CROSS-BORDER INSOLVENCIES AND A RECENT CHAPTER 15 … · 2013. 10. 17. · CROSS-BORDER INSOLVENCIES AND A RECENT CHAPTER 15 CASE PENDING IN TEXAS: In re Vitro, S.A.B. de C.V. JUDITH

CROSS-BORDER INSOLVENCIES AND

A RECENT CHAPTER 15 CASE PENDING IN TEXAS:

In re Vitro, S.A.B. de C.V.

JUDITH W. ROSS

WILLIAM F. STUTTS

Baker Botts L.L.P.

2001 Ross Avenue

Dallas, Texas 75201

(214) 953-6605

[email protected]

[email protected]

State Bar of Texas

29th

ANNUAL

ADVANCED BUSINESS BANKRUPTCY COURSE

September 8-9, 2011

Houston

CHAPTER 20

Abu Dhabi Austin Beijing Dallas Dubai Hong Kong Houston London Moscow New York Palo Alto Riyadh Washington

J U D I T H R O S S

P a r t n e r

2001 Ross Avenue

Dallas, Texas 75201-2980

United States

+1.214.953.6605

+1.214.661.4605 fax

[email protected]

Education and Honors

J.D. (with honors), The University of

Texas School of Law, 1985

M.A., history, The University of

Texas, 1981

B.A. (summa cum laude ), history,

Miami University, 1979

Phi Beta Kappa

Listed in The Best Lawyers in

America, 2003 - 2010 and Chambers

USA, 2004 - 2010

Named one of the "Best Lawyers in

Dallas" by D Magazine, 2003, 2005,

2007 and 2008

Recognized as one of the Top 100

Dallas/Fort Worth Region Super

Lawyers, 2003 and 2004, as a Texas

Super Lawyer, 2003 - 2010, and one

of the Top 50 Female Super Lawyers

in Texas, 2003 - 2007

Listed in Who's Who Legal: Texas,

2008

Court Admissions and Affiliations

State Bar of Texas

United States Courts of Appeals for

the Fifth and Tenth Circuits

United States District Courts for the

Northern, Southern, Eastern and

Western Districts of Texas

American Bar Association, Business

Law Section

Courthouse Liaison Committee,

Northern District of Texas, past

President

Dallas Bar Association, Bankruptcy

and Commercial Law Section, past

Chair, 2000

Dallas Bar Foundation, Fellow

International Women's Insolvency

and Restructuring Confederation

(IWIRC), National Board of

Directors, 2000-2002

Concentration

Advice to and representation of debtors-in-possession and

creditors in complex business reorganizations; complex

commercial litigation in business bankruptcy cases

Summary

Judith Ross is widely respected for her extensive knowledge in all

areas of bankruptcy law. In the course of her varied and wide-

ranging practice, she has represented secured and unsecured

creditors and debtors in bankruptcy proceedings, as well as

creditors and debtors in out-of-court settlements.

In another important area of her work, Ms. Ross counsels clients

in all forms of bankruptcy-related litigation, including trial and

appellate litigation. She also assists sellers and acquirors of

businesses in bankruptcy, and helps creditors negotiate and

implement DIP financings.

Ms. Ross is currently vice-chair of the Current Developments

Task Force of the Business Bankruptcy Committee of the

American Bar Association.

Abu Dhabi Austin Beijing Dallas Dubai Hong Kong Houston London Moscow New York Palo Alto Riyadh Washington

W I L L I A M F . S T U T T S

P a r t n e r

98 San Jacinto Boulevard

Suite 1500

Austin, Texas 78701-4078

United States

+1.512.322.2542

+1.512.322.8338 fax

[email protected]

Education and Honors

J.D., University of Virginia School of

Law, 1976

Executive Editor, Virginia Law

Review

B.A. (with high honors), English,

The University of Texas, 1973

Junior Fellow, The University of

Texas at Austin, 1972-73

Listed in The Best Lawyers in

America, 1995 - 2010, most recently

in the areas of Banking Law,

Bankruptcy and Creditor-Debtor

Rights Law, Derivatives Law and

Equipment Finance Law

Recognized as a Texas Super

Lawyer, 2003 - 2005 and 2010

Listed in The Legal 500 for bank

lending, 2009

Court Admissions and Affiliations

American Law Institute

State Bar of Texas

United States Court of Appeals for

the Fifth Circuit

United States District Court for the

Western District of Texas

American Bankruptcy Institute

American Bar Association,

Committee on Developments in

Business Financing

American College of Investment

Counsel

Austin Bar Association, Director,

1995 to 1997

Texas Bar Foundation, Life Fellow

Concentration

Corporate finance, corporate reorganization and bank regulation

Summary

Bill Stutts focuses on corporate reorganization, bank regulation,

corporate finance, equipment finance and derivatives. In

reorganizations, he has handled licensor and licensee issues,

biotechnology, information technology and electronic commerce

and has worked with cross-border insolvency issues in many

situations (US/Canada, US/Cayman Islands, US/Peru,

US/England and Wales, US/Antigua, US/Switzerland).

Mr. Stutts' regulatory experience involves both structural

regulation for financial institutions (affecting mergers,

acquisitions, formations and regulatory status of foreign bank

operations), as well as operational regulation (including money

laundering and related sanctions). In other areas, he represents

end users and nondealer counterparties in a wide variety of

derivatives and he regularly represents aircraft owners and lessors

in various kinds of financing structures.

Following graduation from law school, Mr. Stutts served as a law

clerk to The Honorable Homer Thornberry of the United States

Court of Appeals for the Fifth Circuit. Since 1998, he has been an

adjunct professor at The University of Texas School of Law,

where he currently teaches a class on the regulation of financial

markets and has previously taught a class on the regulation of

money transfers, money laundering and terrorist financing.

Cross-Border Insolvencies and

A Recent Chapter 15 Case Pending in Texas: In re Vitro, S.A.B. de C.V. Chapter 20

i

TABLE OF CONTENTS

I. Chapter 15 Overview ........................................................................................................................... 2

II. Actions by the United States Court to facilitate the progress and status of a foreign proceeding:

Recognition of a Foreign Representative. ............................................................................................ 3

A. The Elements of Chapter 15 Recognition ................................................................................ 4

B. Definitions ................................................................................................................................ 4

C. The Undefined Central Concept of COMI. .............................................................................. 5

D. Main vs Nonmain. .................................................................................................................... 6

E. Powers of and Protections for Foreign Representatives that are Recognized by the Court. .... 6

F. Treatment of Foreign Creditors ................................................................................................ 8

G. Foreign Proceedings that are Neither Main Nor Nonmain....................................................... 8

III. Assistance by the United States Court for United States debtor/trustee entities in foreign

jurisdictions. ......................................................................................................................................... 9

IV. Differences Between the Model Law & Chapter 15 ............................................................................ 9

V. In re Vitro, S.A.B. de C.V. .................................................................................................................. 10

VI. Concluding remarks. .......................................................................................................................... 11



ii

TABLE OF AUTHORITIES

Page(s)

CASES

In re Basis Yield Alpha Fund (Master),

381 B.R. 37 (Bankr. S.D.N.Y. 2008) ........................................................................................................................ 5

In re Bear Stearns High-Grade Structured Credit Strategies Master Fund, Ltd.,

374 B.R. 122 (Bankr. S.D.N.Y. 2007) .................................................................................................................. 5, 6

In re Condors Ins. Ltd.,

601 F.3d 319 (5th Cir. 2010) ................................................................................................................................ 3, 8

In re Gold & Honey, Ltd.,

410 B.R. 357 (Bankr. E.D.N.Y. 2009) ..................................................................................................................... 7

In re Innua Canada,

No. 09–16362, 2009 WL 1025090 (Bankr. D.N.J. Apr. 15, 2009) .......................................................................... 2

In re Loy,

380 B.R. 154 (Bankr.E.D.Va.2007) ......................................................................................................................... 5

In re MAAX Corp.,

No. 08-11443 (Bankr. D. Del. Aug. 5, 2008) ........................................................................................................... 2

In re Madill Equipment Canada,

No. 08-41426 (Bankr. W.D. Wa. Apr. 3, 2008) ....................................................................................................... 2

In re Metcalfe & Mansfield Alternative Invs.,

421 B.R. 685 (Bankr. S.D.N.Y. 2010) ...................................................................................................................... 7

In re Nortel Networks Corporation, et. al.,

No. 09-10164(KG) (Bankr. D. Del. Apr. 9, 2009) ............................................................................................... 2, 3

In re Qimonda AG Bankr. Litig.,

433 B.R. 547 (E.D. Va. 2010) .................................................................................................................................. 7

In re Ran,

607 F.3d 1017 (5th Cir. 2010) .................................................................................................................................. 5

In re SPhinX, Ltd.,

351 B.R. 103 (Bankr. S.D.N.Y. 2006) .............................................................................................................. 2, 5, 6

In re Stanford International Bank Ltd. et al.

