Vol 3 (2006) - Issue 2

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New US Chapter 15 is Put to the Test

New Chapter 15 of the United States Bankruptcy Code1 became effective as of 17 October 2005. The first Chapter 15 Order granting recognition and relief in aid of a foreign business proceeding was entered in December by the Honorable Burton R. Lifland, United States Bankruptcy Judge for the Southern District of New York, in a case significant for several additional firsts of import to the international insolvency community.
Most notably in that regard, In re La Mutuelle du Mans IARD United Kingdom Branch MMA Account (Chapter 15 Case No. 05-60100) (the ‘MMA Account Case’) marks the first time a United States Bankruptcy Court has had to grapple with and rule upon the hotly debated European concept (now incorporated into the US Bankruptcy Code via Chapter 15) – where the centre of main interests (‘COMI’) of a foreign debtor lies. Of further significance, the case also confirms that, for purposes of Chapter 15, less than the entirety of a company may be recognised as a ‘debtor’ in a foreign proceeding, and that debtor may be solvent.
This article briefly describes some practical realities (versus theory) of Chapter 15 and the challenges and opportunities they present for those seeking relief from the US in aid of non-US proceedings.
Translating theory to practice
Readers of International Corporate Rescue have gained some familiarity with US Chapter 15 through articles discussing the statute’s origins, intent and provisions.2 Practitioners in the UK in particular have become increasingly familiar with the core terms of Chapter 15, as the UK moves towards its own version of the United Nations Model Cross-Border Insolvency Law,3 which Chapter 15 expressly incorporates.
The UN Model Law seeks to harmonise the way countries deal with cross-border situations, enhance coordination of multiple proceedings, encourage communication between courts, and ensure greater certainty, transparency, and expediency for obtaining relief in aid of a proceeding pending in another nation. In advancing those ends, the drafters were well aware that the Model Law could not simply be dropped into a country’s domestic law, but, rather, had to be woven into its tapestry. Not an easy task.
The marriage of the US Bankruptcy Code and its new Chapter 15 is not one of equals. Many of the issues that arose in applying Chapter 15’s less comprehensive and expansive predecessor, former section 304, in light of the remainder of US bankruptcy law and policy have not been resolved by its successor.