ISSUES IN INTERNATIONAL BANKRUPTCY … · The court deemedall facts relating to Guam and the Federal Reserve System “inapposite.” (iii) Interbulk, ... Hilton v. Guyot, 159 U.S.

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ISSUES IN INTERNATIONAL BANKRUPTCY PROCEEDINGS: CONFLICT OF LAWS, COMITY ANTI-SUIT INJUNCTIONS

RUSSELL C. SILBERGLIED1

NORTH AMERICAN REGIONAL VICE CHAIR BANKRUPTCY & INTERNATIONAL INSOLVENCY GROUP

I. Conflict of Laws: The first section of this outline details how United States

bankruptcy courts generally resolve conflict of law problems in international

bankruptcy proceedings.

A. A conflict of law problem does not arise when a foreign country’s bankruptcy law

is similar to United States bankruptcy law.

1. When a foreign country’s bankruptcy law is similar to United States

bankruptcy law, the United States bankruptcy court will apply the foreign

country’s law.

a. In re Banco de Descuento, 78 B.R. 337 (Bankr. S.D. Fl. 1987).

(i) Banco de Descuento (the “Bank”), an Ecuadorian bank,

began liquidating its assets under the General Law of

Banks of the Republic of Ecuador (the “General Law”) in

Ecuador. Meanwhile, the Bank’s liquidator filed an

ancillary proceeding in the United States Bankruptcy Court

for the Southern District of Florida. A creditor from the

United States argued that United States liquidation law for

1 Mr. Silberglied is a Director of Richards, Layton & Finger, P.A. (“RL&F”), the Lex Mundi

member firm in Wilmington, Delaware (U.S.A.). Mr. Silberglied would like to thank Melissa Chiprich, a summer associate at RL&F, for her substantial contribution to this outline. The views expressed in this outline are Mr. Silberglied’s views and are not necessarily shared by, and should not be attributed to RL&F, its other Directors, or its clients.

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banks rather than the General Law controlled because

United States liquidation law provided for more

economical and expeditious administration of the Bank’s

assets.

(ii) The United States Bankruptcy Court for the Southern

District of Florida found no conflict between United States

and Ecuadorian law since the two bodies of law are similar.

Like United States liquidation law, the General Law

provides for a stay of proceedings and a determination of

the priority of claims and prohibits preferences and

alienation or attachment of the assets of a bank liquidation.

(iii) The court added, “[Ecuadorian liquidation laws] as written

[are] clearly not repugnant to American laws and policies.”

Id. at 339.

2. Note, however, that a similarity in the overall scheme of two countries’

bankruptcy laws might not, in certain circumstances, be sufficient to find

that a specific issue in question will be treated similarly under either

country’s law.

a. In re Budget Rent-A-Car Corp. (“BRACC”).

(i) BRACC loaned $122 million to its wholly-owned

subsidiary, BRACII, which was based in England and

comprised BRACC's worldwide, non-United States

operations.

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(ii) Under United States law, there was a substantial question

as to whether BRACC’s $122 million loan to BRACII,

advanced at a time when BRACII was financially troubled,

was debt or should be recharacterized as an equity advance.

(iii) British law is more restrictive than United States law on the

concept of recharacterizing debt as equity. Thus, the

choice of United States or British law likely would have

been outcome determinative on this $122 million issue.

(iv) Although United States and British insolvency and

bankruptcy law are generally very similar, they drastically

diverged on this key issue in the case.

(v) Because the parties settled (after extensive litigation), the

court was not called upon to conduct a conflict of law

analysis.

B. When United States bankruptcy law conflicts with a foreign country’s bankruptcy

law, United States courts have followed two different lines of authority in

determining which country’s law applies.

1. Most courts follow a conflict of law analysis which considers the

following factors: (1) was the transaction “foreign”; (2) if so, does the

United States Bankruptcy Code apply extraterritorially to the transaction;

and (3) if it applies extraterritorially, does comity bar the court from

applying the United States Bankruptcy Code.

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a. First, the bankruptcy court determines whether the transactions

were “foreign.” If not, the bankruptcy court ends the analysis and

applies the United States Bankruptcy Code.

(i) Generally, a bankruptcy court applies a “center of gravity”

test, which is a fact- intensive, case-by-case inquiry. “[A]

transfer made in the U.S. by a foreign national to a foreign

national conceivably could be considered a domestic

transaction. So, too, a transfer made overseas to a U.S.

creditor of a U.S. debtor conceivably could be considered a

domestic transaction.” Maxwell Communication Corp. v.