[2009] ....................................................................................................................................................................... 4

In re Tembec Ind., Inc.,

No. 08-13435 (Bankr. S.D.N.Y. Oct. 31, 2008) ....................................................................................................... 3

In re Tembec Ind., Inc.,

No. 08-13435 (Bankr. S.D.N.Y. Sept. 4, 2008) ........................................................................................................ 3

In re Tri-Continental Exchange,

349 B.R. 627 (Bankr. E.D. Cal. 2006) ...................................................................................................................... 5

In re Vitro Asset Corp., et al.,

No. 11-32600 (HDH) (Bankr. N.D. Tex. Nov. 17, 2010)....................................................................................... 10

In re Vitro, S.A.B. de C.V.,

Case No. 11-33335-hdh15 (Bankr. N.D. Tex. July 21, 2011) ................................................................................ 11



iii


No. 10-16619 (SHL) (Bankr. S.D.N.Y. Dec. 14, 2010) ......................................................................................... 10


No. 11-11754 (SCC) (Bankr. S.D.N.Y. Apr. 14, 2011) ......................................................................................... 10


No. 11-33335-hdh15 (Bankr. N.D. Tex. June 18, 2011) .................................................................................. 10, 11

Lavie v. Ran,

406 B.R. 277 (S.D. Tex. 2009) ................................................................................................................................. 5

O’Sullivan v. Loy (In re Loy),

432 B.R. 551 (E.D. Va. 2010) (Mark S. Davis, J.) ................................................................................................... 4

STATUTES

11 U.S.C. § 101(23) (2011) ............................................................................................................................................. 4

11 U.S.C. § 101(24) .................................................................................................................................................. 4, 11

11 U.S.C. § 305(a)(2)(B), (b) (2011) .............................................................................................................................. 3

11 U.S.C. § 306 (2011) ................................................................................................................................................... 3

11 U.S.C. § 1501(a) (2011) ............................................................................................................................................. 2

11 U.S.C. § 1501(b) ........................................................................................................................................................ 2

11 U.S.C. § 1502(2) ........................................................................................................................................................ 4

11 U.S.C. § 1502(7) (2011) ............................................................................................................................................. 3

11 U.S.C. § 1505 (2011) ............................................................................................................................................. 3, 9

11 U.S.C. § 1506 (2011) ................................................................................................................................................. 7

11 U.S.C. § 1507(a) (2011) ............................................................................................................................................. 7

11 U.S.C. § 1507(b)(1)-(5) .............................................................................................................................................. 7

11 U.S.C. § 1509 (2011) ............................................................................................................................................. 3, 9

11 U.S.C. § 1509(b)(1) .................................................................................................................................................... 3

11 U.S.C. § 1513(a) (2011) ............................................................................................................................................. 8

11 U.S.C. § 1513(b)(2)(A) .............................................................................................................................................. 8

11 U.S.C. § 1514 (2011) ................................................................................................................................................. 8

11 U.S.C. § 1515(b)(1)-(3) (2011) .................................................................................................................................. 3

11 U.S.C. § 1516(c) (2011) ....................................................................................................................................... 5, 10

11 U.S.C. § 1519 (2011) ............................................................................................................................................. 6, 9

11 U.S.C. § 1519(d), (e) & (f) ......................................................................................................................................... 9

11 U.S.C. § 1521(a)(1)-(7) .............................................................................................................................................. 7

11 U.S.C. § 1521(a)(7) (2011) .................................................................................................................................... 3, 8

11 U.S.C. § 1521(c) ........................................................................................................................................................ 6

11 U.S.C. § 1523 (2011) ................................................................................................................................................. 9

11 U.S.C. § 1529 (2011) ................................................................................................................................................. 9

11 U.S.C. § 1530 (2011) ................................................................................................................................................. 9



iv

28 U.S.C. section 140 .................................................................................................................................................... 10

28 U.S.C. section 1410 .................................................................................................................................................. 10

Bankr. Abuse Prevention and Consumer Protection Act of 2005 ................................................................................. 10

Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub. L. No. 109-8, § 801(a), 119 Stat. 23 ........ 2

Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (―BAPCPA‖) .................................................... 1

U.S.C. §§ 1525, 1526 & 1527 (2011) ............................................................................................................................. 9

OTHER AUTHORITIES

2005, U.S.C.C.A.N. ...................................................................................................................................................... 10

83 AM. BANKR. L.J. 165, 166 (2009) .............................................................................................................................. 8

Aaron L. Hammer & Matthew E. McClintock, Understanding Chapter 15 of the United States Bankruptcy Code:

Everything You Need to Know About Cross-Border Insolvency Legislation in the United States ........................... 6

Alesia Ranney-Marinelli, Overview of Chapter 15 Ancillary and Other Cross-Border Cases, 82 AM. BANKR. L.J.

269, 316 (2008) ........................................................................................................................................................ 2

Bankruptcy Rule 1014(b) .............................................................................................................................................. 10

Bill Rochelle, Vitro, Madoff, Timothy Blixseth, Asbestos Case: Bankruptcy ............................................................... 10

Bryan Stark, Chapter 15 and the Advancement of International Cooperation in Cross-Border Bankruptcy

Proceedings, 6 RICH. J. GLOBAL L. & BUS. 203, 214 (2006) ................................................................................... 2

FED. R. BANKR. P. 1007 .................................................................................................................................................. 3

FED. R. BANKR. P. 1014(b) ........................................................................................................................................... 10

H.R. Rep. No. 109-31, 109th Cong., 1st Sess. 108-109 (2005) ...................................................................................... 9

Principles of Cooperation Among the NAFTA Countries (the ―NAFTA Principles‖) .................................................... 4



1

Commercial bankruptcies involving creditors or

assets in more than one country are not new. As long

as there have been business operations or financings

across a border, the insolvency systems of the two

countries have applied, and their interrelationship has

been a factor in planning and disputes. The impact of

the systems of those two (or more) countries affects not

only large cases—it affects businesses large and small.

And, for as long as there have been bankruptcies in

more than one country, the bankruptcy courts have

known that they must have a way to communicate with

each other.

From the enactment of the Bankruptcy Code until

2005, this was accomplished on an ad-hoc basis

between courts. In the U.S., the power to coordinate

and give effect to certain elements of a foreign

bankruptcy was a reason for section 304 of the

Bankruptcy Code. That section empowered the U.S.

court to enter protective orders and to recognize the

rights of foreign bankruptcy officials, but put the

decision within the court‘s discretion, to be guided by

several general principles helpfully identified in that

section. This process spawned many good (and some

not quite so good) methods of coordination, tiering of

interests and rights, and avoidance of harmfully

inconsistent results in the courts

Over the last several years, multi-jurisdictional

presence-- for smaller companies as well as

behemoths-- has exploded. With that has come the

increasing need for a more generally predictable

machinery for the coordination of cross-border

insolvencies. Since the European Union has been an

area that has been formally concerned with commerce

between its members for longer than most countries

and regions, it is not surprising that formal proposals to

establish uniform standards arose first in the EU.

