What Is Chapter 15 Bankruptcy?

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••• Chapter 15 brings a foreign entity under the jurisdiction of a U.S. Bankruptcy Court. Getty Images

Chapter 15 is probably the least used and least known type of bankruptcy (although Chapter 9, bankruptcy for municipalities is likely a close second.)

When a foreign debtor or other related parties file bankruptcy in another country, Chapter 15 gives the foreign debtor a way to gain access to US Bankruptcy Courts for the purpose of administering assets or taking action for the debtor in this country. Chapter 15 was added to the Bankruptcy Code in 2005 with the passage of the Bankruptcy Abuse Prevention and Consumer Protection Act. 

Chapter 15 is essentially the United States' adoption of the United Nations Commission on International Trade Law (UNCITRAL) which addresses international bankruptcy issues.

Filing Statistics

The number of cases filed under Chapter 15 is still small. Here are the number of cases filed for the last few years.

  • 2017: 82
  • 2016: 178
  • 2015: 90
  • 2014: 58
  • 2013: 87
  • 2012: 121
  • 2011: 57
  • 2010: 124.

Recent Chapter 15 filings include Alitalia SpA, the Italian airline; U.S. Steel Canada (formerly known as Stelco); and Mood Music (formerly Muzak).

Objectives

The bankruptcy laws provide for some pretty lofty objectives when allowing foreign nationals to gain access to the US bankruptcy system: 

(1) To promote cooperation between the United States courts and parties of interest and the courts and other competent authorities of foreign countries involved in cross-border insolvency cases;

(2) To establish greater legal certainty for trade and investment;

(3) To provide for the fair and efficient administration of cross-border insolvencies that protects the interests of all creditors and other interested entities, including the debtor;

(4) To afford protection and maximization of the value of the debtor's assets; and

(5) To facilitate the rescue of financially troubled businesses, thereby protecting investment and preserving employment

Nature of the Proceeding

A Chapter 15 proceeding is generally not the main bankruptcy proceeding relating to the foreign individual or entity. The Chapter 15 proceeding is usually, therefore, considered ancillary or secondary. The main proceeding typically takes place in the foreigner's home country.

Filing the Chapter 15 Case

A foreign company may choose to file a case under Chapter 7 or Chapter 11 of the US Bankruptcy Code if its assets or entanglements with US commerce are sufficiently complex. A foreign company may choose to file a Chapter 15 proceeding if an insolvency case is pending in another country.

A Chapter 15 case must be filed in the US Bankruptcy Court by a foreign representative requesting the recognition of a foreign proceeding. The petition must prove that the foreign proceeding exists.

After the filing, the Bankruptcy Court will designate the foreign proceeding as either "foreign main proceeding" or "foreign non-main proceeding," with the difference being that in a non-main proceeding, the debtor does not have its main interests in that country. Upon the recognition of a foreign main proceeding, the automatic stay goes into effect in the United States to protect the assets of the foreign debtor that are within the United States.

Once the foreign representative initiates the Chapter 15 case, it can seek further relief from the bankruptcy court, including the filing of a full bankruptcy petition, such as under Chapter 7.

Jurisdiction of the Court

The US Bankruptcy Court in a Chapter 15 proceeding is generally limited in the scope of its power to affect only the assets of the foreign entity or persons that are within the United States. Therefore, the US Court defers to many actions of the foreign court. This approach promotes cooperation with foreign nations and courts not only in allowing for a foreign entity to protect its rights in the United States but also to not excessively interfere in a foreign country's affairs. But the US Bankruptcy Court can authorize the appointment of a trustee or examiner to act in the other country on behalf of the bankruptcy estate in the United States.

The foreign representative is also authorized to conduct the US business of the company in the ordinary course. 

The US Bankruptcy Court may also offer additional aid to a foreign representative—but only in circumstances where the Bankruptcy Court determines that the laws of the foreign court do not violate US laws or public policy and that the foreign court is fair. If the US Bankruptcy Court determines that the foreign court is lacking in this regard, it can offer additional assistance to the foreign national.

LEGAL DISCLAIMER

This article is for informational purposes only and not for the purpose of providing legal advice. You should contact your attorney to obtain advice with respect to any particular issue or problem. Use of and access to this article does not create an attorney-client relationship between the author of this article and the user or browser.

 

Update by Carron Nicks May 2018