Vol 3 (2006) - Issue 2

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Cross-Border Bankruptcies: Hands Across The Water? A Look at Chapter 15 and the Role of the Financial Advisor

On 20 April 2005, President George W. Bush signed into law the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (the ‘Reform Act’ or ‘BAPCPA’). Most of the provisions of the Reform Act are effective for petitions filed on or after 17 October 2005. While the majority of the changes concern consumer issues, there are also substantial provisions that impact business.
Proponents view the legislation as a means to curtail abuse, including business debtor abuse. However, critics warn that it will impact the ability for individuals and businesses in financial trouble to gain a fresh start. Much of the media attention with respect to the Reform Act has focused on consumer bankruptcy filings under Chapters 7 and 13 of the Bankruptcy Code. However, business bankruptcies under Chapter 11 will also be significantly affected.
In many situations, the ability of a debtor-in-possession to control its Chapter 11 case will be hindered by the amendments provided in the Reform Act. In fact, in the four months since the passage of the biggest overhaul of United States bankruptcy law in recent history, attorneys and judges are beginning to note signs that the reform is neither living up to its promise, nor its expectations.
This article will concentrate on one aspect of the Reform Act: Chapter 15. To better understand the significance of Chapter 15 one needs to understand that Title 11 of the United States Code, 11 U.S.C. §§101 et seq. (the ‘Bankruptcy Code’) was enacted in 1978. While there have been numerous amendments, additions and deletions to sections of the Bankruptcy Code, the last new chapter was enacted in 1986. For our examination of Chapter 15, we have only one case to consider, and it is all too new and too untested to see how Chapter 15 will eventually unfold.
It appears that the Reform Act is beginning to move the Bankruptcy Code from debtor-friendly to being less debtor-friendly, while the UK and other EU countries have moved in the opposite direction, enacting amendments to their laws that are beginning to move them from creditor-friendly courts to less creditor-friendly courts. By way of contrast, in the US, the right of the debtor to rehabilitate was superior to the right of the creditor to seek payment. The UK, by example, has a mandatory set-off in insolvency, which permits providers
to protect themselves from the debtor’s insolvency and does not know of a debtor-in-possession proceeding under the US Chapter 11 and instead puts the affairs of the debtor in the hands of an insolvency officeholder.
With the aforementioned thoughts in mind, this may be the perfect segue into the least talked and written about amendment to the Bankruptcy Code, Chapter 15. We will address some of the hurdles that must be overcome in attempting to address cross-border insolvencies,
while we strive to understand and incorporate the cultural societies in which we operate.