Chapter 15 of the United States Bankruptcy Code, 11 U.S.C § 101 et seq., which incorporates most of the provisions of the United Nations’ Model Law on Cross-Border Insolvency,[1] was enacted as part of the Bankruptcy Abuse and Consumer Protection Act of 2005. Chapter 15 replaced former 11 U.S.C. § 304, which was been enacted in 1978 to provide specific procedures by which a representative in a foreign bankruptcy proceeding could obtain relief in U.S. courts to facilitate the foreign bankruptcy proceeding. Chapter 15 provides the statutory framework within which a “foreign representative” of a debtor in a foreign insolvency proceeding may come to a United States court for assistance in dealing with the foreign debtor’s U.S. based assets, operations or claims.

The threshold requirement for beginning a Chapter 15 proceeding is the presence of a foreign insolvency proceeding and an authorized foreign representative in the United States. The term “foreign proceeding” is defined as “a collective judicial or administrative proceeding in a foreign country, including any interim proceeding, under a law relating to insolvency or adjustment of debt” where “the assets and affairs of the debtor are subject to the control or supervision by a foreign court, for the purpose of reorganization or liquidation.”[2]

The term “foreign representative” is defined as a person or body, including an interim representative, “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.”[3] Put another way, the foreign representative is the designated agent authorized to manage the foreign proceeding and to represent the debtor in the United States and other foreign courts.

There are two types of foreign proceedings: a “main” preceding and a “nonmain” proceeding. The distinction between the two types of proceedings impacts the nature and scope of relief to which the foreign representative is automatically entitled. While broad relief is entitled under either proceeding, recognition by the U.S. bankruptcy court of a foreign “main” proceeding provides the debtor with the immediate and automatic benefit of the automatic stay, ability to sell assets under § 363, § 552 postepetition effect of security interest and allows the foreign representative to operate the debtor’s business located within the United States.[4]

Conversely, in a foreign “nonmain” proceeding, the same type of relief is available but not automatically put into place; rather, such relief may be granted by the bankruptcy court after notice and hearing and proof that the requested relief is “necessary to effectuate the purposes of [Chapter 15] and to protect the assets of the debtor or the interest of creditors.[5] However, in all proceedings, main and non-main, the foreign representative is not subjected to the jurisdiction of the petitioned court or other U.S. court for any purpose beyond the insolvency.[6]

The determination of whether a foreign insolvency proceeding is a main or nonmain proceeding is fact-based. A “main” proceeding is defined as an insolvency proceeding that is “pending in the country where there debtor has the center of its main interests.”[7] The debtor’s “center of main interest” is not specifically defined but is presumed to be the place where it has its “registered office,” or habitual residence in the case of an individual.[8] Conversely, a “nonmain” proceeding is defined as a proceeding “pending in a country where the debtor has an establishment,” although not its main interest, with “establishment” defined as “any place of operations where the debtor carries out a nontransitory economic activity.”[9]

To initiate the process of implementing Chapter 15 for a foreign insolvency proceeding, - or opening the gateway to U.S. Courts – recognition by a U.S. court of the foreign proceeding is essential. The term “recognition” is defined as “the entry of an order granting recognition of a foreign main proceeding or a foreign nonmain proceeding under this chapter [15].”[10] If the foreign representative does not apply and obtain recognition, that representative cannot access the U.S. court system anywhere.

A case under Chapter 15 is commenced by the filing of a petition for recognition of a foreign proceeding under 11 U.S.C. § 1515. A petition for recognition is a “core” matter regulated to the U.S. bankruptcy courts.[11] The proper jurisdiction for filing a petition of recognition is the federal judicial district where the debtor’s U.S. principal place of business is located or the district in which there is pending litigation against the debtor if the debtor does not have a principal place of business in the U.S.[12]

The Chapter 15 petition of recognition is filed by the foreign representative. The petition of recognition must be accompanied by certain documents from the foreign proceeding that evidence its authenticity such as: (i) a certified copy of decision commencing foreign proceeding and appointing the foreign representative, (ii) a certificate from the foreign court affirming the existence of such foreign proceeding and appointment of the foreign representative and (iii) a statement identifying all foreign proceedings with respect to the debtor that are known to the foreign representative.[13] It should be noted that the referenced documents should be translated into English.[14]

Once the petition for recognition is filed, the matter must be considered and decided by the U.S. court at the earliest possible time.[15] After the petition of recognition is filed but before recognition, the bankruptcy court may grant provisional relief such as “staying execution against the debtor’s assets, and entrusting the foreign representative to protect and preserve them upon standards applicable to obtaining an injunction.[16]

After an order of recognition is entered by the U.S. court, the provisional relief available to a foreign representative ceases unless the court extends the provisional relief.[17] However, in most instances, the termination of provisional relief is replaced with the much more powerful powers under 11 U.S.C. §§ 1520 -1521 in regards to a foreign main proceeding. For instance, the foreign debtor is treated as a traditional U.S. bankruptcy debtor in many respects. For example, the following provisions of the Bankruptcy Code debtor become immediately available: § 361 adequate protection, the § 362 automatic stay, § 363 sale process, § 549 post-petition transfer provision and § 552 post-petition security interest provision.[18] Further, the foreign representative may commence either an involuntary bankruptcy case or, if the foreign proceeding is a foreign main proceeding, a voluntary case.[19] The foreign representative may also participate as a party in interest in a bankruptcy case regarding a debtor[20] and has standing to initiate avoidance actions.[21] Chapter 7 or 11 bankruptcy proceedings, however, cannot be commenced against the debtor in a foreign main proceeding unless the debtor has assets in the U.S., in which case the scope of the chapter 7 or 11 bankruptcy is limited to the debtor’s U.S. assets.

However, if the order granting recognition is not entered, the bankruptcy court may issue an order preventing the foreign representative from receiving cooperation or comity from other U.S. courts.

Upon recognition of a foreign proceeding, with main or nonmain, where necessary to effectuate the purposes of Chapter 15, the U.S. court may: (1) stay the commencement or continuation of actions concerning the debtors assets, rights, obligations or liabilities to the extent not stayed by § 1520(a), (2) stay execution against the debtor’s assets to the extent not stayed under § 1520(a), (3) suspend the right to transfer, encumber or dispose of assets to the extent not stayed § 1520(a), (4) provide for the examination of witnesses, (5) entrust administration or realization of debtor’s assets within U.S. to the foreign representative, (6) extending provisional relief granted under § 1519(a) and (7) granting any other additional relief that may be available to a trustee, except for relief under §§ 522, 544, 545, 547, 548, 550 and 724.[22] However, there are limits as to the rights afforded the foreign representative. For example, there is nothing in Chapter 15 the U.S. court from refusing to take action governed by Chapter 15 is the court determines such action is “manifestly” contrary to the public policy of the United States.[23] Also, police or regulatory actions of a governmental unit may not be enjoined.[24]

A unique feature of Chapter 15 is the express statutory language authorizing cross-border interjudicial communications. The bankruptcy court is entitled to communicate directly with, or to request information or assistance directly from, a foreign court or a foreign representative, subject to the rights of a party in interest to notice and participation.[25] The scope and form of these communications are broad and liberal.

In summation, Chapter 15 provides a statutory rule-book for foreign entities to gain access to the United States courts. Once the application for recognition is filed, the pathway to the United States court system begins to appear making certain relief possible. Once recognition is granted, the path is fully discernable with many opportunities for a foreign representative to ensure that the assets in the United States are afforded protection.