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 types of bankruptcy, although Chapter 9, bankruptcy for municipalities, is likely a close second. Chapter 15 was only recently added to the Bankruptcy Code in 2005 with the passage of the Bankruptcy Abuse Prevention and Consumer Protection Act. Chapter 15 allows proceedings for a foreign debtor or other related parties to access U.S. Bankruptcy Courts.

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.

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

Source: American Bankruptcy Institute Statistics Tables

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 objections in allowing foreign nationals 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

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

See 11 U.S.C. § 1501

Nature of 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, "ancillary" or secondary. The main proceeding will usually take place ​in the home country of the foreigner.

Filing of the Case

A foreign company may choose to file a case under Chapter 7 or Chapter 11 of the U.S. Bankruptcy Code if its assets or entanglements with United States commerce are sufficiently complex. Or, the foreign company many 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 United States 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 U.S. 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 U.S. Court defers to many of the actions of the foreign court. This promotes cooperation with foreign nations and courts in not only allowing for a foreign entity to protect its rights in the United States but to also not excessively interfere in the affairs of a foreign country.

But the U.S. 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 United States business of the company in the ordinary course. 

The U.S. Bankruptcy Court may also offer additional aid to a foreign representative. This is only in circumstances where the Bankruptcy Court determines that the laws of the foreign court do not violate the laws or public policy of the United States and that the foreign court is fair. If the U.S. 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 June 2017 by Carron E. Nicks