Introduction to Chapter 15: What Is the Purpose of Chapter 15?

Key Takeaways

• Chapter 15 of the U.S. Bankruptcy Code (11 U.S.C. §§ 1501–1532) is the exclusive mechanism for ancillary assistance to foreign insolvency proceedings in the U.S. 
• Chapter 15 adopts UNCITRAL’s 1997 Model Law on Cross-Border Insolvency, which was designed as a domestic-law template rather than a binding treaty. 
• The principal objective of Chapter 15 is to grant comity to foreign court orders, provided those orders are not manifestly contrary to public policy. 
• The U.S. Bankruptcy Court’s role in Chapter 15 is substantially limited compared to Chapter 11 or Chapter 7, as it functions in an ancillary capacity to the primary foreign proceeding. 
• Chapter 15 recognition requires the foreign proceeding to qualify as either a “main” proceeding (center of main interests) or a “non-main” proceeding (non-transitory economic activities).

Introduction

Insolvency regimes are designed to facilitate the orderly restructuring or liquidation of a debtor’s assets and to provide a fair and efficient forum through which parties may adjudicate their respective rights against the debtor and its assets. As commerce has expanded on a global scale, the tools through which insolvency must be addressed have similarly needed to expand. In the absence of a universal insolvency framework, the risk of duplicative proceedings, conflicting laws and rulings, and inequitable treatment of creditors and assets across borders is significant. Chapter 15 of the United States Bankruptcy Code, codified at 11 U.S.C, §§ 1501-1532, was enacted to address this need for a mechanism to facilitate the orderly handling of cross-border insolvencies in the U.S.

Key Issues

Adoption of Chapter 15 of the Bankruptcy Code

The United Nations Commission on International Trade Law (UNCITRAL) promulgated the Model Law on Cross-Border Insolvency in 1997 (the Model Law). Unlike other international laws and treaties, the Model Law was not designed as a binding treaty but as a template that participating nations could adapt and adopt into their domestic legal systems. The core objectives of the Model Law are to promote cooperation between courts of different nations, provide greater legal certainty for trade and investment, ensure fair and efficient administration of cross-border insolvencies, and protect the interests of debtors and creditors.

The U.S. adopted the Model Law through Chapter 15 of the Bankruptcy Code to achieve these core objectives. See 11 U.S.C. § 1501(a). In so adopting the Model Law, Congress intended Chapter 15 “to be the exclusive door to ancillary assistance to foreign proceedings.” Indeed, the principal objective of Chapter 15 is to grant comity to the orders of foreign courts, provided those rulings are not manifestly contrary to public policy, and promote cooperation among U.S. courts and parties in interest as well as courts and other competent authorities of foreign countries involved in cross-border insolvency cases.

Limited Role of Bankruptcy Court in Chapter 15

Chapter 15 proceedings are ancillary to the foreign proceeding that is the principal proceeding governing the debtor and the adjustment of its debts. Chapter 15 is designed chiefly to recognize that foreign proceeding and the orders issued by that foreign court. Because of this ancillary character, the role of the United States Bankruptcy Court in a Chapter 15 case is substantially limited in comparison to its role in cases proceeding under either Chapter 11 or Chapter 7 of the Bankruptcy Code. Broadly, the United States Bankruptcy Court will review a request for recognition of the foreign insolvency proceeding to confirm it complies with the requirements under Chapter 15, which include:

• The foreign proceeding is either a foreign “main” proceeding (i.e., a proceeding where the debtor has its center of main interests) or a foreign “non-main” proceeding (i.e., where the debtor maintains an “establishment,” and carries out “non-transitory economic activities”); 
• The applying foreign representative is appropriately authorized in the foreign proceeding to act as a representative of such foreign proceeding; and 
• The petition for recognition is accompanied by the required administrative filings.

Provided these requirements are met, recognition will be granted, and the bankruptcy court will grant comity to the orders issued by the foreign court.

Conclusion

Chapter 15 is a carefully designed tool to achieve cooperative and efficient adjudication of complex cross-border insolvency proceedings. The framework it provides offers a predictable and largely nondiscretionary pathway for recognition and enforcement of foreign court orders and the management of multinational proceedings, while promoting coordination between U.S. and foreign courts and enhancing certainty for creditors and other stakeholders in cross-border cases.