Vol 8 (2011) - Issue 5

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US Bankruptcy Court Rules on Extraterritorial Scope of Automatic Stay Arising upon Recognition of Foreign Main Proceeding

The United States Bankruptcy Court for the Southern District of New York has issued an opinion in the chapter 15 proceedings concerning JSC BTA Bank ('BTA' or the 'Bank') regarding the extraterritorial scope of the 'automatic stay' of actions against the debtor and its property that arises upon recognition of a foreign main proceeding. The court ruled that the extraterritorial scope of the automatic stay of in personam actions against the debtor that arises upon recognition of a foreign main proceeding is significantly narrower than that of the stay that arises upon the filing of a plenary case in the United States. The court cast its decision as one based upon the statutory mandate to cooperate with foreign courts, but although the opinion is premised on arguably sound policy rationale, its holding departs from the plain language of the applicable provisions of the Bankruptcy Code.


The 'automatic stay' in plenary cases under the Bankruptcy Code

United States bankruptcy courts are famous (or perhaps infamous) for exercising extraterritorial bankruptcy jurisdiction. Under US federal law, a plenary bankruptcy case under chapters 7 (liquidation) or 11 (reorganisation) may be commenced in the United States with respect to any entity that has property located within US territory, regardless of whether such entity’s main assets and operations are located in another jurisdiction. The commencement of a plenary bankruptcy case in the United States creates an estate comprised of essentially 'all legal or equitable interests of the debtor in property as of the commencement of the case … [and a]ny interest in property that the estate acquires after commencement of the case. Moreover, US federal law provides that the bankruptcy court has ‘exclusive jurisdiction of all of the property, wherever located, of the debtor … and of property of the estate'.