Even there, it took two tries to come up with a

standard. But that process also engendered

considerable thought and development. As that

process continued, other countries began to feel the

need for predictability beyond that which procedures

similar to section 304 provided. The United Nations

Commission on International Trade Law (UNCITRAL)

was a natural place for a multifaceted approach to

begin and, in 1997, it produced the Model on Law

Cross Border Insolvency. 1 The Model Law was

1 The stated purpose of the Model Law is to provide an

effective mechanism for dealing with cross-border

insolvency cases and to promote the objectives of: (i)

cooperation between domestic and foreign courts in cases of

cross-border insolvency; (ii) greater legal certainty for trade

and investment; (iii) fair and efficient administration of

intended to be a flexible mechanism, adaptable to

national circumstances, to facilitate international

cooperation and designed to promote adoption by

member states.2 The Model Law allows for its

provisions to vary at the national level so as to be

―acceptable to States with different legal, social, and

economic systems.‖3 But its structure carries with it a

more rigid legal regime that, it is hoped, leads to the

hoped-for predictability.

In 2005, after several attempts to get the attention

of the U.S. Congress (tied to the repeated attempts to

change the Bankruptcy Code in other ways), Congress

repealed Section 3044 and adopted the Model Law

(with some modifications) as part of the Bankruptcy

Abuse Prevention and Consumer Protection Act of

2005 (―BAPCPA‖).5 Bankruptcy lawyers know these

provisions as chapter 15 of the Bankruptcy Code.6

cross-border insolvencies that protects the interests of all

creditors and other interested persons, including the debtor;

(iv) protection and maximization of the value of the debtor‘s

assets; and (v) facilitation of the rescue of financially

troubled businesses, thereby protecting investment and

preserving employment. U.N. COMM. ON INT‘L TRADE LAW

(UNCITRAL), UNCITRAL MODEL LAW ON CROSS-

BORDER INSOLVENCY WITH GUIDE TO ENACTMENT, U.N.

Sales No. E.99.V.3 (1997). 2 Bryan Stark, Chapter 15 and the Advancement of

International Cooperation in Cross-Border Bankruptcy

Proceedings, 6 RICH. J. GLOBAL L. & BUS. 203, 214 (2006). 3 Id. 4 Although Chapter 15 is more comprehensive than former

section 304, it maintains ―and in some respects enhances‖

some elements of the flexibility granted to courts under

section 304. In re SPhinX, Ltd., 351 B.R. 103, 112 (Bankr.

S.D.N.Y. 2006). While section 304 was repealed, many of

its concepts have been retained in Chapter 15, albeit in a

manner that are more formal and less discretionary. For this

reason, many cases decided under section 304 remain

relevant in construing certain aspects of Chapter 15. Alesia

Ranney-Marinelli, Overview of Chapter 15 Ancillary and

Other Cross-Border Cases, 82 AM. BANKR. L.J. 269, 316

(2008). One such example is section 1507. Section 1507

provides that the bankruptcy court may make available

―additional assistance‖ to a foreign representative of a

recognized foreign proceeding. In determining whether to

provide such additional assistance section 1507 incorporates

the elements of former section 304. 5 See Bankruptcy Abuse Prevention and Consumer

Protection Act of 2005, Pub. L. No. 109-8, § 801(a), 119

Stat. 23. 6 In enacting Chapter 15, Congress provided in section

1501(a) an express statement of its purpose—―to incorporate

the Model Law on Cross-Border Insolvency so as to provide

effective mechanisms for dealing with cases of cross-border

insolvency.‖ 11 U.S.C. § 1501(a) (2011). Although Chapter



2

I. Chapter 15 Overview

Chapter 15 of the Bankruptcy Code (―Chapter

15‖) governs the handling of cross-border insolvency

cases. Importantly, it is the mechanism for recognizing

in the United States a foreign bankruptcy. It has

nothing to say about the recognition of a United States

bankruptcy in a foreign jurisdiction--and, in truth, it

cannot--that is a matter of foreign law (which may or

may not be based on the Model Law). All the same,

there are important principles in Chapter 15 that relate

to the foreign treatment of United States persons, and

the ways in which United States persons act and have

the power to act regarding foreign proceedings--in this

respect, elements of Chapter 15 are perhaps closest to

the principles of Section 304. Understanding the

United States machinery for recognition of foreign

proceedings and officials also provides the material for

beginning to understand how other jurisdictions may

look at United States trustees and receivers in the

context of foreign bankruptcies.

Chapter 15 applies (i) when assistance is sought in

the United States by a foreign court or foreign

representative in connection with a foreign insolvency

proceeding; (ii) when assistance is sought in a foreign

country in connection with any case under Title 117;

(iii) when a foreign proceeding and a case under Title

11 with respect to the same debtor are pending

concurrently (as in the Nortel bankruptcy); or (iv)

when creditors or other interested persons in a foreign

country have an interest in requesting the

commencement of, or participation in, a case or

proceeding under Title 11.8

For the foreign debtor (or, more precisely, the

foreign representative of the debtor), there are several

reasons to use Chapter 15. First, and most broadly,

without recognition in the United States, a foreign

representative of a debtor has no power in the United

States. Unless U.S. courts recognize a person as

having authority over assets or claims, it makes little

15 incorporates much of the Model Law verbatim, some

differences exist. 7 As noted in the text, in order for this area of application to

have any effect in another jurisdiction, the courts of that

jurisdiction must give effect to the views or pronouncements

of the U.S. bankruptcy court. But in situations where there

is a question of the power of an estate representative

appointed under U.S. law to act in a foreign environment, or

in the case of the power and role of a U.S. bankruptcy judge

in cooperating with foreign tribunals, this chapter sets out

the rules and principles for the U.S. bankruptcy court and the

representatives it appoints. 8 11 U.S.C. § 1501(b).

difference what that person believes about her rights

regarding those assets in or claims emanating from the

United States. More specifically, however, Chapter 15

can be used by foreign representatives of foreign

debtors to protect their U.S. assets, bind their creditors,

and to do many of the things one would expect of

debtors in the United States, were the debtors‘

insolvency case proceeding under United States law.

Chapter 15 has been used to permit a foreign debtor to

use the cash collateral of its senior lender in the U.S.

and to facilitate asset sales approved in a foreign

proceeding. For example, in the case In re Madill

Corp., the bankruptcy court granted the foreign debtor

the right use cash collateral of the senior lender, in

exchange for which the senior lender received a

replacement lien on the debtor‘s property in the United

States.9 In the case of In re Maax Corp., the Canadian

liquidator filed a recognition petition in the District of

Delaware, in part, to give effect to a Canadian court

order authorizing the sale of Maax Corp‘s assets free

and clear of liens.10

Similarly, in the Nortel bankruptcy cases,

although the American subsidiaries of the Nortel parent

filed a petition under chapter 11 in the United States,

the Canadian parent company, Nortel Networks

Corporation (―NNC‖) and certain Canadian affiliates,

filed (on the same date as the U.S. petition) under the

Companies‘ Creditors Arrangement Act, in Canada.

Ernst &Young Inc. was appointed as the Canadian

Monitor. Thereafter, the Monitor, who was the

―foreign representative‖ of the Canadian debtors, filed

a Chapter 15 petition for recognition before the same

court that presided over the Chapter 11 case of the

United States Nortel companies. After the U.S.

Bankruptcy Court entered an order granting

recognition and related relief to the Monitor, it also

eventually entered a court order giving effect to a

Canadian Court order approving the sale of certain

assets of the Canadian companies, and specifically

ordered that ―the Canadian Sale Order is hereby given

full force and effect in the United States.‖11

Chapter 15 cases can be filed as well in order to

protect assets of foreign debtors that are located in the

United States from creditor attack. For example, in the

9 In re Madill Equipment Canada, No. 08-41426 (Bankr.

W.D. Wa. Apr. 3, 2008). 10 In re MAAX Corp., No. 08-11443 (Bankr. D. Del. Aug. 5,

2008). 11 See In re Nortel Networks Corporation, et. al., No. 09-

10164(KG) (Bankr. D. Del. Apr. 9, 2009) (enforcing the

Order of the Ontario Court Approving the Sale of Certain

Assets).



3

case In re Innua Canada,12 a receivership proceeding

was initiated in Canada. The receiver filed an

application for recognition in the United States under

Chapter 15 in order to protect certain of the foreign

debtor‘s inventory located in warehouse containers in

New Jersey and Texas.

