Bankruptcy Jurisdiction Over Foreign Entities: Exorbitant or Congruent?

By Adrian Walters (Chicago-Kent College of Law, Illinois Institute of Technology)

As Oscar Couwenberg and Stephen Lubben have demonstrated, foreign firms commonly file for bankruptcy in the United States in order to take advantage of chapter 11 of the Bankruptcy Code. But overseas critics tend to balk at the ease with which global bankruptcy jurisdiction can be engineered in the United States through a combination of the Bankruptcy Code’s low bar to entry and the worldwide effects of a bankruptcy case. They complain that the formal structure of U.S. eligibility and jurisdictional rules promote abusive bankruptcy forum shopping and the harmful imposition of U.S. norms on non-U.S. stakeholders.

This article advances a revised account of U.S. bankruptcy jurisdiction over non-U.S. debtors from a distinctively Anglo-American standpoint. The article’s thesis is that critics overemphasize formal jurisdictional rules and pay insufficient attention to how U.S. courts actually exercise jurisdiction in practice. It compares the formal law “on the books” in the U.S. and U.K. for determining whether or not a domestic insolvency or restructuring proceeding relating to a foreign debtor can be maintained in each jurisdiction and provides a functional account of how U.S. bankruptcy jurisdiction over foreign entities is exercised in practice, using the concept of jurisdictional congruence as a benchmark. While the American and British approaches to abusive forum shopping are developing on different legal cultural paths, the article also identifies reasons for thinking that they are trending towards a rough functional equivalence influenced, at least in part, by the U.S.’s commitment to the UNCITRAL Model Law through chapter 15 of the Bankruptcy Code.

In sum, the article lays foundations for further critical reflection on the roles that judges, practitioners, and the “center of main interests” standard play in configuring the market for international bankruptcy case filings and in facilitating and regulating forum shopping in that market. Through the lens of legal development, it also presents some practical and policy challenges for universalism, international insolvency law’s dominant theory.

The full article is available here.

Statutory Erosion of Secured Creditors’ Rights: Some Insights from the United Kingdom

By Adrian Walters, IIT Chicago-Kent School of Law

The prevailing wisdom is that Chapter 11 bankruptcy proceedings have been captured by secured creditors with the consequence that many Chapter 11s are little more than glorified nationwide federal foreclosures through which secured creditors exit by means of a section 363 sale.  Some scholars worry that secured creditor capture of Chapter 11 leads to asset deployment decisions that do not produce welfare-maximizing outcomes for creditors as a whole.

In an article forthcoming in the 2015 University of Illinois Law Review, I do not question this prevailing wisdom.  Instead, I seek to argue, by reference to experience in the United Kingdom, that if we are serious about curbing secured creditors’ control of bankruptcy proceedings through bankruptcy law reform, we have to acknowledge and understand the ways in which secured creditors respond to reforms that are adverse to their interests.

The article identifies four ways in which lenders may be expected to adjust to “adverse” bankruptcy reform: (i) meta bargaining; (ii) adjustments to pre-bankruptcy behaviour; (iii) transactional innovation; and (iv) shape shifting. The article then illustrates how lenders in England and Wales have successfully adjusted to sustained statutory attempts to undermine their bankruptcy priority by carving value out of their collateral, and to erode their control rights by abolishing their right to appoint an administrative receiver over floating charge collateral.

Click here to read more.