United States: Proposed Amendments To Chapter 15 Of The Bankruptcy Code

Last Updated: December 27 2018
Article by Mark G. Douglas

On August 20, 2018, the National Bankruptcy Conference (the "NBC") submitted a letter (the "Letter") to representatives of the House Subcommittee on Regulatory Reform and the House Committee on the Judiciary that proposed certain technical and substantive amendments to chapter 15 of the Bankruptcy Code. Chapter 15, which is patterned on the 1997 UNCITRAL Model Law on Cross-Border Insolvency (the "Model Law"), was enacted in 2005 and establishes procedures governing cross-border bankruptcy and insolvency proceedings. To date, the Model Law has been enacted by the U.S. and 44 countries, plus two overseas territories of the United Kingdom.

The NBC is a voluntary, nonpartisan, not-for-profit organization composed of approximately 60 of the nation's leading bankruptcy judges, professors, and practitioners. It has provided advice to Congress on bankruptcy legislation for 80 years. The full text of the Letter is available here. Certain of the proposed amendments are summarized below.

Applicability of Chapters. Section 103(a) of the Bankruptcy Code provides that chapters 1, 3, and 5 apply in chapter 7, 11, 12, and 13 cases and that chapter 1 and certain specified provisions of chapters 3 and 5 apply in chapter 15 cases. The Letter recommends that the list of provisions applicable to chapter 15 cases be expanded to more specifically include sections 305 (abstention); 306 (limited appearance); and 556, 560, 561, and 562 (safe harbors for and timing of measure of damages under commodities contracts, forward contracts, swap agreements, and master netting agreements) to avoid the possibility that, under the "plain meaning" approach, these provisions might be held to be inapplicable to chapter 15 cases.

Section 103(k) limits the applicability of the provisions of chapter 15 to chapter 15 cases, with the exception of sections 1505 (court may authorize trustee to act on behalf of bankruptcy estate in foreign country), 1513 (giving foreign creditors access to a U.S. bankruptcy case), and 1514 (foreign creditor notification requirements), which apply in all bankruptcy cases, and section 1509 (foreign representatives' right to access U.S. courts), which applies whether or not a case under any chapter is pending.

The Letter recommends that the list of provisions applicable in all cases be expanded to include sections 1511 (authorizing foreign representative to commence case under another chapter after chapter 15 recognition), 1523 (giving foreign representative trustee's avoidance and strong-arm powers in case filed under another chapter), 1531 (creating presumption that foreign debtor is insolvent for purposes of involuntary bankruptcy filing), and 1532 (prohibiting double payments on same claim in concurrent U.S. and non-U.S. bankruptcy cases).

The Letter also recommends that the list of provisions applicable whether or not a U.S. bankruptcy case is pending be augmented to include section 1510, which provides that a foreign representative's filing of a chapter 15 petition for recognition does not subject the foreign representative to the jurisdiction of any U.S. court for any other purpose.

Eligibility for Chapter 15 Filing. Section 109(a) of the Bankruptcy Code provides that "[n]otwithstanding any other provision of this section, only a person that resides or has a domicile, a place of business, or property in the United States, or a municipality, may be a debtor under this title." Even though section 1517 sets forth the requirements for recognition of a foreign bankruptcy proceeding under chapter 15, some courts have held that section 109(a) must also be satisfied for a foreign debtor to be eligible for chapter 15 relief. The NBC has taken the position that this is incorrect and recommends in the Letter that section 109(a) be amended to provide that it "does not apply in a case under chapter 15."

Involuntary Bankruptcy Filing by Foreign Representative. The Letter recommends that section 303(b)(4) of the Bankruptcy Code be amended to eliminate a drafting inconsistency created by the 2005 amendments by clarifying that, upon recognition of a foreign proceeding under chapter 15 and consistent with section 1511, a foreign representative may file an involuntary chapter 7 or chapter 11 case against an eligible debtor.