Barclays Bank (In re Maxwell Communication Corp.), 170

B.R. 800, 809 (Bankr. S.D.N.Y. 1994). See also

Stonington Partners, Inc. v. Lernout & Hauspie Speech

Prods. N.V., 310 F.3d 118, 131 (3d Cir. 2002).

(ii) Gushi Bros. Co. v. Bank of Guam, 28 F.3d 1535 (9th Cir.

1994).

(a) Gushi Brothers (“Gushi”) maintained a bank

account with the Bank of Guam (the “Bank”) in the

Marshall Islands. After learning that Gushi had

overdrawn on its account, the Bank’s president

traveled to the Marshall Islands and demanded that

Gushi’s owners execute a promissory note in the

amount of the overdraft. The Bank sent Gushi’s

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owners a letter, rejecting the owners’ request to

renegotiate the promissory note and demanding that

the owners close an account recently opened at

another bank.

(b) The Bank was chartered and headquartered in

Guam, a United States territory, and belonged to the

United States Federal Reserve System.

(c) The Ninth Circuit Court of Appeals held that the

banking transactions were foreign because the

conduct complained of occurred in the Marshall

Islands. The court deemed all facts relating to

Guam and the Federal Reserve System

“inapposite.”

(iii) Interbulk, Ltd. v. Louis Dreyfus Corp. (In re Interbulk,

Ltd.), 240 B.R. 195 (Bankr. S.D.N.Y. 1999).

(a) Louis Dreyfus Corporation (“Dreyfus”), a United

States corporation, negotiated two contracts

between itself and debtor Interbulk, Incorporated

(“Interbulk”), a United States corporation, by

telephone in New York. Later, in trying to secure

payments to Dreyfus through accounts in New

York, Dreyfus obtained an order of attachment in

connection with the contracts in Paris, France.

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Dreyfus sought to enforce the attachment in a

British court and filed a proof of claim against

Interbulk in the United States Bankruptcy Court for

the Southern District of New York. Interbulk

brought an adversary proceeding in the bankruptcy

court to declare the attachment a preference.

(b) The United States Bankruptcy Court for the

Southern District of New York held that the

attachment was a domestic transaction because the

negotiations occurred in New York, the attachment

was an effort to secure payment to Dreyfus through

accounts in New York, and Dreyfus submitted itself

to the bankruptcy court’s equitable jurisdiction by

filing a proof of claim.

b. If the transaction is considered “foreign,” the bankruptcy court then

determines whether the United States Bankruptcy Code applies

extraterritorially to the transaction.

(i) The United States’ Congress may legislate beyond the

United States’ borders. Whether Congress so legislated is a

matter of statutory interpretation. See Hong Kong and

Shanghai Banking Corp. Ltd. v. Simon (In re Simon), 153

F.3d 991, 995 (9th Cir. 1998).

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(ii) Absent a clear congressional directive to the contrary,

courts presume that Congressional legislation applies only

within the United States’ jurisdiction. See Hong Kong and

Shanghai Banking Corp. Ltd. v. Simon (In re Simon), 153

F.3d 991, 995 (9th Cir. 1998).

(iii) This presumption applies even when the potential

international discord is remote or nonexistent. Sale v.

Haitian Centers Council, Inc., 509 U.S. 155, 175-77 (1993).

(iv) Nevertheless, in Hong Kong and Shanghai Banking Corp.

Ltd. v. Simon (In re Simon), 153 F.3d 991 (9th Cir. 1998),

the Ninth Circuit Court of Appeals held that Section 524 of

the United States Bankruptcy Code -- the discharge --

applied extraterritorially to enjoin a foreign creditor who

sought foreign collection of a debt discharged in a United

States bankruptcy proceeding in which the foreign creditor

participated. Interestingly, Section 524 does not expressly

provide for extraterritorial application.

c. Finally, if the United States Bankruptcy Code applies

extraterritorially to the foreign transaction, the bankruptcy court

determines whether international comity bars it from applying the

United States Bankruptcy Code.

(i) Comity is ‘the recognition which one nation allows within

its territory to the legislative, executive or judicial acts of

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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, 163-64 (1895).

(ii) “Comity” can take two forms: (1) the application of foreign

law by a United States court, or (2) deferring to a ruling

already rendered by a foreign court. The first of those

applications is discussed here as part of the typical three-

part choice of law analysis. Section II of this outline

considers the other notion of comity, i.e., whether United

States courts defer to rulings of foreign insolvency courts,

and under what circumstances.

