Chapter 15: An Update

Chapter 15 of the Bankruptcy Code,1 the U.S. enacted equivalent of the UNCITRAL Model Law On Cross-Border Insolvencies, has received a fair amount of use by distressed shipping companies since it was enacted in 2005. In 2007, we wrote in these pages that Chapter 15 might provide a welcome U.S. safe harbor. (See "Shipping, Finance, and Insolvencies: A Homeport in the United States?" Mainbrace, June 2007, No. 2).

More recently, in 2009, we published "Shipping, Finance, and Insolvencies: The Black Swan Comes Home to Roost" (Mainbrace, January 2009, No. 1) about the increasing likelihood of shipping companies seeking U.S. bankruptcy protection. In the last three years, numerous shipping and other companies have done just that—not only to protect assets in the United States, but also for other purposes. The number of such filings might almost be called something of a "cottage industry"—were it not for the "industrial" rates charged. Obtaining recognition for a foreign insolvency is not, however, a foregone conclusion. The "center of main interest" or "COMI" should be carefully examined before pursuing the Chapter 15 path.

The Mechanics of Recognition

The Issue of COMI

Under Chapter 15, a foreign representative may file a petition seeking recognition of a foreign insolvency proceeding as either a "foreign main" or a "foreign non-main" proceeding. Unlike a voluntary Chapter 11 reorganization petition, a Chapter 15 petitioner is not entitled to an immediate order of relief recognizing it as a U.S. debtor. Accordingly, the foreign petitioner is not entitled to the benefits of the "automatic stay" or any other U.S. bankruptcy law protections (unless the court provides so on an interim basis) until the petition is granted.2 The Chapter 15 petition may be...