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Chapter 15
Ancillary and Other Cross-Border Cases
Chapter 15 is a new chapter added to the Bankruptcy Code by the Bankruptcy Abuse
Prevention and Consumer Protection Act of 2005. It is the U.S. domestic adoption of the
Model Law on Cross-Border Insolvency promulgated by the United Nations
Commission on International Trade Law ("UNCITRAL") in 1997, and it replaces section
304 of the Bankruptcy Code. Because of the UNCITRAL source for chapter 15, the U.S.
interpretation must be coordinated with the interpretation given by other countries that
have adopted it as internal law to promote a uniform and coordinated legal regime for
cross-border insolvency cases.
The purpose of Chapter 15, and the Model Law on which it is based, is to provide
effective mechanisms for dealing with insolvency cases involving debtors, assets,
claimants and other parties in interest involving more than one country. This general
purpose is realized through five objectives specified in the statute: (1) to promote
cooperation between the United States courts and parties in interest and the courts and
other competent authorities of foreign countries involved in cross-border insolvency
cases; (2) to establish greater legal certainty for trade and investment; (3) to provide for
the fair and efficient administration of cross-border insolvencies that protects the
interests of all creditors and other interested entities, including the debtor; (4) to afford
protection and maximization of the value of the debtor's assets; and (5) to facilitate the
rescue of financially troubled businesses, thereby protecting investment and preserving
employment. 11 U.S.C. § 1501.
Generally, a chapter 15 case is ancillary to a primary proceeding brought in another
country, typically the debtor's home country. As an alternative, the debtor or a creditor
may commence a full chapter 7 or chapter 11 case in the United States if the assets in
the United States are sufficiently complex to merit a full-blown domestic bankruptcy
case. 11 U.S.C. § 1520(c). In addition, under chapter 15 a U.S. court may authorize a
trustee or other entity (including an examiner) to act in a foreign country on behalf of a
U.S. bankruptcy estate. 11 U.S.C. § 1505.
An ancillary case is commenced under chapter 15 by a "foreign representative" filing a
petition for recognition of a "foreign proceeding." (1) 11 U.S.C. § 1504. Chapter 15 gives
the foreign representative the right of direct access to U.S. courts for this purpose. 11
U.S.C. § 1509. The petition must be accompanied by documents showing the existence
of the foreign proceeding and the appointment and authority of the foreign
representative. 11 U.S.C. § 1515. After notice and a hearing, the court is authorized to
issue an order recognizing the foreign proceeding as either a "foreign main proceeding"
(a proceeding pending in a country where the debtor's center of main interests are
located) or a "foreign non-main proceeding" (a proceeding pending in a country where
the debtor has an establishment, (2) but not its center of main interests). 11 U.S.C. §
1517. Immediately upon the recognition of a foreign main proceeding, the automatic
stay and selected other provisions of the Bankruptcy Code take effect within the United
States. 11 U.S.C. § 1520. The foreign representative is also authorized to operate the
debtor's business in the ordinary course. Id. The U.S. court is authorized to issue
preliminary relief as soon as the petition for recognition is filed. 11 U.S.C. § 1519.
Through the recognition process, chapter 15 operates as the principal door of a foreign
representative to the federal and state courts of the United States. 11 U.S.C. § 1509.
Once recognized, a foreign representative may seek additional relief from the
bankruptcy court or from other state and federal courts and is authorized to bring a full
(as opposed to ancillary) bankruptcy case. 11 U.S.C. §§ 1509, 1511. In addition, the
representative is authorized to participate as a party in interest in a pending U.S.
insolvency case and to intervene in any other U.S. case where the debtor is a party. 11
U.S.C. §§ 1512, 1524.
Chapter 15 also gives foreign creditors the right to participate in U.S. bankruptcy cases
and it prohibits discrimination against foreign creditors (except certain foreign
government and tax claims, which may be governed by treaty). 11 U.S.C. § 1513. It also
requires notice to foreign creditors concerning a U.S. bankruptcy case, including notice
of the right to file claims. 11 U.S.C. § 1514.