(iii) The party moving for abstention based on comity must

prove that comity-based abstention is appropriate. United

Feature Syndicate, Inc. v. Miller Features Syndicate, Inc.,

216 F. Supp. 2d 198, 212 (S.D.N.Y. 2002).

(iv) A bankruptcy court “evaluate[s] all of the various contacts

each jurisdiction has with the controversy in terms of their

relative importance with respect to a particular issue and

make[s] a reasoned determination as to which jurisdiction's

laws and policies are implicated to the greatest extent.”

Maxwell Communication Corp. v. Barclays Bank (In re

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Maxwell Communication Corp.), 170 B.R. 800, 816

(Bankr. S.D.N.Y. 1994).

(v) Maxwell Communication Corp. v. Barclays Bank (In re

Maxwell Communication Corp.), 170 B.R. 800 (Bankr.

S.D.N.Y. 1994), illustrates how a court evaluates the

various contacts and determines which jurisdiction’s laws

and policies are most implicated.

(a) Maxwell Communication Corporation (“MCC”)

was a publicly-owned holding company,

incorporated in England and operated by British

executives, who received instructions from a British

board of directors. Before filing its Chapter 11

petition in the United States, MCC transferred

money to defendant banks in England. The transfer

documents provided that British law governed

resolution of any subsequent disputes. MCC sought

to avoid the transfers under Section 547 of the

United States Bankruptcy Code. The defendant

banks argued that, based on principles of comity,

British law governed the foreign transfers.

(b) The United States Bankruptcy Court for the

Southern District of New York held that the British

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choice of law provision governed the foreign

transactions.

(c) The court also stated that, under principles of

comity, British law would have governed the

avoidance issue even if the transfer documents had

lacked a choice of law provision. The court

reasoned that England had the most contact with the

issue: (1) MCC was a British company; (2) most of

MCC’s creditors were British; (3) MCC negotiated

the transfers in England; and (4) the challenged

transfers occurred in England. Furthermore, the

United States’ policy interests did not compel the

court to apply the United States Bankruptcy Code

since (1) England’s avoidance law is not repugnant

to Section 547, and (2) the defendant banks

probably assumed that British, not United States,

bankruptcy law would govern if MCC, a British

company, filed for bankruptcy.

(vi) In re French, 303 B.R. 774 (Bankr. D. Md. 2003).

(a) A Chapter 7 debtor allegedly transferred real

property located in the Bahamas for no

consideration within months of filing her

bankruptcy petition. The Chapter 7 trustee filed a

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complaint in the United States Bankruptcy Court for

the District of Maryland, seeking to avoid the

allegedly fraudulent transfer under Section 548 of

the United States Bankruptcy Code. The debtor

moved to dismiss the complaint, arguing that the

court, under principles of comity, should not apply

Section 548 to property located in the Bahamas.

The debtor further argued that Bahamian law

governed because the debtor had an interest in

Bahamian property.

(b) The United States Bankruptcy Court for the District

of Maryland held that Section 548 of the United

States Bankruptcy Code rather than Bahamian law

governed the avoidance action because, under

Bahamian law, the debtor no longer had an interest

in Bahamian property, which she previously

conveyed.

2. A minority of courts follow a typical United States conflict of law analysis

rather than the three-part analysis described above. In essence, without

discussing whether the Bankruptcy Code purports to apply

extraterritorially or whether comity concerns warrant deference, these

courts treat the choice of applying United States or foreign law no

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differently than they would approach a conflict between the laws of two

states within the United States.

a. These courts will first determine whether a choice-of- law clause

exists in a contract.

(i) United States bankruptcy courts and appellate courts on

review will usually enforce a foreign choice-of- law clause

in a contract.

(a) In re Harnischfeger Indus., Inc., 293 B.R. 650

(Bankr. D. Del. 2003).

1) The United States Bankruptcy Court for the

District of Delaware enforced a United States

choice-of- law clause in a purchase order that

spurred a dispute between an Austrian debtor

and the debtor’s receiver.

2) “Delaware law recognizes the validity of choice

of law clauses contained in purchase orders.”

Id.

(b) Assuranceforeningen Skuld, Den Danske Afdeling

v. Allfirst Bank (In re Millenium Seacarriers, Inc.),

96 Fed. Appx. 753 (2d Cir. 2004).

1) Millennium Seacarriers, Inc. (“Millennium”)

purchased insurance from Assuranceforeningen

Skuld, Den Danske Afdeling (“Skuld”). The

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insurance policy contained a Norwegian choice-

of- law clause. Thereafter, Millennium filed for

bankruptcy in the United States and Skuld

sought to recover the value of unpaid insurance

premiums. Under Norwegian law, the unpaid

insurance premiums were not given the priority

of maritime liens. Since Norwegian law did not

provide a remedy, Skuld argued it could pursue

its claim under United States law.

