Recognition of a foreign proceeding opens the door to mandatory or discretionary relief from the bankruptcy court, depending on whether the foreign proceeding is a foreign main proceeding or a foreign non-main proceeding. Two threshold requirements for obtaining recognition under Chapter 15 of the Bankruptcy Code, which took effect 11 years ago, are the existence of a duly designated foreign representative and a foreign proceeding.
Following a Chapter 15 petition to recognise Korean insolvency proceedings as foreign main proceedings, the Bankruptcy Court for the District of New Jersey recently granted an order of provisional relief that includes application of the automatic stay to block the enforcement of maritime liens and the seizure of shipping company Hanjin's vessels. The case demonstrates how essential provisional relief can be for foreign debtors to preserve the status quo and maintain business operations before a recognition ruling.
Chapter 15 of the Bankruptcy Code, which deals with cross-border insolvency cases, took effect nearly 11 years ago. Congress enacted Chapter 15 in 2005 to replace Section 304 of the code, which previously addressed transnational insolvencies. Chapter 15 largely incorporates the United Nations Commission on International Trade Law Model Law on Cross-Border Insolvency.
The Supreme Court has ruled that the US Bankruptcy Code pre-empts the Recovery Act, which Puerto Rico enacted in 2014 to address its mounting debt crisis. The question before the Supreme Court was whether the pre-emption provision contained in Chapter 9 applied to bar Puerto Rico from enacting its own bankruptcy scheme for restructuring the debts of its municipalities and public utilities.
In a recent unanimous decision the Supreme Court held that a bankruptcy court order denying confirmation of a debtor's repayment plan, but leaving the debtor free to propose another plan, was not a final order that could be appealed immediately as of right. The decision closes off an avenue that would have allowed debtors to obtain immediate appellate review of such a decision, thereby delaying the conclusion of the bankruptcy case.
In the Fairfield Sentry Limited cross-border insolvency case, the US Court of Appeals for the Second Circuit held that US bankruptcy law governed the sale of intangible property of a foreign debtor in liquidation proceedings in the British Virgin Islands. The decision shows that despite being a governing concept, the doctrine of international comity is not without limit in Chapter 15 cases.
The US Court of Appeals for the Second Circuit recently handed down a remarkable decision concerning Section 546(e) of the Bankruptcy Code in Madoff. Relying on the statute's broad wording, the court extended the safe harbour to shield payments carrying only the veneer of a securities-related transaction from recovery, even though the payments were not related to any actual transactions in securities.
Section 546(e) of the Bankruptcy Code curtails the power of a bankruptcy trustee to avoid, as fraudulent transfers, settlement payments made in securities transactions. Nevertheless, the US Bankruptcy Court for the Southern District of New York recently held that Section 546(e) did not bar or pre-empt state law fraudulent transfer claims asserted by a litigation trustee.