Kumtor Gold Challenges The Practical Application Of The Automatic Stay's Global Reach

• Published date: 16 November 2021
• Subject Matter: Insolvency/Bankruptcy/Re-structuring, Insolvency/Bankruptcy
• Law Firm: Jones Day
• Author: Ms Anna Kordas

Although the automatic stay contained in section 362 of the Bankruptcy Code theoretically extends worldwide, enforcing it against international creditors, particularly sovereigns, can present practical problems in its application. The chapter 11 cases of Kumtor Gold Company CJSC and Kumtor Operating Company CJSC (collectively, "Kumtor") pending before Judge Lisa Beckerman in the U.S. Bankruptcy Court for the Southern District of New York (Case No. 21-11051) have been testing the practical application of the automatic stay's global reach since the commencement of the cases in late May 2021. Kumtor's bankruptcy is riddled with international and sovereign creditor issues and showcases difficulties that may arise for Western companies when their investments enmesh with unstable governmental regimes.

The Automatic Stay

Section 362(a) of the Bankruptcy Code prevents creditors from taking actions to collect on their claims or, among other things, to gain possession of "property of the estate." By operation of section 541, the automatic stay thus applies to the debtor's asset "wherever located and by whomever held." One purpose of the automatic stay is to allow the debtor to centralize all disputes regarding the bankruptcy estate's property so that the debtor can reorganize under the supervision of a single court. See SEC v. Brennan, 230 F.3d 65, 70 (2d Cir. 2000) ("[T]he automatic stay provision is intended to allow the bankruptcy court to centralize all disputes concerning property of the debtor's estate so that reorganization can proceed efficiently, unimpeded by uncoordinated proceedings in other arenas.").

A debt collection moratorium or stay applying in all countries is not a notion exclusive to U.S. law. Insolvency laws in many countries provide for a moratorium against collection actions outside of an insolvency proceeding, and in many countries this moratorium extends internationally. For example, for all nations belonging to the European Union, the moratorium imposed under the law of the member nation where the insolvency proceeding is opened applies throughout the European Union, as well as in all other countries. See Council Regulation 1346/2000 on Insolvency Proceedings, as amended, 2000 O.J. (L.160/1) 1, art. 17.

However, the extraterritorial jurisdiction of the U.S. courts for the purposes of the automat stay is in personam rather than in rem. This means that, although a creditor that seizes non-U.S. property of a debtor in a U.S. bankruptcy case violates the automatic stay, whether or not a U.S. bankruptcy court can do anything about it is a function of that creditor's susceptibility to U.S. process. See Sinatra v. Gucci (In re Gucci), 309 B.R. 679, 683-84 (S.D.N.Y. 2004) (citing Collier on Bankruptcy ' 3.01[5], at 3-32 to 3-33 (15th ed. rev. 2003)); see also David P. Stromes, Note: The Extraterritorial Reach of the Bankruptcy Code's Automatic Stay: Theory vs. Practice, 33 Brooklyn J. Int'l L. 277...