In Re Ashapura: Southern District Of New York Holds That Proceeding Under Repealed Foreign Law Is Entitled To Chapter 15 Recognition

On June 28, 2012, Judge Shira A. Scheindlin of the United States District Court for the Southern District of New York affirmed the order of the United States Bankruptcy Court for the Southern District of New York granting Ahapura Minechem Ltd.'s petition for recognition of its Indian insolvency proceeding as a foreign main proceeding under chapter 15 of the Bankruptcy Code. Armada v. Shah (In re Ashapura Minechem Ltd.), 2012 WL 2478467 (S.D.N.Y. June 28, 2012). In so holding, the District Court approved the recognition of a proceeding governed by a statute, The Sick Industrial Companies Act ("SICA"), that Indian legal scholars have sharply criticized and that the Indian legislature actually repealed in 2003.

Chapter 15 of the Bankruptcy Code governs petitions for the recognition of foreign insolvency proceedings in the United States. To achieve recognition under Chapter 15, a debtor's appointed representative must demonstrate that the debtor's proceeding is a "foreign proceeding" as defined by section 101(23) of the Bankruptcy Code by proving each of seven elements: (i) the existence of a proceeding, (ii) that is either judicial or administrative, (iii) that is collective in nature, (iv) that is in a foreign country, (v) that is authorized or conducted under a law related to the insolvency or adjustment of debtors, (vi) in which the debtor's assets and affairs are subject to the control or supervision of a foreign court, and (vii) which proceeding is for the purpose of reorganization or liquidation. In addition, pursuant to section 1506 of the Bankruptcy Code, a court may refuse to recognize a foreign proceeding under chapter 15 if such recognition would be manifestly contrary to the public policy of the United States. This public policy exception is interpreted narrowly, however, and only invoked in exceptional circumstances.

Background

Ashapura is a mining and industrial business primarily located in India that was party to a contract with Armada (Singapore) Pte Ltd. to ship minerals to foreign ports. After the government of Gujurat, the Indian state where Ashapura conducts its mining, placed an indirect embargo on the export of bauxite, Ashapura was unable to fulfill its contract with Armada. In February 2010, Armada obtained a $65 million arbitration award against Ashapura for Ashapura's breach of the contract. In June 2010, Armada filed a petition in the Southern District of New York for an order converting the arbitration award into a...