Also, foreign representatives have used Chapter 15

in order to establish procedures for U.S. creditors to

follow for filing proofs of claim against the foreign

debtor. This was done in the Nortel case as well as

other cases. Finally, Chapter 15 cases have been

commenced in order to bind creditors to the terms of a

restructuring plan approved and implemented in a

foreign proceeding. In connection with the Tembec

Industries case, a Canadian proceeding, Tembec‘s

foreign representative filed a chapter 15 case in the

Southern District of New York bankruptcy court in

order to implement a Canadian court-approved

restructuring plan in the United States and thus, to

make the plan binding on all U.S. creditors of the

Canadian entity.13

Recent cases have permitted foreign

representatives to exercise in the United States rights

under home-country clawback rules (particularly

―fraudulent transfer‖ or ―transfers at undervalue‖).14

This is a notable power because foreign representatives

are prohibited from filing proceedings under sections

547 and 548 (and other sections) of the United States

Bankruptcy Code unless they file a separate

bankruptcy proceeding against the debtor in the United

States.15

A point that sometimes escapes notice is that a

Chapter 15 petition may be granted (and the foreign

representative granted powers in the United States)

even though no Chapter 7, 11 or other proceeding was

pending in the United States. One interesting result of a

recognition in this situation is the opening of the

United States courts as venues for the substantive

litigation over avoidance liability under a foreign

regime.

12 No. 09–16362, 2009 WL 1025090 (Bankr. D.N.J. Apr. 15,

2009). 13 See Verified Petition for Recognition of a Foreign Main

Proceeding and Motion for Permanent Injunction and

Related Relief, In re Tembec Ind., Inc., No. 08-13435

(Bankr. S.D.N.Y. Sept. 4, 2008); Order Granting

Recognition of a Foreign Main Proceeding and Permanent

Injunction and Related Relief, In re Tembec Ind., Inc., No.

08-13435 (Bankr. S.D.N.Y. Oct. 31, 2008). 14 See In re Condors Ins. Ltd., 601 F.3d 319, 329 (5th Cir.

2010). 15 11 U.S.C. § 1521(a)(7) (2011).

The other arm of Chapter 15 (not as thoroughly

litigated in United States courts) is the power and

support that the United States courts supply to trustees

in United States bankruptcies in foreign environments.

First, as a matter of United States law, this Chapter

provides that it ―applies‖ in those outward-looking

situations. Secondly, it confirms that a court can

authorize a trustee or entity to act in a foreign country

on behalf of a bankruptcy estate, to the extent

permitted by the foreign law that may apply.16

Sections 1529 and 1530 deal expressly with situations

involving the bilateral exchange of information,

advice, and the coordination of relief.

II. Actions by the United States Court to

facilitate the progress and status of a foreign

proceeding:17

Recognition of a Foreign

Representative.

Chapter 15 gives a foreign representative (through

recognition) direct access to courts of the United

States. A Chapter 15 proceeding is initiated by filing a

petition for recognition.18 ―Recognition‖ is the entry of

an order granting recognition of a foreign main or

foreign nonmain proceeding under Chapter 15.19

Importantly, most of the rights and benefits under

Chapter 15 become available only after a foreign

proceeding is granted recognition. Following

recognition, a foreign representative has the capacity to

16 11 U.S.C. § 1505 (2011). 17 In some circumstances, recognition proceedings under

Chapter 15 are referred to as ―ancillary‖ proceedings. We

have not adopted that approach here because it is possible

for a Chapter 15 proceeding to exist where there is no other

proceeding pending under Title 11--there is nothing under

Title 11 to which the Chapter 15 proceeding could be

―ancillary‖. 18 11 U.S.C. § 1509 (2011). A petition for recognition must

be accompanied by either (i) a certified copy of the decision

commencing the foreign proceeding and appointing the

foreign representative; (ii) a certificate from the foreign

court affirming the existence of such foreign proceeding and

of the appointment of the foreign representative; or (iii) in

the absence of such certificates, any other evidence

acceptable to the court of the existence of such foreign

proceeding and the appointment of the foreign

representative. 11 U.S.C. § 1515(b)(1)-(3) (2011). The

foreign representative must file with the petition a list of

names and addresses of all administrators in the foreign

proceedings of the debtor, all parties to U.S. litigation in

which the debtor is a party, and all entities against whom

provisional relief is sought. See FED. R. BANKR. P. 1007. A

petition for recognition should also indicate whether

recognition is being sought as a main or nonmain

proceeding. 19 11 U.S.C. § 1502(7) (2011).



4

sue and be sued in a court in the United States.20 A

foreign representative may also seek the dismissal or

suspension of a related Title 11 case if the purpose of

Chapter 15 ―would be best served by such dismissal or

suspension.‖21

A. The Elements of Chapter 15 Recognition

The nature and scope of a Chapter 15 recognition

proceeding depends on several core elements. The

proceeding must involve a debtor, which is a defined

term, and which may very well not be exactly the same

sort of person that could be a ―debtor‖ under the

United States Bankruptcy Code. There must be a

―foreign proceeding‖; there must be ―foreign

representatives‖; and, depending on where the ―center

of main interest‖ (―COMI‖) lies, there will be a

determination whether the foreign proceeding is

―foreign main‖ or ―foreign nonmain.‖ Each of these

concepts is critical, and all concepts other than COMI

are defined. Determining a company‘s COMI is a fact

specific inquiry.

In interpreting Chapter 15, courts often examine

non-U.S. sources, including decisions rendered by

foreign courts construing the Model Law and the report

of UNCITRAL and the Guide to Enactment of the

UNCITRAL Model Law on Cross-Border Insolvency

(the ―U.N. Guide‖), certain provisions of Council

Regulation (EC) No. 1346/2000 of May 29, 2000 (the

―EC Regulation‖), decisions construing the EC

Regulation, reports and commentary on the EC

Regulation22, and the Principles of Cooperation Among

the NAFTA Countries (the ―NAFTA Principles‖).23 In

other words, as explained by one district court judge,

―[a]s each section of Chapter 15 is based on a

corresponding article in the Model Law, if a textual

provision of Chapter 15 is unclear or ambiguous, the

Court may then consider the Model Law and foreign

interpretations of it as part of its ‗interpretive task.‘‖24

20 11 U.S.C. § 1509(b)(1) (2011). 21 11 U.S.C. § 305(a)(2)(B), (b) (2011). In filing a motion

under section 305, a foreign representative does not subject

himself to the jurisdiction of any court in the U.S. for any

other purpose. 11 U.S.C. § 306 (2011). 22 The weightiest of these seems to be the Virgos-Schmit

Report on the Convention on Insolvency Proceedings, which

predates the EC Regulation but remains authoritative

because of its closeness to the sources of the EC Regulation.

See generally GABRIEL MOSS ET AL., THE EC REGULATION

ON INSOLVENCY PROCEEDINGS (2d Ed. 2009). 23 See Ranney-Marinelli, supra note 4, at 273. 24 O’Sullivan v. Loy (In re Loy), 432 B.R. 551, 560 (E.D. Va.

2010).

However, a note of strong caution is urged here—

in several situations, guidance from the EU and under

the English version of the Model Law is pointedly

inconsistent with United States cases—and some

courts in England have gone out of their way to

achieve a particular result that could be reached only

by ignoring United States law.25 Such an approach

may be consistent with the development of law in

England, but it should not bind a party in the United

States or a United States court where there is helpful

United States authority.

B. Definitions

A foreign proceeding is a collective judicial or

administrative proceeding in a foreign country,

including an interim proceeding, under foreign

insolvency laws pursuant to which the assets and

affairs of the debtor are subject to control or

supervision by a foreign court, for the purpose of

reorganization or liquidation.26 Significant elements of

this definition are: ―collective‖(that is, not general

litigation); ―judicial or administrative proceeding‖

(need not be pending before a court as US law would

require it), control of all assets and affairs of the debtor

(a limited scope of jurisdiction or limited dispute will

not qualify), for ―reorganization or liquidation‖ (not

limited to a general determination of ownership,

liability or responsibility).

