Transnational Insolvency 201: an Updated Guide to Cross-border Bankruptcy Proceedings

Hon. Sidney B. Brooks,

Bankruptcy Judge,

Colorado Bankruptcy Court Directory,

Denver, Colorado, United States

Ethan J. Birnberg,

Lindquist & Vennum LLP,

Lindquist & Vennum LLP, Denver, Colorado, United States

Robert D. Lantz,

Judicial Law Clerk; Sunika Pawar, Judicial Law Clerk;

and Mimi Faller, Judicial Intern; Denver Bankruptcy,

Banking Attorney, Colorado Commercial Litigation Lawyer;

Equity Member of Coan, Payton & Payne,

LLC and works out of the firm's Denver, Colorado office,

Coan, Payton & Payne, LLC, Denver, Colorado, United States

Журнал "Kutafin University Law Review", N 1 (Volume 4), April 2017, р. 110-156.

Chapter 15 of the United States Code addresses "Ancillary and Other Cross-Border Cases." It is complex body of law designed to facilitate cooperation between the United States and foreign countries in transnational insolvency cases. Cross-border insolvencies do not exist in a vacuum; Chapter 15 requires many courts and systems to work together and respect each country's statutory law and common law. This article explains Chapter 15's purpose, "terms of art," implementation, and practical realities. U.S. courts have interpreted the law consistently and consonant with Congressional intent of promoting comity and international cooperation in transnational insolvencies. Even so, eleven years after its passage by the U.S. Congress, Chapter 15 has proven to be complicated and somewhat controversial. Case law development continues to shape application of Chapter 15, and this article addresses Chapter 15 disputes such as a debtor's COMI, standards for eligibility when interpreting 15 U.S.C. § 109(a), and guidance for foreign representatives seeking recognition under Chapter 15.

Table of contents

I. Introduction

II. The Purpose of Chapter 15

III. Chapter 15's Key "Terms of Art"

1. Debtor

2. Foreign Court

3. Foreign Proceeding

4. Foreign Representative

5. Foreign Main Proceeding

6. Center of Main Interests

7. Foreign Non-Main Proceeding

8. Establishment

9. Recognition

IV. Implementation

1. The Reach of Chapter 15: Facilitating Inbound and Outbound Foreign Proceedings

2. Summary of the Process of Recognizing a Foreign Proceeding

3. An Overview of the Entry and Effect of an Order of Recognition

4. Fostering of Communication, Cooperation and Diplomacy

5. Simplified and Streamlined Procedures, Part I: The Tools Available to a Foreign Representative from the Inception of Filing a Petition for Recognition

6. Simplified and Streamlined Procedure, Part II: Once Recognition is Granted

7. Protecting the Creditors and Other Interested Parties

V. Final comments

References

I. Introduction

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA") was enacted on October 17, 2005, and included Chapter 15, a new bankruptcy chapter that addresses "Ancillary and Other Cross-Border Cases." Chapter 15 facilitates cooperation between the United States and foreign countries in transnational insolvency cases*(1).

Chapter 15 was enacted to implement the Model Law on Cross-Border Insolvency ("Model Law")*(2) formulated by the United Nations Commission on International Trade Law ("UNCITRAL"), and replaced former 11 U.S.C. § 304*(3). It was intended "to provide effective mechanisms for dealing with cases of cross-border insolvency"*(4), and to be "the exclusive door to ancillary assistance to foreign proceedings, thus concentrating] control of these questions in one court"*(5). It was also intended to increase legal certainty, promote fairness and efficiency, protect and maximize value, and facilitate the rescue of financially troubled businesses*(6).

The seeds of the Model Law were sown about fifty years ago when the General Assembly of the United Nations made Resolution 2205 (XXI) of December 17, 1966, wherein it created the UNCITRAL. UNCITRAL's charge was further "harmonization and unification of the law of international trade and in that respect bear in mind the interests of all peoples, in particular those of developing countries, in the extensive development of international trade"*(7). As international trade has expanded in the ensuing decades, so has the need for cooperation and coordination when businesses fail or become insolvent*(8).

Arguably, the Model Law is a masterful framework of diplomacy to facilitate well-managed and successful cross-border reorganizations, among contending interests. Others would say it is an awkward effort to accommodate all competing parties and mollify those who would resist foreign intervention or complication of domestic law. All would agree, however, it is a necessary and promising tool to manage complex cross-border insolvencies in an increasingly globalized economic world.

Chapter 15 balances the interests, opportunities and rights of various, often competing, parties affected by cross-border insolvencies. It is a rather delicate and multifaceted balancing prescription among institutions, courts, creditors, and debtors of different countries. Chapter 15, 11 U.S.C. § 1508 requires the court to "consider its international origin, and the need to promote an application of this chapter that is consistent with the application of similar statutes adopted by foreign jurisdictions"*(9).

This is an update to an article drafted two years after Chapter 15 went into effect (the "original article")*(10). The original article attempted to explain and simplify an innovative and complex new law. Courts have interpreted the law consistently and consonant with Congressional intent of promoting comity and international cooperation in transnational insolvencies. Yet eleven years later, Chapter 15 law has proven to be complicated and somewhat controversial. Identical to the original article, the goal of this article is to focus on and expand upon Chapter 15's (1) purpose, (2) "terms of art," and (3) implementation, as well as (4) the practical realities of Chapter 15*(11).