Despite the absence of any explicit directive in the Bankruptcy Code, it is well understood that a bankruptcy court can dismiss a chapter 11 case if it not filed in good faith. A ruling recently handed down by a Bankruptcy Appellate Panel for the Ninth Circuit ("BAP") suggests that no such good faith filing requirement applies to a petition seeking recognition of a foreign bankruptcy under chapter 15 of the Bankruptcy Code. In In re Black Gold S.A.R.L., 2022 WL 488438 (B.A.P. 9th Cir. Feb. 17, 2022), the BAP reversed a bankruptcy court order denying chapter 15 recognition of a Monaco bankruptcy proceeding. After initially granting provisional relief under section 1519 of the Bankruptcy Code, the bankruptcy court concluded that the petition was inconsistent with the objectives of chapter 15 as set forth in section 1501 because of the debtor's bad faith conduct in attempting to evade payment of a judgment and shield its principals from tort liability. On appeal, according to the BAP, once the Bankruptcy Code's requirements for chapter 15 recognition are satisfied, recognition is mandatory unless it would be "manifestly contrary" to U.S. public policy—a threshold that is rarely met in chapter 15 proceedings.

Procedures, Recognition, and Relief Under Chapter 15

Chapter 15 was enacted in 2005 to govern cross-border bankruptcy and insolvency proceedings. It is patterned on the 1997 UNCITRAL Model Law on Cross-Border Insolvency ("Model Law"), which has been enacted in some form by more than 50 countries.

Both chapter 15 and the Model Law are premised upon the principle of international comity, or "the recognition which one nation allows within its territory to the legislative, executive or judicial acts of another nation, having due regard both to international duty and convenience, and to the rights of its own citizens or of other persons who are under the protection of its laws." Hilton v. Guyot, 159 U.S. 113, 164 (1895).

Chapter 15 replaced section 304 of the Bankruptcy Code. Section 304 allowed an accredited representative of a debtor in a foreign bankruptcy proceeding to commence a limited "ancillary" bankruptcy case in the United States for the purpose of enjoining actions against the foreign debtor or its assets located in the United States or, in some cases, repatriating such assets or their proceeds abroad for administration in the debtor's foreign bankruptcy.

The policy behind section 304 was to provide any assistance necessary to ensure the economic and expeditious administration of foreign bankruptcy proceedings. In deciding whether to grant injunctive, turnover, or other appropriate relief under former section 304, a U.S. bankruptcy court had to consider "what will best assure an economical and expeditious administration" of the foreign debtor's estate, consistent with a number of factors, including comity. See 11 U.S.C. § 304(c) (repealed 2005) (listing factors that are now included in section 1507(b) as a condition to the court's decision post-recognition to grant "additional assistance, consistent with the principles of comity," under chapter 15 or other U.S. law).

Section 1501(a) of the Bankruptcy Code states that the purpose of chapter 15 is to "incorporate the [Model Law] so as to provide effective mechanisms for dealing with cases of cross-border insolvency with the objectives of," among other things, cooperation between U.S. and foreign courts, greater legal certainty for trade and investment, fair and efficient administration of cross-border cases to protect the interests of all stakeholders, protection and maximization of the value of a debtor's assets, and the rehabilitation of financially troubled businesses.

Under section 1515 of the Bankruptcy Code, a "foreign representative" may file a petition in a U.S. bankruptcy court seeking "recognition" of a "foreign proceeding." Section 101(24) of the Bankruptcy Code defines "foreign representative" as "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."

Section 1502 provides that "for the purposes of [chapter 15] … 'debtor' means an entity that is the subject of a foreign proceeding."

The basic requirements for recognition under chapter 15 are outlined in section 1517(a), namely: (i) the proceeding must be "a foreign main proceeding or foreign nonmain proceeding" within the meaning of section 1502; (ii) the "foreign representative" applying for recognition must be a "person or body"; and (iii) the petition must satisfy the requirements of section 1515, including that it be supported by the documentary evidence specified in section 1515(b).

