Gap Period Injunctive Relief Warranted In Chapter 15 Case Where Recognition Of Canadian Receivership Likely Based On U.S. Debtors' Receivership Activities

• Published date: 22 September 2025
• Subject Matter: Corporate/Commercial Law, Insolvency/Bankruptcy/Re-Structuring, Financial Restructuring, Corporate and Company Law, Insolvency/Bankruptcy
• Law Firm: Jones Day
• Author: Ms Corinne Ball, Heather Lennox, Dan Moss and Nicholas Morin

Unlike in cases filed under other chapters of the Bankruptcy Code, the filing of a petition for recognition of a foreign bankruptcy case under chapter 15 does not automatically trigger a stay of creditor actions against a debtor or its U.S. assets. Instead, the automatic stay generally applies only at such time that the U.S. bankruptcy court later enters an order recognizing the foreign bankruptcy as a "main" proceeding under chapter 15 or, in the event of recognition as a foreign "nonmain" proceeding, the court exercises its discretion to grant equivalent provisional relief.

This can be problematic if creditor collection efforts continue during the "gap period" between the filing of the chapter 15 petition and the entry of a recognition order. However, section 1519 of the Bankruptcy Code authorizes bankruptcy courts to grant provisional relief―including extension of the automatic stay or the issuance of a temporary injunction to protect the foreign debtor's U.S. assets―during the gap period "where relief is urgently needed to protect the assets of the debtor or the interests of the creditors."

The U.S. bankruptcy court for the Southern District of New York addressed a request for gap period injunctive relief in In re Giftcraft Ltd., 2025 WL 1583480 (Bankr. S.D.N.Y. June 4, 2025). Pending its decision on a petition for chapter 15 recognition of a Canadian receivership, the court in an unpublished ruling granted a foreign representative's request for a temporary injunction preventing creditors from proceeding against the assets of three U.S.-incorporated companies that were part of a group of companies subject to the receivership. Among other things, the bankruptcy court concluded that the foreign representative was likely to succeed in obtaining chapter 15 recognition because, although incorporated in the United States, the U.S. companies' "center of main interest" was in Canada. The court also ruled that parties affected by the injunction were adequately protected because they could participate and seek appropriate redress in both the Canadian receivership and the chapter 15 case.

Procedures and Recognition 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.

Under section 1515 of the Bankruptcy Code, the "foreign representative" of a non-U.S. 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."

"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 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). However, this presumption can be overcome.

Various factors have been deemed relevant by courts in determining a debtor's COMI, including the physical location of each debtor entity's headquarters, managers, employees, investors, primary assets, and creditors, as well as the jurisdiction whose law would apply to most of the debtor's disputes. See In re SPhinX, Ltd., 351 B.R. 103 (Bankr. S.D.N.Y. 2006), aff'd, 371 B.R. 10 (S.D.N.Y. 2007).

In addition, courts have considered any relevant activities leading up to the chapter 15 filing, including liquidation or reorganization activities and administrative functions. See Morning Mist Holdings Ltd. v. Krys (In re Fairfield Sentry Ltd.), 714 F.3d 127 (2d Cir. 2013). Such activities can entail the negotiation or execution of a restructuring support agreement with creditors, creditor meetings, liquidation activities (including court hearings), or administrative functions. See, e.g., In re Oi Brasil Holdings Co'peratief U.A., 578 B.R. 169, 222 (Bankr. S.D.N.Y. 2017) (citing In re Creative Finance Ltd. (In Liquidation), 543 B.R. 498, 517 (Bankr. S.D.N.Y. 2016); In re Modern Land (China) Co., 641 B.R. 768, 778-81, 789-90 (Bankr. S.D.N.Y. 2022)). In addition, where the debtor is an entity with limited operations, it may be the case that restructuring activities performed outside the United States constitute the debtor's primary business activity prior to the filing of the chapter 15 petition.

Courts may also consider the situs of each debtor entity's "nerve center," including the location from which such entity's "activities are directed and controlled, in determining a debtor's COMI." Fairfield Sentry, 714 F.3d at 138. "[R]egularity and ascertainability" by creditors are also important factors in the COMI analysis. Id.; In re British Am. Ins. Co., 425 B.R. 884, 912 (Bankr. S.D. Fla. 2010) ("The location of a debtor's COMI should be readily ascertainable by third parties."); In re Betcorp Ltd., 400 B.R. 266, 289 (Bankr. D. Nev. 2009) (looking to whether COMI is ascertainable by creditors). Creditors' expectations regarding the location of a debtor's COMI are also relevant. See In re Serviços de Petróleo Constellation S.A., 613 B.R. 497 (Bankr. S.D.N.Y. 2019); Oi Brasil, 578 B.R. at 228.

COMI can sometimes be found to have shifted, or "migrated," from a foreign debtor's original principal place of business or habitual residence to a new location. See Pirogova, 593 B.R. at 410; see also Creative Finance, 543 B.R. at 519 (ruling that the liquidator's efforts were too minimal to find a shift in COMI and noting that "[i]n the two months between the time [the debtors' principal] retained him and the time he filed his chapter 15 case in this Court, the Liquidator failed to do the basic things that can under normal circumstances cause a change in COMI'even in a liquidation"). In Fairfield Sentry, the Second Circuit ruled that, due principally to the present verb tense of the language of section 1517, the relevant time for assessing COMI is the chapter 15 petition date, rather than the date a foreign insolvency proceeding is commenced with respect to the debtor. See Fairfield Sentry, 714 F.3d at 137. The Fifth Circuit previously reached the same conclusion in In re Ran, 607 F.3d 1017 (5th Cir. 2010), as did the bankruptcy court in British American.

In Fairfield Sentry, the Second Circuit also expressed concern about possible COMI "manipulation," ruling that a court "may look at the period between the commencement of the foreign proceeding and the filing of the Chapter 15 petition to ensure that a debtor has not manipulated its COMI in bad faith." Fairfield Sentry, 714 F.3d at 138.

In cases involving multiple foreign debtors, COMI must be determined on an entity-by-entity basis. See In re Black Press Ltd., No. 24-100044 (MFW) (Bankr. D. Del. Feb. 14, 2024) (unpublished order) (Doc. No. 73) (in a case involving multiple enterprise group debtors, the court must examine each debtor's COMI separately, rather than the enterprise group as a whole, for purposes of chapter 15 recognition; U.S. debtors' guarantee of their Canadian parent company's debts was an insufficient basis to conclude that the U.S. debtors' COMI was located in Canada, or that the U.S. debtor's even maintained an "establishment" in Canada); In re Servicos de Petroleo Constellation S.A., 600 B.R. 237, 244 (Bankr. S.D.N.Y. 2019) ("While the Constellation Group is discussed as a group entity at times throughout this opinion's opening sections for context, it is important to bear in mind that the Court's recognition is granted on an individual debtor by debtor basis."); In re OAS S.A., 533 B.R. 83, 92 n.8 (Bankr. S.D.N.Y. 2015).

If a U.S. court recognizes a foreign main proceeding under chapter 15, section 1520(a)(1) of the Bankruptcy Code provides that actions against the foreign debtor or its property located in the United States are stayed under section 362―the Bankruptcy Code's "automatic stay." Following recognition of a foreign main or nonmain proceeding, a bankruptcy court is authorized under section 1521 to grant, among other things, injunctive relief staying actions or execution against the debtor's U.S. assets, the authority to distribute the proceeds of the debtor's U.S. assets, and, with certain exceptions, any additional relief available to a bankruptcy trustee "where necessary to effectuate the purpose of [chapter 15] and to...