A foreign representative is 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.27

A foreign proceeding may be recognized and

afforded the benefits of Chapter 15 only if the

proceeding is a foreign main proceeding or a foreign

nonmain proceeding. A foreign main proceeding is a

proceeding in a country where the debtor has its center

of main interest (―COMI‖). A foreign nonmain

proceeding is any foreign proceeding that is not a main

proceeding and that is pending in a country where the

debtor has an ―establishment.‖ A location may be an

―establishment‖ for the purposes of Chapter 15

recognition if the debtor has a ―place of operations‖

there and carries out ―nontransitory economic activity‖

25 See, e.g., In re Stanford International Bank Ltd. et al.

[2009] EWHC 1441 (Ch.) (addressing whether a liquidation

in Antigua satisfied the COMI test under the English version

of the Model Law). 26 11 U.S.C. § 101(23) (2011). 27 11 U.S.C. § 101(24) (2011).



5

at the location.28 The distinction between a foreign

main proceeding and a foreign nonmain proceeding is

important because in a foreign main proceeding the

petitioning foreign representative typically is

automatically given many of the powers of a Chapter

11 or 7 debtor or trustee, often without further order of

the bankruptcy court.29 In a foreign nonmain

proceeding the petitioning foreign representative is

granted only those powers explicitly approved by the

bankruptcy court and as reflected in the order granting

recognition.30 In other words, a foreign representative

of a foreign main proceeding is granted more power

than a foreign representative of a foreign nonmain

proceeding.31 It is conceivable that a foreign

proceeding might exist in a jurisdiction in which the

debtor has neither COMI, nor an establishment. A

proceeding in such a jurisdiction should not, under the

reasoning of Bear Stearns, be recognized in the United

States.32

C. The Undefined Central Concept of

COMI.

While Chapter 15 does not define COMI, section

1516(c) provides that ―[i]n the absence of evidence to

the contrary, the debtor‘s registered office, or habitual

residence in the case of an individual, is presumed to

be the center of the debtor‘s main interests.‖33 Courts

28 11 U.S.C. § 1502(2) (2011). 29 Bruce Nathan & Eric Horn, Demystifying Chapter 15 of

the Bankruptcy Code, BUSINESS CREDIT 2 (June 2009). 30 Id. 31 Under section 1511, more power is granted to a foreign

representative of a foreign main proceeding than a foreign

representative of a foreign nonmain proceeding. ―The

concept is reinforced by the grant under section 1520 of

automatic effects to recognition of a foreign main

proceeding (including application of sections 361, 362 and

363).‖ COLLIERS ON BANKRUPTCY 1502[4] (16th ed. 2011). 32 See In re Bear Stearns High-Grade Structured Credit

Strategies Master Fund, Ltd., 374 B.R. 122 (Bankr.

S.D.N.Y. 2007). In Bear Stearns, official liquidators for two

hedge funds registered as Cayman Islands limited liability

companies sought chapter 15 recognition for liquidation

proceedings opened in the Cayman Islands. Aside from

being registered in the Cayman Islands, the bankruptcy court

had found that the Funds had no other ―adhesive connection‖

with that country. Id. at 129–30. Further, no managers or

employees were located in the Caymans, the Funds were

administered from offices located in the United States, and

neither the books and records of the Funds, nor the Funds'

assets, were held in the Caymans. Id. The Cayman Islands

proceeding was not entitled to recognition as a foreign main

proceeding because the Funds existed in the Caymans as

merely shells or ―letterbox‖ companies. Id. at 130 n. 8. 33 11 U.S.C. § 1516(c) (2011).

tend to give substantial deference to this presumption.

The foreign representative, however, bears the burden

of proof as to the debtor‘s COMI and, if evidence is

introduced to the contrary, the burden shifts and a court

may find that the debtor‘s COMI is elsewhere.34

In Tri-Continental Exchange, for example, the

court considered whether joint liquidations of

insurance companies in St. Vincent and the Grenadines

should be recognized in the United States as foreign

main or nonmain proceedings. The Tri-Continental

Exchange debtors were organized under the laws of St.

Vincent and the Grenadines, where they maintained

registered offices. The debtors had been in the

business of selling fraudulent insurance policies to

purchasers in the United States and Canada. The

liquidators in St. Vincent and the Grenadines sought

recognition of the joint liquidations as foreign main

proceedings. A creditor objected and argued that the

debtors‘ COMI was really in the United States. Most

of the scam occurred and most of the debtors‘ creditors

were located in the United States. The court, relying

on a number of sources including the EC Regulation

and cases and regulations interpreting it, held that the

location of the registered office ―does not otherwise

have special evidentiary value and does not shift the

risk of nonpersuasion, i.e. the burden of proof, away

from the foreign representative seeking recognition as

a main proceeding.‖35

The Bankruptcy Code does not prescribe the type

of evidence courts should consider in the COMI

analysis. Courts have therefore looked to an array of

factors that could be probative in determining the

COMI of an entity:36 ―the location of the debtor‘s

34 See In re Tri-Continental Exchange, 349 B.R. 627 (Bankr.

E.D. Cal. 2006). 35 Id. at 635. 36 American courts have defined COMI primarily in the

context of corporate debtors. Lavie v. Ran, 406 B.R. 277,

283 (S.D. Tex. 2009). The relevant factors to determine the

COMI of an individual debtor—who has no registered

office, headquarters, or holding company—may be

somewhat different. See In re Ran, 607 F.3d 1017, 1024

(5th Cir. 2010). Factors relevant with respect to an

individual debtor include (1) the location of the debtor‘s

primary assets; (2) the location of the majority of the

debtor‘s creditors; and (3) the jurisdiction whose law would

apply to most disputes. Id. (citing In re Loy, 380 B.R. 154,

162 (Bankr.E.D.Va.2007)). Of note, per the Ran court, is

the time focus of the inquiry--the question is where the

debtor‘s COMI was at the time of the commencement of the

proceeding. European courts generally have found that the

individual debtor‘s COMI is his habitual or permanent

residence. Lavie, 406 B.R. at 283 (citing Pedro Magdalena



6

headquarters; the location of those who actually

manage the debtor (which conceivably could be the

headquarters of a holding company); the location of the

debtor‘s primary assets; the location of the majority of

the debtor‘s creditors or of a majority of the creditors

who would be affected by the case; and/or the

jurisdiction whose law would apply in most

disputes.‖37 As noted by Judge Gerber in Basis Yield

Alpha Fund, ―[w]hile certainly not exhaustive or all

necessarily applicable . . . these objective factors are

indicative of the facts a court might find relevant in a

COMI determination.‖

Thus, while courts give substantial deference to

the presumption that a debtor‘s COMI is located where

it maintains a registered office, a court will not ―rubber

stamp‖ a recognition petition. The burden of proof as

to whether a proceeding is main or nonmain belongs to

the party seeking recognition.38

D. Main vs Nonmain.

A foreign proceeding that is neither main nor

nonmain cannot be recognized under Chapter 15.39 A

―recognition hearing‖ will typically be held within 30

days of the Chapter 15 filing to determine whether the

foreign proceeding should be recognized as a ―foreign

main‖ or ―foreign nonmain‖ proceeding.40

A court may deny recognition as a foreign main

proceeding where it appears that the Chapter 15

petition has been filed for improper reasons, as was the

case in SPhinX.41 SPhinX involved the voluntary

winding up in the Cayman Islands of the hedge fund

group SPhinX Funds. The joint official liquidators of

the Cayman Islands liquidation sought recognition of

those proceedings as foreign main proceedings. The

debtors were organized and maintained a registered

office in the Cayman Islands. Although established in

the Cayman Islands, SPhinX was managed by a

Delaware corporation located in New York. The

creditors were also largely located in the United States.

The court found that the primary purpose in seeking

Fernandez v. Commission of the European Communities (C–

452/93) [1994] ECR 4295 (ECJ 3rd Chamber 1994)). 37 In re Basis Yield Alpha Fund (Master), 381 B.R. 37, 47

(Bankr. S.D.N.Y. 2008) (quoting SPhinX, 351 B.R. at 117.). 38 Aaron L. Hammer & Matthew E. McClintock,

Understanding Chapter 15 of the United States Bankruptcy

Code: Everything You Need to Know About Cross-Border

Insolvency Legislation in the United States, 14 LAW & BUS.