Abstention and Dismissal. Section 305 of the Bankruptcy Code provides that a foreign representative may seek dismissal or suspension of a recognized foreign proceeding if "the purposes of chapter 15 . . . would be best served by" dismissal or suspension. The Letter proposes that "there should be a clear statutory basis for the dismissal of cases involving debtors whose center of main interests [("COMI")] is outside of the United States when those cases either conflict with the purposes of chapter 15 or involve a debtor or assets over which the court does not have effective control." The Letter accordingly recommends that section 305(a) be revised to include a new subsection, which would state: "[T]he debtor's center of main interests is not the United States and the court cannot exercise effective control over either the debtor or the debtor's material assets."

Limited Appearance. Section 306 of the Bankruptcy Code provides that a foreign representative's appearance in a U.S. bankruptcy court in connection with a petition or request under section 303 (involuntary bankruptcy filing) or section 305 (abstention or dismissal) does not subject the foreign representative to a U.S. court's jurisdiction for any other purpose. The Letter recommends that the provision be amended to include sections 301 (voluntary bankruptcy filing) and 302 (joint bankruptcy filings).

Date for Determining Center of Main Interests. A growing number of court decisions have determined that a foreign debtor's COMI should be determined as of the date of the filing of its chapter 15 petition for recognition in the U.S. rather than the date upon which its foreign proceeding was commenced. The NBC takes the position that this is contrary to the Model Law and a recent revision to the Model Law's Guide to Enactment, both of which measure COMI as of the date of the commencement of the foreign proceeding. The Letter accordingly recommends that sections 1502(a)(4) and (5) and 1517(b) be amended to provide that COMI is to be determined as of the date of commencement of the debtor's foreign proceeding. If adopted, such a change would likely impede the ability of foreign provisional liquidators to effectuate "COMI shifting" or "COMI migration."

Venue of Cases Commenced Under Other Chapters. The Letter recommends that section 1511 of the Bankruptcy Code and 28 U.S.C. § 1408 (specifying venue requirements for bankruptcy cases) be amended to provide that, upon recognition of a foreign proceeding under chapter 15, the foreign representative may commence an involuntary case under chapter 303 or a voluntary case under section 301 or 302 in the court presiding over the foreign debtor's chapter 15 case.

Abstention. Certain courts have held that section 305 of the Bankruptcy Code (providing that a bankruptcy court may dismiss or suspend proceedings in a chapter 15 case if doing so best serves the purposes of chapter 15) does not apply in chapter 15 cases because it conflicts with 28 U.S.C. § 1334(c), which excepts from a U.S. federal court's permissive abstention powers "a case under chapter 15." The NBC takes the position that this was not the intent of the drafters of chapter 15. The Letter accordingly recommends that 28 U.S.C. § 1334(c) be amended to limit the provision "to its original narrowly intended purpose of assuring that chapter 15 petitions, as applications for recognition, must be heard and granted or denied" and to clarify that the provision was not intended to prevent abstention from proceedings "arising in" or "arising under" chapter 15 cases.

Avoidance of Transfers and Recovery of Property. Due to drafting oversights, the Letter recommends that, consistent with the Model Law:

  • Section 1520 be amended to clarify that, upon recognition of a foreign main proceeding: (i) section 552 (limiting the postpetition effect of security interests) automatically applies; (ii) the debtor may not transfer, encumber, or otherwise dispose of its U.S. assets; (iii) section 363 (governing the use, sale, or lease of the debtor's property) automatically applies to transfers of the debtor's U.S. assets by the foreign representative; and (iv) unless the court orders otherwise, the foreign representative may operate the debtor's business and exercise the rights and powers of a trustee under sections 363 and 553 (governing setoff).
  • Section 1521 be amended to clarify that, upon recognition of a foreign main or nonmain proceeding, the bankruptcy court has the discretion to authorize the foreign representative to recover transfers under section 550 in enforcing section 549 (prohibiting unauthorized postpetition transfers) or section 553 (setoffs).
  • The definition of "foreign representative" in section 101(24) be amended to provide that the foreign representative acts as a "trustee" in exercising avoidance or recovery powers under chapter 15.
  • Section 1523 be amended to clarify that the look-back period for avoidance proceedings brought under U.S. law by or on behalf of a foreign representative should be measured from the date of the filing of the foreign proceeding.

These proposed changes, some of which are controversial, are also being studied by other bankruptcy-related organizations, including the International Insolvency Institute and the American College of Bankruptcy.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Mark G. Douglas
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions