By Gabe Matus

The current global economic crisis has spawned a recent wave of complex insolvency proceedings in jurisdictions spanning the globe. Add to the mix the increasingly global nature of business and economics and the result is that a debtor subject to an insolvency proceeding in one jurisdiction may likely have assets and operations in a number of other sovereign jurisdictions. Managing the interrelation between concurrent multi-jurisdictional proceedings involving the same debtor or affiliated debtors has been a challenge for court systems, debtors and creditors alike since the emergence of the global economy. As economists warn of continuing risks and concerns with regard to the global economic outlook,[1] the regime established under Chapter 15 of the United States Bankruptcy Code (Ancillary and Other Cross-Border Cases)[2] becomes increasingly relevant for creditors and debtors – both abroad and within the U.S. This article provides a brief overview of Chapter 15 and some of the issues relevant to parties-in-interest in cross-border insolvency proceedings.

The Origins and Purpose of Chapter 15

Chapter 15 was added to the U.S. Bankruptcy Code (the "Code") under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.  It embodies the principles of the Model Law on Cross-Border Insolvency promulgated by the United Nations Commission on International Trade Law in 1997 (the "Model Law"), and was adopted to replace Section 304 of the Code.  

Chapter 15 provides for coordination of simultaneous bankruptcy and reorganization proceedings in U.S. and foreign jurisdictions by establishing guidelines for representatives of foreign debtors and creditors seeking access to U.S. courts and recognition by U.S. courts of foreign proceedings.[3] Specifically, the purpose of Chapter 15 is to incorporate the Model Law (1) to promote cooperation between the U.S. courts, trustees, debtors, examiners and other parties-in-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.[4] 

As such, foreign debtors seeking to stay litigation in U.S. courts on the basis that such litigation would interfere with the foreign bankruptcy proceeding are required to employ the mechanisms of Chapter 15 to obtain such injunctive relief, if and to the extent available thereunder.[5]

Commencement of a Chapter 15 Case

Proceedings under Chapter 15 may be initiated only upon petition by a foreign entity acting through a "foreign representative."[6]  After notice and a hearing, the U.S. bankruptcy court may enter an order recognizing the foreign proceeding as a "foreign main proceeding" or a "foreign nonmain proceeding."   As noted below, the protections afforded the foreign debtor (and, conversely, the rights of a creditor seeking access to the debtor’s U.S. assets) materially differ depending on the type of proceeding recognized by the U.S. court.

  • A "foreign main proceeding" is a foreign proceeding pending in a country where the debtor has the center of its main interests.
  • A "foreign nonmain proceeding" is a foreign proceeding, other than a foreign main proceeding, pending in a country where the debtor has an establishment (i.e., a place of operations where it carries out non-transitory economic activity).[7]

In determining whether to file a petition for recognition under Section 1515 of Chapter 15, a foreign representative should consider relevant factors such as (i) whether permitting existing U.S. litigation to continue to conclusion might be a more efficient approach than to commence a Chapter 15 proceeding at the expense of the estate and (ii) the likelihood of the U.S. bankruptcy court to recognize the foreign proceeding as a foreign main proceeding or a foreign nonmain proceeding.[8] The foreign representative should also consider the availability provisional relief during the period from filing the petition for recognition until the court rules on such petition, available upon a showing that such relief is urgently needed to protect the assets of the debtor or the interests of the creditors and would not interfere with the administration of a foreign main proceeding.[9] Such relief may include staying of execution against the debtor’s assets, entrusting the administration or realization of all or part of the debtor’s assets located in the U.S. to the foreign representative or another person authorized by the court to protect and preserve assets that are perishable, susceptible to devaluation or are otherwise in jeopardy, suspending third party rights to transfer, encumber or dispose of the debtor’s property or granting such additional relief as may be available to a trustee (other than the power to exempt property, avoid and recover preferences or fraudulent transfers or avoid certain liens).[10] Ideally, to the extent applicable, the debtor should seek such injunctive relief simultaneous with the filing of the petition for recognition.

Foreign Main Proceedings vs. Foreign Nonmain Proceedings

Upon "recognition" of a foreign proceeding by a U.S. bankruptcy court, the foreign representative is then empowered to "apply directly to a court in the United States for appropriate relief in that court," which is then bound to "grant comity or cooperation to the foreign representative" as it would a U.S. representative of a domestic bankruptcy proceeding.[11] However, the protections afforded to the debtor and the rights of a creditor seeking access to the debtor’s U.S. assets will differ depending on the court’s recognition of the foreign proceeding as a foreign main proceeding or a foreign nonmain proceeding. Such distinction focuses on whether the foreign proceeding is pending in a country where the debtor has the center of its main interest ("COMI"). Section 1516(c) of Chapter 15 states that, "in the absence of evidence to the contrary, the debtor’s registered office… is presumed to be the center of the debtor’s main interest."[12] However, a court will look to other ascertainable and objective factors that may be relevant to rebutting such presumption, including "the location of debtor’s headquarters; the location of those who actually manage debtor, which, conceivably, could be the headquarters of a holding company; the location of debtor’s primary assets; the location of the majority of debtor’s creditors or of a majority of the creditors who would be affected by the bankruptcy case; and the jurisdiction the law of which would apply to most disputes."[13] Although practitioners should note that, in the absence of any specific objection to COMI, courts may look to the facts as set forth in the record and not merely "rubber stamp" a foreign main proceeding on the assertion of COMI presented by the debtor in its petition for recognition.[12]