2) The United States Bankruptcy Court for the

Southern District of New York enforced the

Norwegian choice-of-law clause in the

insurance contract.

3) The Second Circuit Court of Appeals affirmed

the bankruptcy court’s decision. “In

transactions of an international character, freely

negotiated...choice-of- law clauses are binding

unless a court finds ‘that it would be unfair,

unjust, or unreasonable to hold [a] party to his

bargain.’” Id. at 754-755 (internal citation

omitted). The court found that no injustice

would result by enforcing the Norwegian

choice-of- law clause.

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(ii) Other courts in the United States have not enforced foreign

choice-of- law clauses for the following reasons.

(a) The contract provided that the choice-of-law clause

would govern only certain controversies. E.g.,

Liverpool & London Steamship Protection &

Indemnity Assoc. Ltd. v. Queen of Leman MV, 296

F.3d 350, 353-54 (5th Cir. 2002) (holding that

United States law determined whether a maritime

lien existed because the foreign choice-of-law

clause was not written to govern all possible in rem

actions).

(b) The parties who agreed to the choice-of- law clause

had unequal bargaining power. See Indussa Corp.

v. S.S. Ranborg, 377 F.2d 200, 201 (2d. Cir. 1967)

(refusing to enforce a foreign choice-of- law clause

in a bill of lading that was a contract of adhesion).

(c) Principles of comity may trump a choice-of-law

clause. See JP Morgan Chase Bank v. Altos Hornos

de Mexico S.A. DE C.V., No. 03 Civ. 1900 (HB),

2004 WL 42268 (S.D.N.Y. Jan. 8, 2004). In JP

Morgan, various promissory notes contained a

choice-of- law clause which provided that New York

or Mexican law would apply if the debtor or

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creditor filed an adversary proceeding in New York

or Mexico respectively. After the debtor filed for

bankruptcy in Mexico, the creditor filed an

adversary proceeding in New York. The United

States District Court for the Southern District of

New York held that, despite the choice-of-law

clause, principles of comity empowered the

Mexican court to hear the adversary proceeding and

to decide the proceeding under Mexican law, which

the Mexican court better understood.

(d) The chosen law has no substantial relationship to

the parties or transaction, and no reasonable basis

for the parties’ choice exists. See In re Kellas, 113

B.R. 673, 679 (D. Or. 1990).

(e) The chosen law is contrary to a fundamental policy

of the forum state. In re Kellas, 113 B.R. 673, 679

(D. Or. 1990). For example, while there are no

reported decisions on point, a United States

bankruptcy court would probably not apply foreign

law, even if the contract has a foreign choice-of-law

clause, to uphold a contractual clause stating that

the contract terminates or a party is in default upon

the party’s insolvency or filing for bankruptcy.

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This type of contractual provision, known as an ipso

facto clause, is void as against United States public

policy and the United States Bankruptcy Code. See

11 U.S.C. § 365(e)(1)(B); 11 U.S.C. § 363(l).

b. If the issue concerns a matter of internal corporate governance,

courts applying the traditional United States conflict of law

analysis will apply the internal affairs doctrine.

(i) The internal affairs doctrine is a conflict of law principle

that requires the law of the state of incorporation to govern

issues relating to, inter alia, transactions and relationships

between a corporation and its officers, directors, and

shareholders. Edgar v. MITE Corp., 457 U.S. 624, 645

(1982).

(ii) In re Harnischfeger Indus., Inc., 293 B.R. 650 (Bankr. D.

Del. 2003).

(a) Beloit Austria, an Austrian corporation, was a

wholly-owned subsidiary of Beloit Corporation

(“Beloit”), a United States corporation. In spring

1999, Beloit paid Beloit Austria ’s vendors and

deposited money in Beloit Austria’s bank accounts.

In June 1999, Beloit filed its Chapter 11 petition in

the United States Bankruptcy Cour t for the District

of Delaware; however, Beloit kept depositing

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money in Beloit Austria ’s bank account. Beloit

then asserted that Beloit Austria owed it $7 million.

In November 1999, Beloit Austria filed for

insolvency proceedings in Austria.

(b) The United States Bankruptcy Court for the District

of Delaware was called upon to determine whether

Beloit’s monetary advances constituted a loan or an

equity investment. Beloit argued that United States

law governed the issue. Beloit Austria’s Receiver

argued that Austrian law governed based on the

internal corporate affairs doctrine.

(c) The United States Bankruptcy Court for the District

of Delaware held that the internal corporate affairs

doctrine applied because the issue involved

transactions between a corporation and its

shareholders. Therefore, the court applied Austrian

law.