REV. AM. 257, 274 (2008). 39 See Bear Stearns, 374 B.R. at 132. 40 See Nathan & Horn, supra note 28. 41 SPhinX, 351 B.R. 103.

recognition of the Cayman liquidation proceedings as

foreign main proceedings was to frustrate a large

settlement against SPhinX, which gave ―the clear

appearance of improper forum shopping.‖42 After

acknowledging the presumption that the debtors‘

COMI was in the Cayman Islands, the court considered

factors that may be relevant to rebutting the

presumption: location of the debtors‘ headquarters and

those who managed its business, location of the

primary assets, location of a majority of the creditors,

and the jurisdiction whose law would apply to most

disputes. The court held that the Cayman proceedings

were foreign nonmain proceedings, and not foreign

main proceedings as requested by the debtors.

E. Powers of and Protections for Foreign

Representatives that are Recognized by the

Court.

The filing of a chapter 15 petition does not trigger

the protection of the automatic stay. In fact, most of

the rights and benefits of Chapter 15 are not available

until an order of recognition is entered. The foreign

debtor is therefore not protected during the time period

between the filing of the Chapter 15 petition and the

recognition hearing. This period is sometimes referred

to as the ―Chapter 15 gap period.‖43 To protect itself

during the Chapter 15 gap period, a foreign

representative may request ―provisional relief‖ from

the bankruptcy court pending the recognition

determination when such relief is ―urgently needed to

protect the assets of the debtor or interests of the

creditors.‖44 Provisional relief may be denied however

if it ―would interfere with the administration of a

foreign main proceeding.‖45 In addition, provisional

relief may not (i) be granted with respect to any

deposit, escrow, trust fund, or other security required

or permitted under any applicable state insurance law

or regulation for the benefit of claim holders in the

United States; (ii) include relief available under certain

other sections (i.e. sections 522, 544, 545, 547, 548,

550 and 724(a)); (iii) enjoin a police or regulatory act

of a governmental unit; or (iv) stay the exercise of

certain rights which are excluded from the automatic

stay.46

In a proceeding recognized as a foreign main

proceeding, Chapter 15 relief is available as a matter of

right. However, in a proceeding recognized as a

42 Id. at 121. 43 See Nathan & Horn, supra note 28. 44 11 U.S.C. § 1519 (2011). 45 Id. 46 Id.



7

nonmain proceeding, relief is only available on a

discretionary basis.47 In nonmain proceedings courts

have significant discretion to grant ―any appropriate

relief.‖48 Discretionary relief may include, but is not

limited to:

1) Staying the commencement or

continuation of individual actions or

proceedings related to the debtor‘s assets,

rights, obligations or liabilities.

2) Staying execution against the debtor‘s

assets.

3) Suspending or terminating the right to

transfer, encumber, or otherwise dispose

of assets of the debtor.

4) Providing for the examination of

witnesses, taking of evidence or the

delivery of information concerning the

debtor‘s assets, affairs, rights, obligations

and liabilities.

5) Entrusting the administration or

realization of all or part of the debtor‘s

U.S. assets to the foreign representative.

6) Extending any interim relief previously

granted.

7) Additional relief the court deems

appropriate (other than relief relating to

avoidance actions).49

Section 1507 authorizes the court, following

recognition, to ―provide additional assistance to a

foreign representative under this title or under other

laws of‖ the United States.50 A court is therefore

permitted to go beyond Chapter 15 in cooperating with

a foreign court.51 The court, in determining whether to

provide additional assistance, must consider whether

such assistance is consistent with the principles of

comity and will reasonably assure:

1) just treatment of all holders of claims

against or interests in the debtor‘s

property;

2) protection of claim holders in the United

States against prejudice and

inconvenience in the processing of claims

in such foreign proceeding;

3) prevention of preferential or fraudulent

disposition of property of the debtor;

47 See 11 U.S.C. § 1521(c). 48 See, e.g., SPhinX, 351 B.R. at 122. 49 11 U.S.C. § 1521(a)(1)-(7). 50 11 U.S.C. § 1507(a) (2011). 51 See Ranney-Marinelli, supra note 4.

4) distribution of proceeds of the debtor‘s

property substantially in accordance with

the order prescribed by Title 11; and

5) if appropriate, the provision of an

opportunity for a fresh start for the

individual that such foreign proceeding

concerns.52

Relief under section 1507 is subject to specific

limitations stated elsewhere in Chapter 15.

In deciding whether to enforce relief granted to a

foreign debtor in its foreign proceeding, courts analyze

whether the procedures applied by the foreign court

were fair, not whether the result reached by the foreign

court was ―proper‖53 or consistent in all aspects with

United States law. In Metcalfe, the court considered

whether a Chapter 15 debtor‘s extraordinary injunctive

and other relief in its Canadian bankruptcy was

enforceable in the U.S. despite the fact that such relief

could not be granted under U.S. law. The Metcalfe

court explained that when considering whether to

enforce a foreign court order under Chapter 15, a court

should not examine whether similar relief is available

under U.S. law, but instead whether or not principles of

comity support enforcement.54 A foreign debtor in a

Chapter 15 case therefore may receive relief that is not

available under other chapters of the Bankruptcy Code.

Although a foreign debtor in a Chapter 15 case

may receive extraordinary relief consistent with

principles of comity, section 1506 limits certain types

of relief. Section 1506 provides ―[n]othing in this

chapter prevents the court from refusing to take an

action governed by this chapter if the action would be

manifestly contrary to the public policy of the United

States.‖55 In deciding whether to apply section 1506,

courts have focused on two factors: (i) whether the

foreign proceeding was procedurally unfair; and (ii)

―whether the application of foreign law or the

recognition of a foreign main proceeding under

Chapter 15 would ‗severely impinge the value and

import‘ of a U.S. statutory or constitutional right, such

that granting comity would ‗severely hinder United

States bankruptcy courts‘ abilities to carry out . . . the

most fundamental policies and purposes‘ of these

rights.‖56 In Qimonda AG, the court explained that the

52 11 U.S.C. § 1507(b)(1)-(5). 53 In re Metcalfe & Mansfield Alternative Invs., 421 B.R.

685 (Bankr. S.D.N.Y. 2010). 54 Id. at 696. 55 11 U.S.C. § 1506 (2011). 56 In re Qimonda AG Bankr. Litig., 433 B.R. 547, 568-569

(E.D. Va. 2010) (quoting In re Gold & Honey, Ltd., 410

B.R. 357, 372 (Bankr. E.D.N.Y. 2009)).



8

cases dealing with section 1506 make clear that the

following three principles guide courts in analyzing

whether an action taken in a Chapter 15 proceeding is

manifestly contrary to the public policy of the United

States:

1) The mere fact of conflict between foreign

law and U.S. law, absent other

considerations, is insufficient to support

the invocation of the public policy

exception.

2) Deference to a foreign proceeding should

not be afforded in a Chapter 15

proceeding where the procedural fairness

of the foreign proceeding is in doubt or

cannot be cured by the adoption of

additional protections.

