Modification Of Chapter 15 Recognition Order Warranted To Avoid Prejudice To U.S. Creditors

In the 11 years since its enactment in 2005, chapter 15 of the Bankruptcy Code has proved to be an effective, if not foolproof, mechanism for coordinating and harmonizing cross-border bankruptcy cases. An important aspect of chapter 15 and other laws patterned on the 1997 UNCITRAL Model Law on Cross-Border Insolvency (the "Model Law") is the flexibility given to bankruptcy and insolvency courts in applying the sometimes markedly different insolvency laws of the multiple international jurisdictions involved in cross-border cases. A ruling recently handed down by the U.S. Bankruptcy Court for the Western District of Texas is emblematic of this principle. In In re Sanjel (USA) Inc., 2016 BL 24261 (Bankr. W.D. Tex. July 28, 2016), the court held that, because the statute of limitations governing claims against a Canadian debtor's officers and directors under the Fair Labor Standards Act might expire, the order recognizing the debtor's Canadian bankruptcy proceeding under chapter 15 and enforcing the Canadian court's stay of actions against the debtor's officers and directors should be modified to allow U.S. creditors to assert their claims.

Procedures and Relief Under Chapter 15

Under chapter 15, the representative of a foreign debtor may file a petition in a U.S. bankruptcy court seeking "recognition" of a "foreign proceeding." A "foreign representative" is defined in section 101(24) of the Bankruptcy Code as "a person or body, including a person or body appointed on an interim basis, authorized in a foreign proceeding to administer the reorganization or the liquidation of the debtor's assets or affairs or to act as a representative of such foreign proceeding."

"Foreign proceeding" is defined in section 101(23) of the Bankruptcy Code as:

[A] collective judicial or administrative proceeding in a foreign country, including an interim proceeding, under a law relating to insolvency or adjustment of debt in which proceeding the assets and affairs of the debtor are subject to control or supervision by a foreign court, for the purpose of reorganization or liquidation.

More than one bankruptcy or insolvency proceeding may be pending with respect to the same foreign debtor in different countries. Chapter 15 therefore contemplates recognition in the U.S. of both a foreign "main" proceeding—a case pending in the country where the debtor's "center of main interests" ("COMI") is located—and foreign "nonmain" proceedings, which may have been commenced in countries where the debtor merely has an "establishment."

The Bankruptcy Code does not define COMI. However, 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 debtor's COMI. An "establishment" is defined in section 1502(2) as "any place of operations where the debtor carries out a nontransitory economic activity."

Section 1517 of the Bankruptcy Code provides that, subject to section 1506, "an order recognizing a foreign proceeding shall be entered" if the proceeding qualifies as a foreign main or nonmain proceeding, the foreign representative is "a person or body," and the petition itself complies with the evidentiary requirements set forth in section 1515. Section 1506 states that "[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."

If a U.S. bankruptcy court recognizes a foreign main proceeding under chapter 15, section 1520(a)(1) of the Bankruptcy Code provides that actions against "the debtor and the property of the debtor that is within the territorial jurisdiction of the United...