So What Is Chapter 15 About?
Chapter 15 is a new chapter of bankruptcy added to the U.S. Bankruptcy Code in 2005 with the passage of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA). The new law represents the American version of the Model Law on Cross-Border Insolvency that the United Nations Commission on International Trade Law proposed first in 1997. This new law for Chapter 15 also replaces former Section 304 of the Bankruptcy Code. The purpose of enacting the law was to promote a uniform, coordinated legal system and process for cross-border insolvencies.
What Are the Purposes of Chapter 15?
The purpose of Chapter 15 is to provide an effective process and procedure for handling insolvency cases that regard debtors, assets, claims, claimants, creditors, and parties of interest in more than one country. The Model Law upon which Chapter 15 was premised shares this same purpose. These goals of the statute are further enumerated in a detailed fashion within the Bankruptcy Code in Section 1501:
- Promotion of cooperation between U.S. Courts and parties and courts of foreign countries involved in cross-border insolvency cases
- Establishment of greater legal certainty for purposes of finance, trade, and investment
- Provision of fair and efficient cross-border insolvency cases that protect all creditors, debtors, and other entities
- Protection of a debtor’s estate assets and their values
- Facilitation of repair and rescue for distressed businesses, to protect investment and employment opportunities
How Does a Chapter 15 Bankruptcy Work?
A Chapter 15 case is considered ancillary to a main bankruptcy case filed outside of the U.S. in the debtor’s home forum. Thanks to Chapter 15, either the debtor or a creditor can bring a Chapter 7 or 11 case within the U.S. if assets held within the U.S. are sufficient for the purposes of a domestically filed bankruptcy proceeding. Section 1520 of the Bankruptcy Code sets forth procedural requirements and mechanic nuances more specifically.
Pursuant to Chapter 15, an American court can grant authority to a trustee or examiner to take action in a foreign country to protect, preserve, or otherwise act on behalf of a bankruptcy estate. An ancillary case begins under Chapter 15 by a foreign representative filing a petition for the court to formally recognize the case as a foreign proceeding. Chapter 15 is what gives that foreign representative statutory authority to have direct access to American courts to undertake these proceedings. That representative may operate the debtor’s business in the ordinary course of business. The petition is filed with documentation that establishes the existence of a foreign proceeding and the authorization and selection of a foreign representative.
After a notice period and hearing, the court may issue an order that deems the foreign proceeding as the main proceeding or nonmain proceeding. If the proceeding is deemed a main proceeding, the automatic stay and bankruptcy protections apply within the parameters of the U.S.