"Foreign proceeding" is defined in section 101(23) of the Bankruptcy Code as:

[A] collective judicial or administrative proceeding in a foreign country, including an interim proceeding, under a law relating to insolvency or adjustment of debt in which proceeding the assets and affairs of the debtor are subject to control or supervision by a foreign court, for the purpose of reorganization or liquidation.

More than one bankruptcy or insolvency proceeding may be pending with respect to the same foreign debtor in different countries. Chapter 15 therefore contemplates recognition in the United States of both a foreign "main" proceeding—a case pending in the country where the debtor's center of main interests ("COMI") is located (see 11 U.S.C. § 1502(4))—and foreign "nonmain" proceedings, which may be pending in countries where the debtor merely has an "establishment" (see 11 U.S.C. § 1502(5)). A debtor's COMI is presumed to be the location of the debtor's registered office or habitual residence in the case of an individual. See 11 U.S.C. § 1516(c). An "establishment" is defined by section 1502(2) as "any place of operations where the debtor carries out a nontransitory economic activity."

Pending its decision on a petition for recognition, the bankruptcy court is empowered to grant certain kinds of provisional relief. Section 1519(a) authorizes the court, "where relief is urgently needed to protect the assets of the debtor or the interests of the creditors," to stay any execution against the debtor's assets, entrust the administration of the debtor's assets to a foreign representative, or suspend the right to transfer, encumber, or otherwise dispose of any of the debtor's assets.

Upon recognition of a foreign "main" proceeding, section 1520(a) of the Bankruptcy Code provides that certain provisions of the Bankruptcy Code automatically come into force, including: (i) the automatic stay preventing creditor collection efforts with respect to the debtor or its U.S. assets (section 362, subject to certain enumerated exceptions); (ii) the right of any entity asserting an interest in the debtor's U.S. assets to "adequate protection" of that interest (section 361); and (iii) restrictions on use, sale, lease, transfer, or encumbrance of the debtor's U.S. assets (sections 363, 549, and 552).

Following recognition of a foreign main or nonmain proceeding, section 1521(a) provides that, to the extent not already in effect, and "where necessary to effectuate the purpose of [chapter 15] and to protect the assets of the debtor or the interests of the creditors," the bankruptcy court may grant "any appropriate relief," including a stay of any action against the debtor or its U.S. assets not covered by the automatic stay, an order suspending the right to transfer or encumber the debtor's U.S. assets, and "any additional relief that may be available to a trustee," with certain exceptions. Under section 1521(b), the court may entrust the distribution of the debtor's U.S. assets to the foreign representative or another person, provided the court is satisfied that the interests of U.S. creditors are "sufficiently protected."

Section 1507(a) of the Bankruptcy Code provides that, upon recognition of a foreign main or nonmain proceeding, the bankruptcy court may provide "additional assistance" to a foreign representative "under [the Bankruptcy Code] or under other laws of the United States." However, the court must consider whether any such assistance, "consistent with the principles of comity," will reasonably ensure that: (i) all stakeholders are treated fairly; (ii) U.S. creditors are not prejudiced or inconvenienced by asserting their claims in the foreign proceeding; (iii) the debtor's assets are not preferentially or fraudulently transferred; (iv) proceeds of the debtor's assets are distributed substantially in accordance with the order prescribed by the Bankruptcy Code; and (v) if appropriate, an individual foreign debtor is given the opportunity for a fresh start. See 11 U.S.C. § 1507(b).

Section 1522(a) provides that the bankruptcy court may exercise its discretion to order the relief authorized by section 1519 upon the commencement of a case or by section 1521 upon the recognition of a foreign proceeding "only if the interests of the creditors and other interested entities, including the debtor, are sufficiently protected."

