Reconciling “Additional Assistance” with “Appropriate Relief” in Ch. 15

By David L. Eaton (Kirkland & Ellis LLP) and Aaron J. David (Paul, Weiss, Rifkind, Wharton & Garrison LLP)*

When faced with a Chapter 15 foreign representative seeking discretionary post-recognition relief on behalf of a foreign debtor, courts have struggled to decide whether the requested relief falls under § 1507(a), referring to “additional assistance” and subject to the factors enumerated in § 1507(b), or under § 1521, affording “appropriate relief” under the balancing test in § 1522.  Because both provisions seem to enable courts to provide discretionary relief, but subject to different standards, courts and commentators have lamented the difficulty of assessing “where section 1521 ends and where section 1507 begins.”

In our view, the problem is illusory.  We revisit Chapter 15 in light of the “language and design of the statute as a whole” to argue that § 1507 has been misinterpreted.  On our reading, §1507 is not, itself, a source of discretionary relief, but rather sets out principles to guide courts in granting any discretionary relief, including under § 1521.  Specifically, § 1507(a) allows courts to employ applicable non-bankruptcy law in fashioning discretionary relief, and § 1507(b) imposes standards that preserve pre-Chapter 15 jurisprudence governing such relief.  Interpreting § 1507 this way clarifies that § 1521 is the true source of discretionary relief, but that it should be employed against the background principles of § 1507.

The full article was published in the ABI Journal and is available here.


*David Eaton is a recently retired partner of Kirkland & Ellis LLP.  Aaron David is an associate at Paul, Weiss, Rifkind, Wharton & Garrison LLP.  The article reflects the views of authors, and does not represent the views of Kirkland & Ellis or Paul, Weiss.

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.

The Dubai World Tribunal and the Global Insolvency Crisis

By Jayanth Krishnan (Indiana—Bloomington)

In 2009, as markets from the United States to Europe to the Global South shook, one country—the United Arab Emirates—found itself on the brink of economic collapse.  The U.A.E’s Emirate of Dubai was contemplating defaulting on $60 billion of debt it had amassed.  Recognizing that such a default would have cataclysmic reverberations across the globe, the government of Dubai turned to a small group of foreign consultants for assistance.  The resulting legal experiment demonstrates how aspects of American corporate bankruptcy law can be imported into and prove useful in the context of a foreign legal tradition. During the crisis, insolvency lawyers from the U.S. law firm of Latham & Watkins, analysts from the New York-based investment bank Moelis, and accountants from PwC – together with local domestic counterparts and experts from the U.K.– devised a highly sophisticated plan that helped the Emirate address the economic crisis in which it found itself.  As part of this plan, Chapter 11 and Chapter 15 principles from the U.S. Bankruptcy code, the 2/3 cram down technique on hold-out creditors, and an Anglo-American insolvency tribunal were introduced into Dubai in order to bring about economic stability and handle the highly complex cases that arose during the financial crisis. By respecting and interpreting U.A.E. law, the tribunal has maintained its legitimacy in the eyes of the Dubai government even as it has drawn on Anglo-American insolvency concepts.

On December 13, this study will be formally presented at a public event in Dubai by Indiana-Bloomington’s Center on the Global Legal Profession, where insolvency experts and policymakers from the U.S., Dubai, and the U.K. will be present.

The full article can be found here.

Chapter 15 Recognition in the United States: Is a Debtor “Presence” Required?

By Daniel M. Glosband, Goodwin Procter LLP, and Jay Lawrence Westbrook, The University of Texas School of Law

Glosband_M_Daniel WestbrookIn a recent case, In re Barnet, 737 F. 3d 238 (2d Cir. 2013), the Court held that section 109(a) of the Bankruptcy Code bars a foreign bankruptcy proceeding from recognition under Chapter 15 unless the debtor in the foreign proceeding also has a presence in the United States. The Court professed to use a plain meaning rule, but its plain meaning approach and its conclusion that section 109(a) applied to recognition were inappropriate for several reasons:

1) since the term “debtor”  is defined differently in Chapter 15 than in section 101(13), it cannot have a “plain” meaning for Chapter 15 purposes;

2) while it is plain that section 103(a) applies Chapter 1 to Chapter 15, the way in which section 109(a) functions in relation to Chapter 15 is not straightforward and requires a structural analysis that the Court sidestepped;  and

3) the Congressional mandate in section 1508—which requires that, in interpreting Chapter 15, courts shall consider its international origin and the need to promote an application that is consistent with the needs of international insolvency practice—requires flexibility, not rigid literalism.

Section 109(a) should not apply to recognition of a foreign proceeding. The Barnet decision represents a stubborn adherence to literal statutory interpretation when the statutory provisions at issue prima facie were not susceptible to literal interpretation and when Congress instructed courts to look beyond the statute for guidance in harmonizing Chapter 15 with the Model Law.

This is a brief summary of a much longer article forthcoming in the International Insolvency Review. For the full article see here. Copyright © 2015 INSOL International and John Wiley & Sons, Ltd.

Second Circuit Limits Availability of Chapter 15

Authors: Jasmine Ball, Richard F. Hahn, M. Natasha Labovitz, George E.B. Maguire, Shannon Rose Selden, My Chi To, Michael E. Wiles, Debevoise & Plimpton LLP

In a recent opinion on an issue of first impression in Drawbridge Special Opportunities Fund LP v Barnet (In re Barnet), 2013 WL 6482499 (2d Cir. Dec 11, 2013), the United States Court of Appeals for the Second Circuit held that foreign entities seeking recognition under Chapter 15 of the Bankruptcy Code must, in addition to satisfying the requirements for recognition set forth in that chapter, have a residence, domicile, place of business or assets in the United States.  The Second Circuit’s decision reversed an earlier Bankruptcy Court ruling that granted recognition under Chapter 15 to an Australian company that had not introduced evidence of any assets or operations in the U.S. and conflicts with a recent ruling of the Bankruptcy Court for the District of Delaware in In re Bemarmara Consulting a.s., Case No. 13-13037 (KG) (Bankr. D. Del. Dec. 17, 2013), holding that a Chapter 15 debtor is not required to have assets in the U.S.  In so doing, the Second Circuit has added an additional barrier to Chapter 15 recognition, which could be problematic for foreign companies looking to benefit from the advantages of the U.S. bankruptcy system.  For additional detail on the Second Circuit’s decision, see Second Circuit Limits Availability of Chapter 15.