3) An action should not be taken in a

Chapter 15 proceeding where taking such

action would frustrate a U.S. court‘s

ability to administer the Chapter 15

proceeding and/or would impinge

severely a U.S. constitutional or statutory

right, particularly if a party continues to

enjoy the benefits of the Chapter 15

proceeding.57

Following recognition of a foreign proceeding as a

foreign main proceeding, the foreign representative has

powers similar to those granted to a Chapter 11 debtor

in possession or trustee.58

For example, the debtor‘s

foreign representative is permitted to manage the

affairs of the business and may sell assets. The foreign

representative may also seek court approval to examine

witnesses, obtain relief that a bankruptcy trustee could

seek, sue or be sued in any U.S. court, intervene in any

lawsuits in which the debtor is a party and obtain relief

necessary to protect the debtor‘s assets or creditors‘

interests.59

Bankruptcy courts may also offer avoidance relief

to a foreign representative under foreign law in a

Chapter 15 proceeding.60 In Condors, the U.S. Court

of Appeals for the Fifth Circuit held that section

1521(a)(7), which limits a foreign representative‘s

ability to avoid transfers in a Chapter 15 case under

U.S. avoidance laws, does not prohibit a foreign

representative from asserting an avoidance action

under foreign law.61 The Condors court reversed the

bankruptcy and district courts and held that Chapter 15

57 Id. at 570. 58 See, e.g., Hammer & McClintock, supra note 37. 59 See Nathan & Horn, supra note 28. 60 In re Condors Ins. Ltd., 601 F.3d 319, 329 (5th Cir. 2010). 61 Id.

does not exclude the brining of avoidance actions

under foreign law.62

F. Treatment of Foreign Creditors

Foreign creditors generally have the same rights as

domestic creditor to commence and participate in all

cases under Title 11.63 Section 1513 mandates the

nondiscriminatory treatment of foreign creditors.64

Section 1513 does not however change or modify

present law on the allowability of foreign revenue or

public law claims.65 Section 1513 therefore recognizes

the foreign revenue rule,66 under which courts refuse to

recognize or enforce certain tax and other claims of

foreign sovereigns.67 Section 1514 provides that the

notice requirements under Title 11 apply to foreign

creditors.68

G. Foreign Proceedings that are Neither Main

Nor Nonmain

As discussed above, Chapter 15 applies (albeit

differently) to foreign main and foreign nonmain

proceedings. However, Chapter 15‘s classification of

foreign insolvency proceedings as either main or

nonmain fails to account for all foreign insolvency

proceedings. A ―tertiary proceeding‖ is a foreign

insolvency proceeding that fails to qualify for

recognition as either a main proceeding or a nonmain

proceeding under Chapter 15.69 Foreign tertiary

proceedings which do not qualify as a main or a

nonmain proceeding under Chapter 15 include: (i) an

ancillary foreign proceeding similar to a chapter 15

case itself; (ii) a foreign proceeding for a foreign bank

that has a branch or agency in the U.S.; (iii) a foreign

62 The court found that although section 1521(a)(7) expressly

carves out avoidance actions under United States law as a

form of relief that a bankruptcy court can grant to a foreign

representative, it does not necessarily mandate a conclusion

that Congress also intended to deny the foreign

representative avoidance powers supplied by applicable

foreign law. The court explained that ―[i]f Congress wished

to bar all avoidance actions whatever their source, it could

have stated so; it did not.‖ Id. 63 11 U.S.C. § 1513(a) (2011). 64 Id. 65 11 U.S.C. § 1513(b)(2)(A). 66 The foreign revenue rule is a discretionary common law

doctrine that prohibits courts from enforcing foreign tax

judgments or entertaining actions that are tantamount to

enforcing the tax laws of foreign countries. 67 See Ranney-Marinelli, supra note 4, at 318. 68 11 U.S.C. § 1514 (2011). 69 Samuel L. Bufford, Tertiary and Other Excluded Foreign

Proceedings Under Bankruptcy Code Chapter 15, 83 AM.

BANKR. L.J. 165, 166 (2009).



9

proceeding for a foreign railroad; (iv) a foreign

proceeding in a country where the debtor lacks both an

establishment and its COMI; (v) a proceeding for a

foreign individual debtor eligible for a case under

chapter 13; and (vi) a proceeding for a foreign

stockbroker or commodity broker.70 The rights of a

foreign representative in a proceeding which is neither

main nor nonmain are unclear.71 But, it is fair to state

that absent recognition, the foreign representative

cannot take any action in the United States at all.

III. Assistance by the United States Court for

United States debtor/trustee entities in

foreign jurisdictions.

While the area is not so thoroughly litigated in the

United States (and would not be expected to be ),

Chapter 15 contains concepts that assist United States

trustees, examiners and other bankruptcy officials in

foreign proceedings. First, it confirms that a court can

expressly empower a trustee or ―other entity (including

an examiner)‖ to act (legally) in another jurisdiction.72

Armed with an order that sets out the trustee‘s ―or

other entity‘s‖ powers in the U.S. proceeding that

trustee or entity can then prove to a foreign tribunal

that he or it has the capacity as a matter of U.S. law to

appear in the foreign tribunal. If the trustee or entity

cannot demonstrate that it has that power, it faces

additional hurdles in a foreign court in seeking to

obtain recognition in that court.73

Chapter 15 contemplates coordination of United

States cases and foreign cases. This concept can apply

both where a foreign representative is recognized in the

United States (and when a United States bankruptcy

proceeding is pending), and in situations in which the

United States court presides over a case in which the

trustee or case official is acting outside of the United

States. Here, several points deserve note: (a) a United

States court is required to seek cooperation and

coordination when bankruptcy proceedings are pending

in two places covering the same debtor;74 (b) both

limitations on the scope of a recognized foreign

representative and abstention are specifically

recognized; (c) direct communications between each of

domestic court to foreign court, domestic court to

70 Id. 71 See Ranney-Marinelli, supra note 4, at 298. 72 11. U.S.C. § 1505. 73 See H.R. Rep. No. 109-31, 109th Cong., 1st Sess. 108-109

(2005). 74 11 U.S.C. § 1529 (2011). It is notable that the terms of

this section refer to proceedings under the Bankruptcy Code;

its does not refer to ―insolvency proceedings‖ generally

pending in the United States.

foreign representative, and domestic trustee to foreign

court is specifically contemplated (subject, in the case

of a domestic court to foreign representative, to the

rights of a party in interest to notice and

participation).75 The last of these three points is the

area that reinforces the use of ―protocols‖, between the

courts, which was a practice that flourished under

Section 304. There have been examples of protocols

increasingly significantly the ease of administration of

cases, and fostering efficiency. Some of the protocols

have worked well; some have not.76

The prospect of more than one foreign proceeding

pending against a debtor also receives some treatment

in Chapter 15. The statute in some instances requires

the United States court to be consistent in its rulings

with the laws of the foreign main proceeding.77

IV. Differences Between the Model Law &

Chapter 15

While Chapter 15 incorporates much of the Model

Law verbatim, some differences exist. The most

important difference between the Model Law and

Chapter 15 is that ―the Model Law, unlike Chapter 15,

does deny a foreign representative‘s ability to seek

comity or relief when the underlying foreign

proceeding cannot be recognized‖ as a foreign main or

nonmain proceeding.78 For example, Article 23 of the

Model Law, which grants to the foreign representative

the authority to avoid acts detrimental to creditors,79

exists with certain limitations as section 1523. Under

section 1523, a foreign representative has standing to

bring an avoidance action, but only in a case pending

under another chapter of Title 11.80 A representative

cannot utilize the avoidance provisions contained in

Sections 544, 547 and 548 of the U.S. Bankruptcy

Code unless a regular bankruptcy case is filed. The

foreign representative thus risks loss of control over

the case to a trustee.81

Article 19 of the Model Law, which provides for

the grant of relief upon application for recognition, is

similarly incorporated but limited in section 1519.

75 11. U.S.C. §§ 1525, 1526 & 1527 (2011). 76 The International Insolvency Institute has accumulated

several forms of protocol, including those used under

Section 304 practice; some of those can be located at the

Institute‘s website, www.iiiglobal.org. 77 11 U.S.C. § 1530 (2011). 78 Id. at 270. 79 See UNCITRAL Model Law on Cross-Border Insolvency

(1997), Article 23. 80 11 U.S.C. § 1523 (2011). 81 See 11 U.S.C. § 1509.



10

Article 19 authorizes injunctive and other relief when

―urgently needed to protect the assets of the debtor or

the interests of the creditors.‖82 Section 1519 adopts

this general approach but contains certain limitations,

including (i) a prohibition on enjoining police or

regulatory acts; (ii) adoption of the standards,

procedures and limitations applicable to injunctions;

and (iii) prohibition on the staying of certain rights

exempted from the automatic stay in section 362.83

Other minor differences and alterations of the Model

Law exist throughout Chapter 15.

It is also worth noting that some differences

between Chapter 15 and the Model Law are cosmetic

only and intended to apply United States usage to

Model Law terms, without changing the meaning. One

example is the use of the phrase ―absence of evidence

to the contrary‖ in the statement of the COMI

presumption in Section 1516 (c) , as opposed to the

phrase ―absence of proof to the contrary‖ in the Model

Law84.

