Chapter 15: An Effective Aid To Foreign Administrators And Creditors For Collecting And Liquidating Assets In The U.S.

In these days of continued integration of the world economy, it is not unusual for a foreign-based business enterprise to own assets of substantial value in the United States either directly or through an affiliate. If the foreign enterprise commences an insolvency proceeding in its home country, there is substantial risk that local American creditors of the insolvent company may seek to attach these assets to satisfy their own claims to the prejudice of non-U.S. creditors. In these circumstances, foreign creditors are well-advised to approach the insolvency administrator or other representative of the foreign debtor and urge him or her to commence a case in the United States under Chapter 15 of the United States Bankruptcy Code to shield these assets from local creditor collection and foreclosure actions and preserve the value of these assets for all creditors of the foreign debtor.

It is not unusual for an administrator or trustee appointed in a foreign insolvency proceeding to be charged by the supervising foreign court with the responsibility of collecting and administering assets located in the United States. Prior to 2005, a foreign administrator could petition a United States bankruptcy court to commence a "case ancillary to a foreign proceeding" under former section 304 of the United States Bankruptcy Code (the "Code"). This provision was enacted by Congress in 1978 as part of the Bankruptcy Reform Act of that year when economic globalization was in its infancy. This provision also granted American bankruptcy courts significant discretion to either accept a foreign administrator's petition to commence an ancillary case or to deny it altogether and many of these petitions were dismissed on various grounds. Dismissal of these petitions not only hamstrung foreign administrators in performing their duties to creditors but also injured those creditors, especially those holding liens in the American assets, by inhibiting (and sometimes prohibiting) them from sharing in these potential sources of recoveries.

Cooperation and Legal Certainty

In 2005, the United States Congress enacted the Bankruptcy Abuse Prevention and Consumer Protection Act which, among other things, adopted with certain language changes the Model Law on Cross Border Insolvency approved by the United Nations General Assembly in 1997 (the "Model Law"). The Model Law has been incorporated into Chapter 15 of the Code and its statutory purpose is to provide "effective...