Vol 2 (2005) - Issue 3

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US Cooperation in Foreign Proceedings: Prepare to Welcome Chapter 15

On 20 April 2005, President George W. Bush signed into law Bill S.256: ‘The Bankruptcy Abuse Prevention & Consumer Protection Act of 2005,’ ushering in extensive reforms to the United States (‘US’) Bankruptcy Code. The legislation enacted was the product of years of protracted political wrangling stimulated by vociferous lobbying by divergent interests. While a good portion of the proposed reform legislation was (and remains) steeped in controversy, one section attracted little debate - new Chapter 15 (‘Ancillary and Other Cross-Border Cases’), which will replace current Bankruptcy Code Section 304 (‘Cases Ancillary to Foreign Proceedings’) with an expanded substantive and procedural mechanism.

Adding an entire chapter to the US Bankruptcy Code - as opposed to amending or adding a section - is rare and significant. Despite this, Chapter 15 passed through the thorny political process with little fanfare, in part because the topic it addresses is of interest and importance, at least at this juncture, to a narrow segment of those who currently interface with the US Bankruptcy Code. The ease with which Chapter 15 sailed through the system to become law, however, does not ensure that its application and implementation will proceed without incident, controversy and dispute. Thus, while Chapter 15 clearly was intended to assure greater certainty in cross-border proceedings, it remains to be seen how expensive and lengthy the process of attaining such certainty will prove to be.

Like the majority of the 2005 Act, Chapter 15 does not become effective until 17 October 2005 and will only apply to cases commenced on or after that date. Later this year, International Corporate Rescue will publish a comprehensive analysis of the new US bankruptcy legislation, including Chapter 15. In the interim, the following is designed to briefly introduce readers to the altered US mechanism respecting proceedings affecting more than one nation and to note a few of the challenges it may present.

What is Chapter 15?

Chapter 15 incorporates into the US Bankruptcy Code The Model Law on Cross-Border Insolvency (the ‘Model Law’) formulated by the United Nations Commission on International Trade Law (‘UNCITRAL’) in 1997. The UNCITRAL Model Law was the result of more than three years of meticulous deliberations by representatives of official UN member countries in consultation with experts on international insolvency law drawn from multinational institutions such as the International Monetary Fund and the World Bank and from international non-governmental organizations such as INSOL International, the International Bar Association and the Group of 30.

Chapter 15 largely tracks the UNCITRAL Model Law, following its language and section numbering in most instances, but with certain additions and alterations required to adapt it to unique aspects of US law. Chapter 15’s purpose is articulated in section 1501(a) of the US Bankruptcy Code: