Chapter 15 Recognition Limited To Foreign Insolvency, Liquidation, Or Restructuring Proceedings

• Jurisdiction: United States,Federal
• Law Firm: Jones Day
• Subject Matter: Corporate/Commercial Law, Insolvency/Bankruptcy/Re-structuring, Financial Restructuring, Corporate and Company Law, Insolvency/Bankruptcy
• Author: Ms Corinne Ball, Dan Moss, Michael C. Schneidereit, Isel Perez and Mark Douglas
• Published date: 31 March 2023

In In re Global Cord Blood Corp., 2022 WL 17478530 (Bankr. S.D.N.Y. Dec. 5, 2022), the U.S. Bankruptcy Court for the Southern District of New York denied without prejudice a petition filed by the joint provisional liquidators for recognition of a "winding-up" proceeding commenced under Cayman Islands law. Contrary to the "winding-up" phrase associated with the applicable Cayman statute, however, the joint provisional liquidators were appointed only for the purposes of investigating allegations that a Cayman company's board and/or officers caused or allowed an improper expenditure of more than $600 million of corporate funds and preventing further dissipation of the company's assets. According to the court, chapter 15 recognition was unwarranted because the proceeding was more akin to a corporate governance and fraud remediation effort rather than a proceeding that considers the rights and objectives of a company's creditors in the context of a court-supervised insolvency, reorganization, or liquidation proceeding.

To rule otherwise, the bankruptcy court wrote, "would be to invite recourse to U.S. bankruptcy courts whenever any foreign corporation sustains losses as a result of officer or director fraud or defalcation, so long as that corporation first commences proceedings in its home jurisdiction seeking to install new fiduciaries and right the wrong that the corporation has suffered." The court further explained that, although Cayman law generally establishes standards and procedures for the liquidation or winding up of insolvent companies, no such liquidation was underway when the provisional liquidators filed their chapter 15 petition, which was "fatal" to their request for chapter 15 recognition and related relief.

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 (the "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's stated purpose is "to provide effective mechanisms for dealing with cases of cross-border insolvency" with the objective of, among other things, cooperation between U.S. and non-U.S. courts.

Under section 1515 of the Bankruptcy Code, the representative of a foreign debtor 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."

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...