C. Conclusion:

1. If United States bankruptcy law conflicts with a foreign country’s

bankruptcy law, the bankruptcy court will follow one of two lines of

authority: the majority three-part conflict of law analysis focusing on

comity concerns or the minority, traditional United States conflict of law

analysis.

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2. It is worth observing that courts applying the minority approach generally

have applied foreign law rather than the United States law. Thus, it is

conceivable that these seemingly divergent lines of authority really are not

fundamentally different; rather, it is possible that the courts tha t decided

Harnischfeger and Millennium Seacarriers did not perform a comity

analysis because they had already determined, for other reasons, to apply

foreign law.

II. Comity and Rulings of Foreign Insolvency Tribunals: This section of the outline

explores whether courts in the United States will honor a ruling in a foreign

bankruptcy proceeding.

A. What is “comity”?

1. Comity is “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, 163-64 (1895) (emphasis added).

B. Comity requires a United States court to honor a ruling in a foreign bankruptcy

proceeding in most circumstances.

1. As applied to a bankruptcy proceeding, the extension of comity “enables

the assets of a debtor to be dispersed in an equitable, orderly, and

systematic manner, rather than in a haphazard, erratic or piecemeal

fashion.” Cunard S.S. Co. Ltd. v. Salen Reefer Serv. AB, 773 F.2d 452,

458 (2d Cir. 1985).

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C. Yet, despite principles of comity, a United States court will not honor a ruling in a

foreign bankruptcy proceeding that lacked notions of procedural fairness.

1. “Under the law of the United States, a foreign judgment cannot be

enforced in a U.S. court unless it was obtained under a system with

procedures compatible with the requirements of due process of law.” For

instance, “[n]otice is an element of…due process and the United States

will not enforce a judgment obtained without the bare minimum

requirements of notice.” Int’l Trans., Ltd. v. Embotelladora Agral

Regiomontana, SA DE CV, 347 F.3d 589, 594 (5th Cir. 2003).

2. “To determine whe ther a foreign bankruptcy proceeding ‘abide[s] by

fundamental standards of procedural fairness,’ [a court] focuse[s] on

several factors [such] as ‘indicia of procedural fairness,’ including: (1)

whether creditors of the same class are treated equally in the distribution

of assets; (2) whether the liquidators are considered fiduciaries and are

held accountable to the court; (3) whether creditors have the right to

submit claims which, if denied [by the debtor], can be submitted to a

bankruptcy court for adjud ication; (4) whether the liquidators are required

to give notice to the debtors potential claimants; (5) whether there are

provisions for creditors meetings; (6) whether a foreign countrys

insolvency laws favor its own citizens; (7) whether all assets are

marshalled before one body for centralized distribution; and (8) whether

there are provisions for an automatic stay and for the lifting of such stays

to facilitate the centralization of claims.” Finanz AG Zurich v. Banco

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Economico S.A., 192 F.3d 240, 246, 249 (2d. Cir. 1999) (internal citation

omitted).

D. At least two United States courts have refused to honor orders issued in foreign

bankruptcy proceedings due to the lack of requisite notice.

1. Int’l Trans., Ltd. v. Embotelladora Agral Regiomontana, SA DE CV 347

F.3d 589 (5th Cir. 2003).

a. The Agral Companies (“Agral”), Mexican companies, filed for

bankruptcy in Mexico under Mexican law. International

Transactions, Ltd. (“ITL”) obtained an arbitration award against

Agral in Dallas, Texas. Sharp Capital, Inc. (“Sharp”) acted as

ITL’s undisclosed agent and the provisional intervener for Agral’s

creditors. At ITL’s instruction, Sharp filed a claim in the Mexican

bankruptcy court for confirmation and recognition of the award.

Then, without ITL’s authorization, Sharp assigned the award to a

third party. Subsequently, ITL filed suit against Sharp in the

United States District Court for the Northern District of Texas.

Two years later, the Mexican bankruptcy court determined that

Sharp was no longer Agral’s creditor and dismissed Sharp as the

provisional intervener. Although Mexican bankruptcy law

typically affords notice to all creditors, ITL never received notice

of that bankruptcy proceeding. Moreover, ITL did not appear in

the Mexican bankruptcy court.

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b. ITL urged the United States District Court for the Northern District

of Texas to enforce the arbitration award and to find Sharp’s

assignment invalid. The district court honored the Mexican

bankruptcy court’s determination.

c. The issue on appeal was whether ITL had notice and an

opportunity to be heard in the Mexican bankruptcy court on its

claim to the arbitration award.

d. The Fifth Circuit Court of Appeals held that ITL was not afforded

notice and an opportunity to be heard. Thus, it reversed, holding

that the district court erred in honoring the Mexican bankruptcy

court’s determination based on principles of comity.