Public Policy Exception to Chapter 15 Relief

Section 1506 of the Bankruptcy Code sets forth a public policy exception to the relief otherwise authorized in chapter 15, providing that "[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." However, section 1506 requires a "narrow reading" and "does not create an exception for any action under Chapter 15 that may conflict with public policy, but only an action that is 'manifestly contrary.'" In re Fairfield Sentry Ltd., 714 F.3d 127, 139 (2d Cir. 2013); accord In re ABC Learning Ctrs. Ltd., 728 F.3d 301, 309 (3d Cir. 2013) (the public policy exception should be invoked only under exceptional circumstances concerning matters of "fundamental importance" to the United States).

Most courts have concluded that the narrow and rarely invoked public policy exception in section 1506 does not prohibit chapter 15 recognition in situations where the debtor has engaged in bad faith—a circumstance that might warrant dismissal of a bankruptcy case filed under other chapters of the Bankruptcy Code. See In re Culligan Ltd., 2021 WL 2787926, *14 (Bankr. S.D.N.Y. July 2, 2021) (declining to deny chapter 15 recognition even though the case was filed as a litigation tactic to avoid adverse rulings by a state court); In re Manley Toys Ltd., 580 B.R. 632, 648-52 (Bankr. D.N.J. 2018) (recognizing a Hong Kong liquidation proceeding even though the debtor and its insiders may have acted in bad faith in other litigation and where Hong Kong fraudulent transfer laws were not "manifestly contrary" to U.S. laws), aff'd, 597 B.R. 578 (D.N.J. 2019); In re Creative Fin. Ltd., 543 B.R. 498, 502 (Bankr. S.D.N.Y. 2016) (declining to invoke section 1506 to deny recognition even though the chapter 15 case, which was filed after the debtor's principal caused all of the debtor's liquid assets to be transferred out of the debtor's UK bank accounts pending the entry of a final adverse judgment, "was the most blatant effort to hinder, delay or defraud a creditor this Court has ever seen"); In re Millard, 501 B.R. 644, 653 (Bankr. S.D.N.Y. 2013) (granting chapter 15 recognition of a Cayman Islands bankruptcy case filed to avoid enforcement of two default tax judgments entered against the debtors in the Mariana Islands). Instead, the question under section 1506 is not whether the debtor's actions violate public policy but whether the foreign court's procedures and safeguards fail to comport with U.S. public policy. Culligan, 2021 WL 2787926, at *14.

Black Gold

Black Gold S.A.R.L. ("BG") is a Monaco limited liability company that until June 2020 operated as a distributor of lubricant products in Europe, Africa, and Asia. BG's sole shareholders are Lorenzo and Sofia Napoleoni ("Napoleonis"). The company has no other employees, officers, or directors.

BG's largest customer and creditor was International Petroleum Products and Additives Company, Inc. ("IPAC"), a California-based petroleum additive manufacturer. In 2016, BG agreed to be IPAC's European sales representative. The parties' sales agreements obligated BG to maintain the confidentiality of IPAC's commercial information and prohibited BG from providing service or assistance for competing products.

However, the Napoleonis and a former IPAC employee established a competing additives business, PXL, that appropriated IPAC's trade secrets and customer list.

IPAC commenced an arbitration proceeding against BG in California to remedy BG's appropriation of IPAC's commercial information and breach of their sales agreements. On May 29, 2019, the arbitrator awarded IPAC more than $1 million, finding that BG stole IPAC's trade secrets to manufacture and sell PXL products. A California district court later entered a judgment confirming the award.

IPAC unsuccessfully attempted to collect the debt in the United States and Monaco, including seeking a judgment debtor examination of the Napoleonis. Collection and enforcement efforts were suspended in May 2020 when BG filed an insolvency proceeding in Monaco ("Monaco Proceeding"). The Monegasque court fixed May 29, 2019 (the date that IPAC's arbitration award became final) as the date of BG's "cessation of payments" (or insolvency date) and appointed Jean-Paul Samba ("Samba") as BG's trustee. Samba had served as a trustee in insolvency proceedings in Monaco since 1983. As a general matter, Monegasque law has certain similarities to chapter 11 (e.g., entry of the insolvency judgment suspends any actions by creditors to enforce or collect debts against or from the debtor) but also differs in certain material respects (e.g., no analogs to U.S. bankruptcy discovery procedures, the legal theory of "alter ego" liability, or the concept of abandonment of estate property).

