Understanding Chapter 15 Bankruptcy
In 2005, the Bankruptcy Abuse Prevention and Consumer Protection Act added Chapter 15 to the bankruptcy code. This particular chapter adopts the Model Law on Cross Border Insolvency, which was created by the United Nations Commission on International Trade Law. Essentially, it allows parties who are in different countries to take advantage of and participate in the bankruptcy system in the United States. Potential parties include debtors, creditors, and other interested parties
It also allows the bankruptcy court to process and address some assets that may be located outside of the United States.
How Does the Chapter 15 Process Work?
In a traditional bankruptcy case, the debtor files a bankruptcy petition to begin the process. However in Chapter 15, a “foreign representative” files a petition. Normally, such a representative would not have the authority to file in the United States, but Chapter 15 provides that type of power. The initial filing must include:
- Documents showing the foreign insolvency proceeding
- Information indicating the authority of the foreign representative to act on behalf of the debtor
The court will then recognize the proceeding in the foreign country, whether it is the main proceeding or a “foreign non-main proceeding.” Once the court has recognized the foreign insolvency case, then the stay that would apply in more traditional cases will take effect as to any assets or creditors located in the United States.
The foreign representative will also be authorized to run the U.S. arm of the business in its ordinary course while the bankruptcy proceedings are underway. The representative can also then intervene in any other pending litigation involving the foreign entity, including both federal and state court cases.
Additional Features and Benefits of Chapter 15
In addition to creating an avenue for foreign companies to use the bankruptcy system as debtors, Chapter 15 also applies to foreign creditors as well. It gives these foreign creditors the right to participate in the bankruptcy system as creditors and prohibits discrimination against foreign creditors. For example, a debtor must provide similar notice to foreign creditors regarding matters in the bankruptcy just was they would if the creditor was in the United States.
Chapter 15 also restricts U.S. jurisdiction when a foreign entity has filed an insolvency proceeding in another country. It does this by limiting control of assets that would be subject to U.S. jurisdiction.
Cooperation and communication between the bankruptcy court and foreign businesses, parties, and even international courts are the critical goals of Chapter 15 of the bankruptcy code.
If you have found yourself involved in a Chapter 15 bankruptcy, you need legal counsel that knows the ins and outs of this unique area of bankruptcy. Contact Maxwell Dunn to learn how we can help: 248-936-6390.See all videos