Magazine article Business Credit

Chapter 15 and Cross-Border Insolvencies: Assert Creditors Rights Early in Complex Cases

Magazine article Business Credit

Chapter 15 and Cross-Border Insolvencies: Assert Creditors Rights Early in Complex Cases

Article excerpt

Over the past several years, as international trade has become a higher priority for American firms, the number of cases involving foreign insolvency proceedings that impact trade creditors in the U.S. has seen a concomitant rise.

Financially distressed multinational or foreign companies have also increasingly turned to the lesser-known Chapter 15 of the U.S. Bankruptcy Code to help resolve cross-border insolvencies, according to Bruce Nathan, Esq., partner, and Phillip Gross, Esq., counsel--both of Lowenstein, Sandler LLP in New York. The two gave a presentation on Chapter 15 at a recent webinar hosted by the Finance, Credit & International Business Association (FCIB).


Enacted in 2005 as part of a multinational effort to improve cross-border bankruptcy proceedings, Chapter 15 is primarily based on the United Nations Commission on International Trade Law's Model Law on Cross-Border Insolvency. It can be used by multinational firms as a mechanism to stay litigation, actions or collections against foreign debtors involved in certain foreign proceedings who have offices or assets here in the U.S., as long as specific conditions are met, Nathan said. Another reason for using Chapter 15 is to get decisions by a foreign court to stick in the U.S. Some of these key conditions include: having a pending insolvency proceeding in a foreign court and having to be a duly authorized representative of that foreign proceeding seeking recognition in the U.S. The foreign representative in this type of case--including a foreign debtor, receiver (or monitor in Canada), or liquidator-- often plays a critical role.

Chapter 15 encourages the efficient administration of cross-border insolvencies across multiple jurisdictions, a relevant factor as some cases can be heard in many different countries and result in inconsistent decisions. Other countries that have adopted similar legislation include Australia, Canada, U.K., Japan and South Korea.

How It Works

An important goal of Chapter 15 is to achieve better communication and cooperation with foreign and U.S. courts and foster comity in decisions, which means essentially accepting the decisions of foreign courts as long as due process rights and U. …

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