In November 2020, Samba filed a petition in the U.S. Bankruptcy Court for the Northern District of California seeking chapter 15 recognition of the Monaco Proceeding. At that time, the Monegasque court had not yet determined in accordance with the Monegasque Commercial Code whether the Monaco Proceeding would proceed as a reorganization or a liquidation, but the latter appeared likely as BG had ceased operating.

IPAC opposed recognition. It argued that a U.S. bankruptcy court has never recognized a Monegasque bankruptcy under chapter 15. IPAC also contended that it would be manifestly contrary to U.S. public policy because BG's insiders were acting in bad faith to exploit the bankruptcy systems in both the United States and Monaco. According to IPAC, the "true purpose" of the bankruptcy cases was to allow the Napoleonis to "escape liability for their international torts." IPAC also contended that the differences between the bankruptcy laws of Monaco and the United States were so great that the U.S. bankruptcy court should refuse to recognize the Monaco Proceeding.

The bankruptcy court denied the petition for recognition. Among other reasons: (i) the court was skeptical about the timing of the Monegasque court's designation of the "cessation of payments" date as the same day that IPAC's California arbitration award became final; and (ii) despite Samba's extreme lack of candor, the court discovered that the Napoleonis were paying Samba's attorneys' fees, and his lawyers also represented BG in the California litigation and the Napoleonis in a separate lawsuit filed in Ohio. The bankruptcy court found that Samba was not acting as a true fiduciary, and that the chapter 15 case was essentially a two-party dispute pitting BG and the Napoleonis against IPAC, rather than a vehicle for any meaningful recovery for creditors.

The bankruptcy court ruled that the chapter 15 petition was not a legitimate use of chapter 15 for the purposes and objectives stated in section 1501 of the Bankruptcy Code. Instead, the court reasoned, the filing was an effort to preclude IPAC from recovering on its judgment and to protect the Napoleonis and PLX from the consequences of their wrongful conduct. It accordingly denied recognition of the Monaco Proceeding without making any findings under section 1517. Samba appealed the ruling to the BAP.

The Bankruptcy Appellate Panel's Ruling

The BAP reversed on appeal.

Writing for the panel, U.S. Bankruptcy Judge Julia W. Brand stated that the bankruptcy court erred by relying on section 1501 to deny chapter 15 recognition. Instead, she explained, recognition is governed by sections 1515 through 1524, and the requirements for recognition are specifically outlined in section 1517(a).

According to Judge Brand, if all three requirements of section 1517(a) are satisfied, "recognition is mandatory … and there is no public policy basis to deny it." Black Gold, 2022 WL 488438, at *6 (citing ABC Learning, 728 F.3d at 306-09; In re PT Bakrie Telecom Tbk, 628 B.R. 859, 870 (Bankr. S.D.N.Y. 2021); In re Creative Finance Ltd., 543 B.R. 498, 514 (Bankr. S.D.N.Y. 2016); Millard, 501 B.R. at 653–54). Moreover, she explained, lawmakers' use of the word "shall" in section 1517(a) "removed the court's discretion in determining recognition if the requirements in all three subparagraphs of § 1517(a) have been satisfied." Id. Judge Brand also noted that the "discretionary factors" that courts formerly applied under section 304(c) of the Bankruptcy Code in determining whether to grant any form of relief to a foreign representative, including recognition, are now embodied in section 1507(b) of the Bankruptcy Code, which applies only after recognition.

Judge Brand then examined whether the bankruptcy court should have recognized the Monaco Proceeding under chapter 15 as a foreign main proceeding.