Recognition as a Foreign Main Proceeding

Upon recognition by the court of a foreign main proceeding, the following protections apply (in addition to any discretionary relief available to a debtor in a "nonmain" proceeding as discussed later in this article):[15]

1. The provisions of Section 361 apply to the debtor and the property of the debtor located within the U.S. such that a secured creditor’s interest in collateral is afforded adequate protection.

2. The Section 362 automatic stay becomes effective enjoining all actions in respect of pre-petition claims against the debtor and its property located within the U.S.

3. The provisions of Sections 363 (Use, Sale or Lease of Property), 549 (Postpetition Transactions), and 552 (Postpetition Effect on Security Interest) of the Code apply to the transfer of an interest of the debtor in property that is within the U.S. to the same extent as such sections would apply to property of an estate.

4. The foreign representative may operate the debtor’s business and may exercise the rights and powers of a trustee under Sections 363 and 552 of the Code.

As compared to the effects of recognition as a "nonmain" proceeding (discussed below), recognition as a foreign main proceeding affords the debtor much broader rights and protections with respect to its assets located in the U.S. Accordingly, the determination of COMI plays a pivotal role in securing such rights and protections.

Recognition as a Foreign Nonmain Proceeding

Upon recognition by the court of foreign nonmain proceeding, the relief granted by the court is entirely discretionary and is subject to a showing that such relief "is necessary to effectuate the purpose of [Chapter 15 (as enumerated above)] and to protect the assets of the debtor or the interests of creditors."[16] Such discretionary relief may include a stay of actions for prepetition claims against the debtor or its property located within the U.S.; providing for the examination of witnesses, taking of evidence or the delivery of information concerning the debtor’s assets, affairs, rights, obligations or liabilities;


Chapter 15 was implemented in order to protect and maximize the value of a debtor’s assets and "to provide greater legal certainty for trade and investment as well as to provide for the fair and efficient administration of cross-border insolvencies, which protects the interests of creditors and other interested parties, including the debtor." While Chapter 15 is not a complete solution, given the continuing trend towards globalization, and the improved access that foreign representatives will have to U.S. courts under Chapter 15, a solid understanding of the advantages, and the pitfalls, under Chapter 15 will be essential to dealing with cross-border insolvency cases in the years to come.

For more information, please contact Gabe Matus. Mr. Matus is an associate in the Corporate and Securities Practice Group in the firm’s New York office.

[1] See APEC Says Significant Risks Remain to Global Outlook, July 22, 2009 (available at; Global Economic Slump Challenges Policies, World Economic Outlook Update – International Monetary Fund (January 28, 2009)(available at

[2] 11 U.S.C. §§1501 et seq.

[3]See 11 U.S.C. §1501; Andrus v. Digital Fairway Corporation, 2009 WL 1849981 (N.D.Tex.)("Chapter 15 proscribes a clear and uniform procedure by which a foreign entity charged with management of a bankruptcy within its jurisdiction may reach out to American courts for assistance in achieving an efficient result.").

[4] 11 U.S.C. §1501.

[5]See Andrus at *3; U.S. v. J.A. Jones Const. Group, LLC, 33 B.R. 637 (E.D.N.Y 2005).

[6]11 U.S.C. §1509. A "foreign representative" is "a person or body, including a person or body appointed on an interim basis, authorized in a foreign proceeding to administer the reorganization or the liquidation of the debtor’s assets or affairs or to act as a representative of such foreign proceeding." 11 U.S.C. §104(24).

[7]11 U.S.C. §1502.

[8]It should also be noted that the bankruptcy court may not recognize the foreign proceeding as either a foreign main proceeding or foreign nonmain proceeding if recognition is "manifestly contrary to the public policy of the United States," 11 U.S.C. §1506, or violates international treaties or agreements to which the United States is a party. 11 U.S.C. § 1503.

[9]11 U.S.C. §1519.


[11]See 11 U.S.C. § 1509(b); Andrus at *2.

[12]The legislative history to section 1516(c) further explains that "the presumption that the place of the registered office is also the center of the debtor’s main interest is included for speed and convenience of proof where there is no serious controversy." See H.R.Rep. No. 31, 109th Cong., 1st Sess 1516 (2005), U.S.Code Cong. & Admin.News 2005, pp. 88, 175.

[13]In re SPhinX, Ltd., 351 B.R. 103, 117 (S.D.N.Y. 2006).

[14]See In re Bear Stearns High-Grade Structured Credit Strategies Master Fund, 374 B.R. 122 (S.D.N.Y. 2007), affirmed in 389 B.R. 325 (S.D.N.Y 2008).

[15]11 U.S.C. 1520.

[16]11 U.S.C. §1521.