One of the most important goals of chapter 15 is to promote cooperation and
communication between U.S. courts and parties in interest with foreign courts and
parties in interest in cross-border cases. This goal is accomplished by, among other
things, explicitly charging the court and estate representatives to "cooperate to the
maximum extent possible" with foreign courts and foreign representatives and
authorizing direct communication between the court and authorized estate
representatives and the foreign courts and foreign representatives. 11 U.S.C. §§ 1525 -
1527.
If a full bankruptcy case is initiated by a foreign representative (when there is a foreign
main proceeding pending in another country), bankruptcy court jurisdiction is generally
limited to the debtor's assets that are located in the United States. 11 U.S.C. § 1528.
The limitation promotes cooperation with the foreign main proceeding by limiting the
assets subject to U.S. jurisdiction, so as not to interfere with the foreign main
proceeding. Chapter 15 also provides rules to further cooperation where a case was
filed under the Bankruptcy Code prior to recognition of the foreign representative and for
coordination of more than on foreign proceeding. 11 U.S.C. §§ 1529 - 1530.
The UNCITRAL Model Law has also been adopted (with certain variations) in Canada,
Mexico, Japan and several other countries. Adoption is pending in the United Kingdom
and Australia, as well as other countries with significant international economic
interests.
________________________________________
NOTES
1. A "foreign proceeding" is a "judicial or administrative proceeding in a foreign country
... under a law relating to insolvency or adjustment of debt in which proceeding the
[debtor's assets and affairs] are subject to control or supervision by a foreign court for
the purpose of reorganization or liquidation." 11 U.S.C. § 101(23). A "foreign
representative" is the person or entity authorized in the foreign proceeding "to
administer the reorganization or liquidation of the debtor's assets or affairs or to act as
a representative of such foreign proceeding."
2. An establishment is a place of operations where the debtor carries out a long term
economic activity. 11 U.S.C. § 1502(2).
Chapter 15 is a new chapter added to the Bankruptcy Code by the Bankruptcy Abuse
Prevention and Consumer Protection Act of 2005. It is the U.S. domestic adoption of the
Model Law on Cross-Border Insolvency promulgated by the United Nations
Commission on International Trade Law ("UNCITRAL") in 1997, and it replaces section
304 of the Bankruptcy Code. Because of the UNCITRAL source for chapter 15, the U.S.
interpretation must be coordinated with the interpretation given by other countries that
have adopted it as internal law to promote a uniform and coordinated legal regime for
cross-border insolvency cases.
The purpose of Chapter 15, and the Model Law on which it is based, is to provide
effective mechanisms for dealing with insolvency cases involving debtors, assets,
claimants and other parties in interest involving more than one country. This general
purpose is realized through five objectives specified in the statute: (1) to promote
cooperation between the United States courts and parties in interest and the courts and
other competent authorities of foreign countries involved in cross-border insolvency
cases; (2) to establish greater legal certainty for trade and investment; (3) to provide for
the fair and efficient administration of cross-border insolvencies that protects the
interests of all creditors and other interested entities, including the debtor; (4) to afford
protection and maximization of the value of the debtor's assets; and (5) to facilitate the
rescue of financially troubled businesses, thereby protecting investment and preserving
employment. 11 U.S.C. § 1501.
Generally, a chapter 15 case is ancillary to a primary proceeding brought in another
country, typically the debtor's home country. As an alternative, the debtor or a creditor
may commence a full chapter 7 or chapter 11 case in the United States if the assets in
the United States are sufficiently complex to merit a full-blown domestic bankruptcy
case. 11 U.S.C. § 1520(c). In addition, under chapter 15 a U.S. court may authorize a
trustee or other entity (including an examiner) to act in a foreign country on behalf of a
U.S. bankruptcy estate. 11 U.S.C. § 1505.
