Vol 2 (2005) - Issue 1

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US Bankruptcy Cases Concerning Foreign Debtors: Evolving Paramaters and Pitfalls

With increasing frequency, companies and office holders outside of the United States (‘US’) are crossing oceans and borders to seek the assistance of US bankruptcy courts, and US law, in furtherance of efforts to reorganize or liquidate non-US (hereinafter ‘foreign’) entities. US bankruptcy cases involving foreign debtors are nothing new. Indeed, since the enactment of the current US Bankruptcy Code in 1978, a substantial body of case law has emerged supporting such efforts where the jurisdictional predicates are met.
What does appear to be new, given recent cases, is the expanding range of purposes for which such proceedings are commenced, the novel questions of law they present, and the creative means they employ. In part, these flow from the latest upsurge in insolvency law evolution internationally. In the past few years, several nations have instituted insolvency regimes for the first time, others have enacted far reaching reforms, and multinational insolvency regulations have been adopted which overlay and impact this dynamic, most notably the European Union Directive on Winding up Proceedings.
Accordingly, US bankruptcy courts asked to assist foreign debtors increasingly confront unexamined territory.
Very recently, several important decisions respecting foreign debtors were rendered by US bankruptcy courts asked to navigate relatively uncharted waters. Many have been appealed to higher courts, including the three explored in this article. The net result is a growing uncertainty of outcome that serves to caution one contemplating requesting such relief to seek to enhance the odds to the greatest extent possible before rolling the US bankruptcy dice.

Foreign debtor access to US bankruptcy courts

A foreign debtor with the right credentials may become the subject of plenary bankruptcy proceedings for liquidation under Chapter 7 or reorganization under Chapter 11 of the Bankruptcy Code, entitling it to the benefit of the full panoply of US bankruptcy law relief. If the foreign debtor is the subject of a pending foreign proceeding, a case under Section 304 of the US Bankruptcy Code ancillary to, and in aid, of the foreign proceeding may be commenced.