2. Interpool, Ltd. v. Certain Freights of the M/V Venture Star, 102 B.R. 373

(D.N.J. 1988).

a. Wah Kwong filed an involuntary liquidation proceeding against

Karlander Kangaroo Lines (“KKL”), an Australian corporation, in

Australia. The Australian court ordered KKL to liquidate its assets.

Mr. Dunn, KKL’s liquidator (the “Liquidator”), entered into

various agreements with Wah Kwong, which the Australian court

approved. The Liquidator also filed a petition in the United States

Bankruptcy Court for the District of New Jersey for relief under

Section 304 of the United States Bankruptcy Code. Section 304

provides for a United States insolvency case ancillary to foreign

insolvency proceedings. Under Section 304, the Liquidator sought

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to administer assets located in the United States pursuant to

Australian bankruptcy law and the Wah Kwong agreements.

Subsequently, various KKL creditors in the United States filed an

involuntary Chapter 7 petition against KKL.

b. The issue before the United States District Court was whether it

should, under principles of comity, honor the Australian court’s

approval of the Wah Kwong agreements even though Australian

law does not require a liquidator to give notice to creditors from the

United States.

c. Despite principles of comity, the District Court for the District of

New Jersey did not honor the Australian court approval of the

agreements because the United States creditors were not notified

before the Australian court ratified the agreement s between the

Liquidator and Wah Kwong. Therefore, the Australian

proceedings lacked notions of due process.

E. One United States court addressed the procedural fairness of a liquidation

proceeding in Ecuador.

1. In re Banco de Descuento, 78 B.R. 337 (Bankr. S.D. Fl. 1987).

a. Banco de Descuento (the “Bank”) was an Ecuadorian bank located

in Ecuador. An Ecuadorian court ordered the Superintendent of

Banks of the Republic of Ecuador (the “Liquidator”) to liquidate

the Bank’s assets. At the same time, the Liquidator filed a petition

under Section 304 of the United States Bankruptcy Code. The

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Liquidator requested an injunction, staying actions by American

creditors pending the Bank’s liquidation in Ecuador. First

National Bank of Palm Beach (“First Palm Beach”), an United

States creditor which questioned the timing and cause of the

Bank’s liquidation, opposed the petition and urged the bankruptcy

court not to honor the Ecuadorian liquidation proceeding.

b. One of the issues before the United States Bankruptcy Court for

the Southern District of Florida was whether the Ecuadorian

liquidation proceedings comported with United States notions of

fairness and due process so that it could extend comity to the

Ecuadorian proceeding.

c. In addressing the issue, the bankruptcy court found Ecuadorian and

United States liquidation laws for banks similar. Like United

States law, the General Law of Banks of the Republic of Ecuador

provides for a stay of proceedings and a determination of the

priority of claims and prohibits preferences and alienation or

attachment of the assets of a bank liquidation.

d. This similarity suggests that the Ecuadorian liquidation proceeding

comported with United States notions of fairness and due process.

e. Nevertheless, the United States Bankruptcy Court for the Southern

District of Florida refrained from answering the issue: “As the

proceedings in Ecuador progress, the Court will be able to assess

whether the [Ecuadorian liquidation laws], as applied, provides

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fair treatment to United States creditors.” Id. at 340. The court

stayed the United States proceeding.

F. Most United States courts have honored a ruling in foreign bankruptcy

proceedings under principles of comity.

a. Comity Based On Notice:

(i) Ecoban Fin. Ltd. v. Grupo Acerero del Norte SA DE CV,

108 F. Supp. 2d 349 (S.D.N.Y. 2000).

(a) Grupo Acerero del Norte (“Acerero”), a Mexican

conglomerate, filed a Suspension of Payments

(“SOP”) petition (similar to a United States Chapter

11 petition) in Mexico. The Mexican court granted

Acerero’s petition. Subsequently, Ecoban Finance

Limited, a New York corporation, filed a lawsuit in

the United States District Court for the Southern

District of New York to collect on a series of past-

due promissory notes that Acerero had issued in

Mexico. Acerero moved to dismiss the New York

suit, asking the district court, for reasons of comity,

to defer to the Mexican SOP proceeding.

(b) In considering the motion to dismiss, the United

States District Court for the Southern District of

New York focused on whether the SOP proceeding

comported with United States notions of

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fundamental procedural fairness. If so, principles of

comity dictated dismissal.

(c) The district court held that the SOP proceeding did

not violate United States notions of procedural

fairness and that comity deference was appropriate

under the circumstances.