An ancillary case is commenced under chapter 15 by a "foreign representative" filing a
petition for recognition of a "foreign proceeding." (1) 11 U.S.C. § 1504. Chapter 15 gives
the foreign representative the right of direct access to U.S. courts for this purpose. 11
U.S.C. § 1509. The petition must be accompanied by documents showing the existence
of the foreign proceeding and the appointment and authority of the foreign
representative. 11 U.S.C. § 1515. After notice and a hearing, the court is authorized to
issue an order recognizing the foreign proceeding as either a "foreign main proceeding"
(a proceeding pending in a country where the debtor's center of main interests are
located) or a "foreign non-main proceeding" (a proceeding pending in a country where
the debtor has an establishment, (2) but not its center of main interests). 11 U.S.C. §
1517. Immediately upon the recognition of a foreign main proceeding, the automatic
stay and selected other provisions of the Bankruptcy Code take effect within the United
States. 11 U.S.C. § 1520. The foreign representative is also authorized to operate the
debtor's business in the ordinary course. Id. The U.S. court is authorized to issue
preliminary relief as soon as the petition for recognition is filed. 11 U.S.C. § 1519.
Through the recognition process, chapter 15 operates as the principal door of a foreign
representative to the federal and state courts of the United States. 11 U.S.C. § 1509.
Once recognized, a foreign representative may seek additional relief from the
bankruptcy court or from other state and federal courts and is authorized to bring a full
(as opposed to ancillary) bankruptcy case. 11 U.S.C. §§ 1509, 1511. In addition, the
representative is authorized to participate as a party in interest in a pending U.S.
insolvency case and to intervene in any other U.S. case where the debtor is a party. 11
U.S.C. §§ 1512, 1524.
Chapter 15 also gives foreign creditors the right to participate in U.S. bankruptcy cases
and it prohibits discrimination against foreign creditors (except certain foreign
government and tax claims, which may be governed by treaty). 11 U.S.C. § 1513. It also
requires notice to foreign creditors concerning a U.S. bankruptcy case, including notice
of the right to file claims. 11 U.S.C. § 1514.
One of the most important goals of chapter 15 is to promote cooperation and
communication between U.S. courts and parties in interest with foreign courts and
parties in interest in cross-border cases. This goal is accomplished by, among other
things, explicitly charging the court and estate representatives to "cooperate to the
maximum extent possible" with foreign courts and foreign representatives and
authorizing direct communication between the court and authorized estate
representatives and the foreign courts and foreign representatives. 11 U.S.C. §§ 1525 -
1527.
If a full bankruptcy case is initiated by a foreign representative (when there is a foreign
main proceeding pending in another country), bankruptcy court jurisdiction is generally
limited to the debtor's assets that are located in the United States. 11 U.S.C. § 1528.
The limitation promotes cooperation with the foreign main proceeding by limiting the
assets subject to U.S. jurisdiction, so as not to interfere with the foreign main
proceeding. Chapter 15 also provides rules to further cooperation where a case was
filed under the Bankruptcy Code prior to recognition of the foreign representative and for
coordination of more than on foreign proceeding. 11 U.S.C. §§ 1529 - 1530.
The UNCITRAL Model Law has also been adopted (with certain variations) in Canada,
Mexico, Japan and several other countries. Adoption is pending in the United Kingdom
and Australia, as well as other countries with significant international economic
interests.
________________________________________
NOTES
1. A "foreign proceeding" is a "judicial or administrative proceeding in a foreign country
... under a law relating to insolvency or adjustment of debt in which proceeding the
[debtor's assets and affairs] are subject to control or supervision by a foreign court for
the purpose of reorganization or liquidation." 11 U.S.C. § 101(23). A "foreign
representative" is the person or entity authorized in the foreign proceeding "to
administer the reorganization or liquidation of the debtor's assets or affairs or to act as
a representative of such foreign proceeding."
2. An establishment is a place of operations where the debtor carries out a long term
economic activity. 11 U.S.C. § 1502(2).
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