Vol 6 (2009) - Issue 4

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Voluntary ‘Wind-Ups’ and Eligibility for Chapter 15

Chapter 15 of the Bankruptcy Code – the Code’s ‘crossborder’ provision – was enacted in 2005 to protect US-based assets and preserve US-based claims for administration overseas whenever a foreign debtor finds itself in insolvency proceedings outside the US. Though many of Chapter 15’s ‘core’ concepts are the same as those that existed under prior US cross-border bankruptcy law, some differences exist. A decision earlier this year by Nevada Bankruptcy Judge Bruce Markell highlights an important one of those differences: The test for Chapter 15 eligibility. This article reviews Judge Markell’s recent decision in In re Betcorp Limited (In Liquidation), compares its result to prior law, then draws some comparisons and contrasts between the two.

1. Current law: BetCorp

The facts presented to Judge Markell in Betcorp were straightforward: Betcorp was an Australian-based online betting operation whose customers were located in the US. From about 2002 through 2006, the company grew its operations into a purported ‘one-stop shop’ for on-line gamblers. In the process, it allegedly infringed on an Internet data-transmission technology patent held by US-based 1st Technology LLC. Despite threats of litigation and offers to settle, Betcorp and 1st Technology could never come to terms.

Meanwhile, Betcorp’s business was effectively terminated in late 2006 when the US enacted the Unlawful Internet Gambling Enforcement Act and effectively cut off gambling revenues from the company’s US customers. At an extraordinary directors’ meeting the following year, the company appointed two Australian liquidators and began a voluntary ‘winding up’ under Australian insolvency law.

A voluntary ‘winding up’ is essentially a private liquidation authorised by the Australian Corporations Act, conducted by company-retained liquidators under the auspices of the Australian Securities & Investments Commission (ASIC), and reviewable on appeal by Australian courts. It has statutory analogues in many countries whose civil law derives from the old British Commonwealth system, and is very generally analogous to an American ‘assignment for the benefit of creditors’ (ABC). ABC’s are recognised under the laws of virtually every state in the United States, and – in jurisdictions such as California – are commonly used as a very quick and inexpensive means of winding up an insolvent company’s affairs and disposing of its assets.

Undeterred by Betcorp’s Australian voluntary winding up, 1st Technology commenced a patent infringement action against Betcorp in Nevada’s US District Court. After further, unsuccessful efforts to amicably resolve the infringement claims, the liquidators sought recognition under Chapter 15 to administer the dispute through the Australian winding-up process. 1st Technology disputed the request, arguing that Betcorp’s (essentially) private ‘winding up’ was not a ‘foreign proceeding’ to which Chapter 15 relief applies.