(d) The district court reasoned that Acerero’s creditors

were given legitimate opportunity to make their

claims and to address any grievances within the

SOP proceeding.

(e) Moreover, the district court did not find the SOP

process unfair just because it could last ten years.

(ii) Finanz AG Zurich v. Banco Economico S.A., 192 F.3d 240

(2d Cir. 1999).

(a) Banco Central de Brazil (“Central Bank”) placed

Banco Economico S.A. (“BESA”) in a Brazilian

extrajudicial liquidation, which is functionally

similar to a United States bankruptcy proceeding.

Yet, unlike a United States bankruptcy proceeding

in which a creditor receives individualized notice,

creditors in a Brazilian extrajudicial proceeding

receive only published notice of the liquidation.

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(b) Subsequently, Finanz AG Zurich (“Finanz”) filed

suit in the United States District Court for the

Southern District of New York to recover the value

of various promissory notes in the Brazilian

liquidation. BESA moved to dismiss the New York

action in deference to the Brazilian liquidation

proceeding under principles of comity. Finanz

maintained that the Brazilian proceeding violated

United States standards of due process and

fundamental fairness because creditors were not

individually notified.

(c) The United States District Court for the Southern

District of New York extended comity to the

Brazilian liquidation proceeding under principles of

comity and dismissed Finanz’s suit.

(d) The Second Circuit Court of Appeals affirmed the

district court’s grant of comity to the Brazilian

liquidation proceeding. The appeals court held that

the Brazilian liquidation proceeding did not violate

due process because, even though Finanz did not

receive individualized notice, it had actual notice of

the proceeding.

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(e) Although the appeals court did not ultimately

decide whether Brazil’s policy of published notice

violates United States standards of due process and

fundamental fairness, the tone of the opinion

suggests that published notice does not provide

sufficient notice and that, but for the creditor having

actually read the published notice, the case could

have been decided differently.

(f) In United States domestic bankruptcy cases, if the

debtor is unaware of the creditor’s claim or identity,

United States courts recognize that published notice

satisfies the due process requirements if the

published notice is reasonably calculated to apprise

the unknown creditors of the pending bankruptcy.

See Mullane v. Cent. Hanover Bank & Trust Co.,

339 U.S. 306, 317 (1950).

(g) On the other hand, published notice does not satisfy

due process when the creditor is known to the

debtors. Known creditors must be given actual

notice of the case. Jones v. Chemetron Corp., 212

F.3d 199, 205 (3d. Cir. 2000).

(iii) Pravin Banker Assoc., Ltd. v. Banco Popular del Peru, 165

B.R. 379 (S.D.N.Y. 1994).

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(iv) Banco Popular del Peru (the “Bank”) was a bank

incorporated in Peru. The Superintendent of Banks in Peru

ordered the Bank to dissolve and liquidate its assets. The

Bank’s liquidation committee publicly announced all

decisions about the Bank’s claims. As required by

Peruvian liquidation law, the Special Representative

(similar to a bankruptcy trustee) created three lists of

claims and creditors: (1) a preliminary list of creditors, (2)

a creditor list that included non-declared creditors, and (3) a

list indicating all approved and rejected claims. The

Special Representative published the third list in an official

Peruvian newspaper and sent actual notice to all foreign

creditors. Pravin Banker Associates (“Pravin”), the Bank’s

creditor, learned about the dissolution and liquidation but

never participated in the liquidation process. Subsequently,

Pravin filed suit in the United States District Court for the

Southern District of New York to collect a debt that the

Bank owed it. The Bank moved to dismiss the New York

suit based on principles of comity.

(v) The United States District Court for the Southern District

of New York extended comity to the Peruvian dissolution

and liquidation proceedings, finding that the Peruvian

proceedings comported with United States notions of due

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process and fairness. The court reasoned that Pravin

received actual notice.

(vi) Cunard S.S. Co. Ltd. v. Salen Reefer Serv. AB, 773 F.2d

452 (2d Cir. 1985).

(a) The United States District Court for the Southern

District of New York was called upon to decide

whether it should extend comity to a Swedish

bankruptcy proceeding.

(b) The court extended comity, reasoning that the

Swedish bankruptcy administrator and trustee

notified all of the debtor’s creditors. The Swedish

bankruptcy court abided by fundamental standards

of procedural fairness.

b. Comity Based On Similarity of Substantive Law:

(i) Kenner Prod. Co. v. Societe Fonciere et Fianciere Agache-

Willot, 532 F. Supp. 478 (S.D.N.Y. 1982).

(a) The United States District Court for the Southern

District of New York extended comity to a French

bankruptcy proceeding.

(b) The court did not discuss procedural due process.