She found that the Monaco Proceeding satisfied all of the elements of section 1517(a) because: (i) the Monaco Proceeding met the definition of a "foreign proceeding" under section 101(23); (ii) Samba qualified as a "foreign representative," as defined in section 101(24); and (iii) the chapter 15 petition was supported by the documentary evidence required by section 1515.

Judge Brand then addressed whether, despite the petition's compliance with the requirements of section 1517(a), recognition should be denied because the Monaco Proceeding was manifestly contrary to U.S. public policy. She concluded that recognition should not be denied on that basis.

Judge Brand agreed with the courts in Culligan, Manley Toys, Creative Finance, and Millard that, "standing alone," bad faith is not a proper basis to invoke section 1506 to deny recognition. Even if the BAP were to rule otherwise, she observed, "the conduct here, while objectionable, did not rise to the level of a violation of U.S. public policy, and certainly not 'manifestly' so." Black Gold, 2022 WL 488438, at *10. Although the Monaco Proceeding and BG's chapter 15 petition were clearly designed to thwart IPAC's collection efforts, Judge Brand wrote, "Bankruptcies are filed in the United States under other chapters for the same purpose, but the petition may still be filed." Id.

In addition, Judge Brand determined that the differences between the procedural and substantive aspects of Monegasque and U.S. bankruptcy law (including the absence of a creditor discovery mechanism or an alter ego basis for liability) were not significant enough to warrant denial of recognition on public policy grounds. Indeed, she emphasized, merely because a U.S. bankruptcy court has not yet recognized a Monaco proceeding does not mean that chapter 15 recognition is not warranted. Importantly, Judge Brand noted that "the absence of certain procedural or constitutional rights or differences in insolvency schemes will not bar recognition under the public policy exception" in section 1506.

Finally, Judge Brand explained that a U.S. bankruptcy court is not helpless when confronted with misconduct or bad faith in a chapter 15 case. For example, after recognition, the court could abstain from or suspend all proceedings in a chapter 15 case under sections 305(a)(2) and 1529(4) of the Bankruptcy Code. The court could also grant relief from the automatic stay under section 362(d)(1) upon demonstration of "cause." Finally, Judge Brand noted, the court has the power under section 1517(d) to modify or terminate recognition "if the grounds for granting it were fully or partially lacking or have ceased to exist." Id. at *11.

The BAP accordingly reversed the bankruptcy court's order refusing to recognize the Monaco Proceeding under chapter 15.


Black Gold and the handful of similar rulings addressing this issue highlight important distinctions between cases under chapter 11 and chapter 15 of the Bankruptcy Code. In certain circumstances, good faith acts as a gatekeeper to chapter 11. For example, a company facing existential litigation judgments, contingent mass tort claims, or other creditor collection efforts clearly satisfies the good faith requirements of chapter 11.

By contrast, the public policy exception in chapter 15 focuses on the foreign country's insolvency process and procedures, rather than the debtor or its conduct. Chapter 15 was designed to provide a mechanism for U.S. bankruptcy courts to assist foreign tribunals and functionaries in the process of overseeing a foreign debtor's bankruptcy or insolvency. Provided the foreign bankruptcy or insolvency process roughly comports with U.S. public policy, the foreign debtor's (or foreign representative's) intent in seeking recognition under chapter 15 is largely irrelevant. And, to the extent there may be nefarious conduct by debtors or a foreign representative, a bankruptcy court has various tools at hand to address such issues, including, among other things, limiting the amount of additional assistance provided under section 1507 or possibly limiting the foreign representative's authority under section 1520(a)(3) (giving the court the discretion to restrict a foreign representative's ability to operate the debtor's business or to exercise a bankruptcy trustee's rights under sections 363 and 552 of the Bankruptcy Code). Moreover, as the BAP noted in Black Gold, the court may abstain from or suspend all proceedings in the chapter 15 case, grant relief from the automatic stay for "cause," or modify or terminate recognition if the circumstances so dictate.

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.