V. In re Vitro, S.A.B. de C.V.

An ongoing case, In re Vitro, S.A.B. de C.V., in the

Bankruptcy Court for the Northern District of Texas

provides a view into an ongoing Chapter 15 case that

illustrates many of the points significant to the Chapter.

Vitro, S.A.B. de C.V. (―Vitro SAB‖) , a Mexican

corporation, is a holding company that conducts

substantially all of its operations through its

subsidiaries both outside and within the United States.

Vitro SAB, along with its subsidiaries (collectively

―Vitro‖ or the ―Vitro Entities‖), is the largest

manufacturer of glass containers and flat glass in

Mexico and has manufacturing facilities in 11

countries. The global recession triggered a drop in

business and losses on derivatives caused Vitro to

struggle to pay its debt.85 Consequently, on December

14 2010, Vitro SAB commenced bankruptcy

proceedings in Mexico, in which it sought to

implement a complex pre-packaged reorganization

plan in Mexico (the ―Concurso‖) under Mexican

bankruptcy law to restructure approximately $3.4

billion in debt. However, prior to the Mexican

reorganization, on November 17, 2010, creditors of

certain U.S. subsidiaries of Vitro SAB (the ―Subsidiary

Debtors‖) commenced Chapter 11 cases against the

82 See UNCITRAL Model Law, supra note 58, Article 19. 83 11 U.S.C. § 1519(d), (e) & (f). 84 Bankr. Abuse Prevention and Consumer Protection Act of

2005, Pub. L. No. 109-8, 2005, U.S.C.C.A.N. (119 Stat.)

175. 85 ―Mexico‘s Vitro says prepacked bankruptcy approved,‖

Reuters.com (Apr. 11, 2011).

Subsidiary Debtors in the United States Bankruptcy

Court for the Northern District of Texas.86

Concurrently with the Mexican filing, a purported

foreign representative of Vitro SAB filed a petition for

recognition of foreign main proceeding under Chapter

15 in the Bankruptcy Court for the Southern District of

New York.87

The Mexican Concurso is a form of cram-down,

which achieved in this instance the necessary approvals

only because of the affirmative vote of members of the

Vitro group who held debt of other members of the

group. Bondholders holding more than 60 percent of

Vitro SAB‘s $1.2 billion in defaulted bonds oppose the

Mexican reorganization and argue that it would be a

misuse of Chapter 15 because Vitro SAB intended to

cram a plan down on noteholders by using votes

arising from $1.9 billion in inter-company claims.88

On January 6, 2011, the Mexican court denied

Vitro SAB‘s voluntary petition and shortly thereafter,

Vitro SAB withdrew its Chapter 15 petition in the U.S.

Vitro SAB appealed the Mexican court‘s decision and

although its initial appeal was denied, on April 8, 2011,

a Mexican appellate court reversed and found that

Vitro SAB‘s voluntary Mexican petition satisfied the

requirements under the Mexican Business

Reorganization Act. On April 14, 2011, Vitro SAB

filed its second Chapter 15 petition for recognition of

foreign main proceeding in the Bankruptcy Court for

the Southern District of New York.89

In seeking relief

under Chapter 15, Vitro SAB sought to ensure the

enforcement of any reorganization approved in the

Mexican bankruptcy proceeding.90

The petitioning creditors of the Texas Chapter 11

cases of the Debtor Subsidiaries filed a motion

requesting the Chapter 15 case be transferred to the

Bankruptcy Court for the Northern District of Texas so

that it may be jointly administered with the involuntary

Chapter 11 cases. Under Bankruptcy Rule 1014(b), the

bankruptcy court in Texas has the right to decide if it

86 See In re Vitro Asset Corp., et al., No. 11-32600 (HDH)

[Jointly Administered] (Bankr. N.D. Tex. Nov. 17, 2010). 87 See In re Vitro, S.A.B. de C.V., No. 10-16619 (SHL)

(Bankr. S.D.N.Y. Dec. 14, 2010). 88 See, e.g., Bill Rochelle, Vitro, Madoff, Timothy Blixseth,

Asbestos Case: Bankruptcy, Bloomberg BusinessWeek

(May 6, 2011). 89 See In re Vitro, S.A.B. de C.V., No. 11-11754 (SCC)

(Bankr. S.D.N.Y. Apr. 14, 2011). 90 It is worth noting that the venue statute for a Chapter 15

proceeding in the United States (28 U.S.C. section 1410)

differs from the general bankruptcy venue statute (28

U.S.C. section 140).



11

will take the related Chapter 15 case because it is the

jurisdiction with the first-filed affiliate cases.91 Vitro

SAB opposed the transfer to Hon. Harlin D. Hale;

however, the order transferring the case was entered on

May 13, 2011. The recognition hearing was held on

July 14, 2011. The Noteholders opposed recognition

and argued that the party seeking recognition is an

insider of the debtor and is not authorized under

Mexican law or the Bankruptcy Code to take action on

behalf of the debtor.92 The Noteholders therefore

maintained that the Petitioner is not a ―foreign

representative‖ of Vitro‘s Mexican insolvency

proceeding and that recognition should be denied.93

The central issue for the court was whether a

debtor in a Mexican proceeding can name its own

―foreign representative.‖ Section 101(24) of the

Bankruptcy Code explains that ―[t]he term ‗foreign

representative‘ means 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.‖

Vitro argued that the court should recognize a

foreign debtor in possession (or its appointee) as a

proper foreign representative. Vitro explained that in a

Mexican concurso proceeding, unless the judge orders

otherwise, a Mexican debtor retains the authority to

manage its enterprise during the proceeding‘s

conciliation stage, similar to a debtor in possession.94

The objecting parties argued that only the examiner,

conciliator or the sindico appointed by the court in

Mexico, may act as a foreign representative, and once

an insolvency declaration has been entered, this task

falls on the consiliator exclusively. The court sided

with Vitro and granted recognition. The court noted

that in all of the ancillary proceedings filed in U.S.

Bankruptcy Courts in relation to Mexican concurso

proceedings the petitioner was appointed by the

Mexican debtor. In all of these cases the courts have

granted recognition.95

This case points out several of the challenges of

cross border insolvency in the United States: (a) the

actions of the foreign representative (or putative

foreign representative) depend very much on what

91 See FED. R. BANKR. P. 1014(b). 92 See In re Vitro, S.A.B. de C.V., No. 11-33335-hdh15

(Bankr. N.D. Tex. June 18, 2011). 93 Id. 94 See In re Vitro, S.A.B. de C.V., Case No. 11-33335-hdh15

(Bankr. N.D. Tex. July 21, 2011). 95 Id.

happens in the home jurisdiction, so the actions taken

or not taken in the United States must be measured in

light of foreign proceedings; (b) venue can differ

between Cases under other chapters of Title 11, in part

because venue statutes differ; (c) in making

determinations as to the application of United States

law in Chapter 15, frequently the court must address

interpretations (often competing interpretations) of

foreign law; (d) the scope of the power of the foreign

representative recognized under a foreign main

proceeding is significant and a great threat to

opponents.

Mexico has adopted its own version of the Model

Law and over time it can be expected that the United

States court and the Mexican court will enter into

arrangements for cooperation and coordination of the

cases, even though they involve different entities in the

same corporate group. The rules under the Model Law

(and Chapter 15) remain murky in the area of corporate

groups, so much will need to be resolved outside the

clear scope and reach of the statutes.

VI. Concluding remarks.

Chapter 15 reflects and incorporates many

elements of its predecessors and relatives-Section 304,

the Model Law, the EC Regulation and principles of

comity. Fundamentally, it exists to avoid the chaos

that can impede the administration of a single estate (or

closely related estates), by providing a mechanic for

allocating responsibility powers and protections to

representative, domestic and foreign who have the

charge of reorganizing or liquidating estates. This

Chapter contains several specific definitions, and some

clear directions to courts about how to apply principles.

It retains a notable amount of flexibility and

encourages a rare form of court to court

communication.

CROSS-BORDER INSOLVENCIES AND A RECENT CHAPTER 15 … · 2013. 10. 17. · CROSS-BORDER INSOLVENCIES AND A RECENT CHAPTER 15 CASE PENDING IN TEXAS: In re Vitro, S.A.B. de C.V. JUDITH

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