Rather, the court discussed the similarities between

French and United States bankruptcy law governing

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distribution of assets. Because they were similar,

the court extended comity.

c. Lindner Fund, Inc. v. Polly Peck Int’l PLC, 143 B.R. 807

(S.D.N.Y. 1992).

(i) Polly Peck International (“Polly Peck”) was a publicly-held

conglomerate organized under the laws of the United

Kingdom. The Companies Court of England and Wales in

the Chancery Division of the High Court of Justice granted

an Administration Order that allowed Polly Peck to

reorganize. An Administration Order is substantively

similar to a United States Chapter 11 petition. The

Administration triggered a stay against all other

proceedings regarding Polly Peck. Subsequently, Lidner

Fund, Incorporated filed a lawsuit in the United States

District Court for the Southern District of New York

against Polly Peck. Polly Peck moved to dismiss the New

York lawsuit on grounds of comity.

(ii) The United States District Court for the Southern District

of New York extended comity to the British reorganization

proceeding.

(iii) The court did not discuss procedural due process. Rather,

the court extended comity because the bankruptcy

proceeding was filed in a sister common law jurisdiction.

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United States courts presume that such common law courts

comport with United States notions of due process.

d. In re Schimmelpenninck, 183 F.3d 347 (5th Cir. 1999).

(i) A Dutch bankruptcy court ordered Schimmelpenninck to

liquidate its assets. Thereafter, a creditor from the United

States filed suit in the United States Bankruptcy Court for

the Northern District of Texas.

(ii) The United States Bankruptcy Court for the Northern

District of Texas extended comity to the Dutch bankruptcy

proceeding, reasoning that the Netherlands is a sister

common law jurisdiction.

G. Conclusion: United States courts will extend comity to a ruling in a foreign

bankruptcy proceeding as long as due process was afforded, such as actual notice

or similarity with United States substantive law.

III. International Anti-suit Injunctions : The last section of this outline briefly examines

international anti-suit injunctions, an issue that may arise in international

bankruptcy proceedings.

A. An international anti-suit injunction issued by a United States bankruptcy court

enjoins a creditor, who is subject to the United States bankruptcy court’s

jurisdiction, from pursuing litigation before foreign courts. Quaak v. Klynveld

Peat Marwick Goerdeler Bedrijfsrevisoren, 361 F.3d 11, 17 (1st Cir. 2004).

B. In deciding whether to issue an international anti-suit injunction, a United States

bankruptcy court considers principles of international comity and the facts of the

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case. Those considerations ordinarily establish a rebuttable presumption against

issuing an injunction that halts foreign proceedings. This is known as the anti-suit

injunction doctrine. Quaak v. Klynveld Peat Marwick Goerdeler

Bedrijfsrevisoren, 361 F.3d 11, 17 (1st Cir. 2004).

C. Notwithstanding this presumption against foreign anti-suit injunctions, a

bankruptcy court may issue an injunction if the foreign proceeding will

undermine the bankruptcy court’s ability to reach a just and speedy result. Quaak

v. Klynveld Peat Marwick Goerdeler Bedrijfsrevisoren, 361 F.3d 11, 19 (1st Cir.

2004).

D. In re Rare, LLC, 298 B.R. 762 (Bankr. D. Colo. 2003).

1. Rare, LLC (“Rare”) was a fine wine supplier in the United States. The

Marcianos, United States creditors, ordered and paid for wine futures from

Rare, but Rare never delivered the wine. Accordingly, the Marcianos sued

Rare in a French court to obtain the wine in which the Marcianos claimed

an interest. Subsequently, Rare filed its Chapter 11 petition in the United

States Bankruptcy Court for the District of Colorado. Instead of causing

the ongoing suit in France to be stayed, the Marcianos pursued the French

suit. The French court ordered the post-petition seizure of the wine.

2. Rare moved the United States Bankruptcy Court for the District of

Colorado to issue an international anti-suit injunction, enjoining the

Marcianos from pursuing the French suit any further.

3. Despite the anti-suit injunction doctrine, the United States Bankruptcy

Court for the District of Colorado granted Rare’s motion. The court

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reasoned that Rare’s Chapter 11 petition triggered an automatic stay. If

the court refrained from enforcing the automatic stay, Rare’s rights to

reorganize would be effectively eviscerated.

4. The court further reasoned that any interests in comity did not overcome

the court’s interest in controlling Rare’s property. “The interest of the

French courts in adjudicating a matter that, at its core, is a dispute between

American citizens is minor compared to the interest of this Court in

determining the applicability of the automatic stay which is the very

cornerstone of this Court’s jurisdiction.” Id. at 769.