Recent Trends in International Chapter 11 Cases: Pragmatic Reorganizations

Article excerpt

ABSTRACT

Mark Hoogland's note examines the recent Avianca and Yukos bankruptcy cases. Both cases involved international companies with extensive non-U.S. commercial operations that nevertheless sought bankruptcy protection exclusively within the United States. Together, Avianca and Yukos offer a glimpse into the evolution of international bankruptcy law, as practiced by U.S. courts. International companies have motivations for filing in the United States, and prudence may be the only constraint on the international jurisdiction of U.S. bankruptcy judges. The recent addition of Chapter 15 to Title 11 may alleviate some of the problems considered, but the jurisprudential questions linger.

I. INTRODUCTION

[T]here is a profound and intimate correlation between insolvency-whether individual or corporate-and the very wellsprings of policy and social order from which national law ultimately draws its inspiration. For this reason, despite numerous general resemblances, national insolvency laws and procedures differ from one another almost infinitely in ways both great and small.1

Some bankruptcies are simple. U.S. courts efficiently dispatch the vast majority of consumer bankruptcies, which seldom raise difficult questions. Business bankruptcies, though they offer complexities galore and are much more likely to incur ruinous delays, are also generally handled adroitly. Sometimes, however, a company's assets, agents, headquarters, creditors, and customers are spread across multiple countries. In these international bankruptcies-sometimes called cross-border insolvencies or transnational bankruptcies2-the courts of multiple countries must decide hideously complicated questions of law and forum. Since the bankruptcy laws of different countries differ in myriad ways, U.S. and foreign courts regularly find themselves in an international conundrum. Sometimes courts agree to defer decision-making to a single court;3 sometimes courts "cooperate" while maintaining separate proceedings;4 other times courts bicker and threaten sanctions.5 Potential solutions abound, but no method for predictably deciding international cases has been consistently applied.

Courts must address two key issues in every international bankruptcy case: (1) choice of forum and (2) choice of law.6 These issues are encountered and decided in a variety of ways and distinguishing between them can be tricky.7 In an ideal world, once the proper forum is determined, that forum would apply local law. In practice, however, international bankruptcy cases proceed along a variety of paths. For example, a U.S. court might choose to administer a primary proceeding8 in the United States while a parallel primary proceeding takes place in a different country. Alternatively, a U.S. court might be asked-or decide, sua sponte-to cede control of U.S. assets to a foreign primary proceeding (by way of an ancillary U.S. proceeding). Lastly, a U.S. court might decide that the United States is the ideal forum and request cooperation from foreign courts.9

Two theoretical camps offer different answers to the choice of forum and choice of law questions. Historically, most countries have developed a territorial "grab rule,"10 where each country claims plenary power over whatever assets are located within its borders." Territorial bankruptcy schemes favor local creditors, who are most familiar with local laws and well positioned to take advantage of them.12 The major advantage of territorialism is the relative ease with which forum and law can be decided: for a U.S. asset, territorialism would demand that a U.S. forum apply U.S. law. For a Colombian asset, Colombian law would govern a Colombian proceeding. Complications-such as airplanes leased in one country and operating across five other countries-invariably make determinations of forum and law more difficult. Still, territorialism proves a tempting option due to its procedural simplicity.

Unfortunately, strict territorial schemes disregard any pretense of equitable crossborder asset distribution, divvying the scraps between local favorites instead. …