Impact of Cross-Border Court-to-Court Communications on U.S. Creditors' Rights
As U.S. businesses have gone global, so have their customers. U.S. companies selling abroad have been confronted with customers that have filed for relief under their country’s insolvency law. If the customer has a business or assets here in the U.S., he or she might then file either a Chapter 11 or Chapter 15 case in a U.S. bankruptcy court.
Unlike a Chapter 11 case, a Chapter 15 case is not necessarily the “main event.” Yet, even in Chapter 15 cases, U.S. judges still have critical roles to play with respect to, among other things, administering a foreign debtor’s U.S. assets and ensuring U.S. creditors’ rights are fairly and adequately protected. One way to protect the interests of U.S. creditors is pursuant to section 1525 of the Bankruptcy Code, which encourages communication and cooperation among the courts involved in crossborder proceedings and authorizes U.S. courts to communicate directly with foreign courts.
Until recently, U.S. bankruptcy courts in Chapter 11 and Chapter 15 cases involved in cross-border proceedings have approved protocols—often on a case-bycase ad hoc manner—to communicate with foreign courts or foreign judges based on the broad authorityprovided to them by the Bankruptcy Code. However, beginning earlier this year, several influential U.S. bankruptcy courts and courts outside of the United States have adopted or followed the Judicial Insolvency Network’s (“JIN”) Guidelines for Communication and Cooperation between Courts in Cross-Border Insolvency Matters (the “Guidelines”). Judges from Australia, Bermuda, the British Virgin Islands, Canada, the Cayman Islands, England and Wales, Singapore, Hong Kong, and the United States created the Guidelines following an October 2016 JIN conference (the “JIN Conference”) held in Singapore. The Guidelines seek “to improve … the efficiency and effectiveness of crossborder proceedings relating to insolvency or adjustment of debt opened in more than one jurisdiction … by enhancing coordination and cooperation among courts under whose supervision such proceedings are being conducted.”
This article provides a summary of the Guidelines and two recent examples of cases in which U.S. bankruptcy judges presiding over cross-border Chapter 15 cases sought to utilize court-to-court communications—similar to the types of communications contemplated by the Guidelines—to help render decisions on certain pending legal issues.
Overview of Chapter 15
Chapter 15 contains the rules and procedures that a foreign debtor can utilize to facilitate a foreign insolvency proceeding in the United States. Chapter 15 cases are filed to protect a foreign debtor’s assets and business in the United States from creditor enforcement actions and allow a foreign debtor to obtain bankruptcy court recognition and approval of, among other things, actions approved in the foreign proceeding and other relief.
A foreign debtor must obtain recognition of the foreign proceeding in order to obtain Chapter 15 relief. Such relief may include authorizing a bankruptcy court to “grant any appropriate relief ” in order to protect the foreign debtor’s U.S. assets and the interests of its creditors. In addition, once a bankruptcy court grants recognition, it may grant relief requested by a foreign debtor,provided there is reasonable assurance of the: 1) just treatment of all holders of claims against or interests in the debtor’s property; 2) protection of claim holders in the United States against prejudice and inconvenience in the processing of claims in such foreign proceeding; and 3) prevention of preferential or fraudulent dispositions of property of the debtor.
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