Vol 19 (2022) - Issue 2

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Bad Faith Is Not a Bar to Chapter 15 Recognition of Foreign Proceeding, Says Southern District of New York Bankruptcy Court

Synopsis
In Culligan Ltd., the U.S. Bankruptcy Court for the Southern District of New York (the 'Bankruptcy Court') held that bad faith is not a bar to recognition of a foreign proceeding under chapter 15 of the U.S.
Bankruptcy Code (the 'Bankruptcy Code') where the debtor filed chapter 15 solely as a litigation tactic to stay pending litigation in New York state court. In reaching its decision, the Bankruptcy Court explained that, unlike in chapter 11 cases, there is no good faith filing requirement under chapter 15 of the Bankruptcy Code. Rather, recognition of a foreign proceeding under chapter 15 is subject to the requirements set forth in section 1517(a) of the Bankruptcy Code as limited by the public policy exception contained in section 1506 of the Bankruptcy Code. The public policy exception is narrow and is to be invoked only in extraordinary circumstances. The chapter 15 filing by the debtor in the Culligan case, though a litigation tactic, was not such an extraordinary circumstance, according to the Bankruptcy Court. Accordingly, as all the requirements for recognition of the foreign proceeding had been met, the Bankruptcy Court granted recognition of the proceeding.