy court’s jurisdiction is limited to the debtors’ assets within domestic borders. See 11 U.S.C. 1528. When a foreign company is considering filing bankruptcy, it can file a Chapter 7 or Chapter 11 bankruptcy if its relationship to U.S. commerce is sufficiently complex. See 11 U.S.C. 1520(c). Any debtor considering bankruptcy should consult legal counsel first. If you are considering bankruptcy, contact the bankruptcy attorneys at McNeelyLaw to discuss your options.

This McNeely Law LLP publication should not be construed as legal advice or legal opinion of any specific facts or circumstances. The contents are intended for general information purposes only, and you are urged to consult your own lawyer on any specific legal questions you may have concerning your situation.