What is Chapter 15?

Chapter 15 of the U.S. Bankruptcy Code plays a vital role in facilitating cooperation between U.S. and foreign courts when it comes to bankruptcy cases with U.S. financial interests. Introduced in 2005, Chapter 15 was a response to the United Nations' recommendation for enhanced collaboration among nations in dealing with cross-border insolvency. This article will delve into the key aspects and objectives of Chapter 15, highlighting its significance in protecting the interests of creditors, debtors, and stakeholders involved in international bankruptcies.

Understanding Chapter 15 Bankruptcy:

The primary purpose of Chapter 15 is to foster cooperation between U.S. courts, appointed representatives, and foreign courts in cases involving corporate bankruptcy filings outside the United States. By promoting collaboration, Chapter 15 aims to establish a predictable and fair legal framework for debtors and creditors involved in international insolvency proceedings.

Key Objectives of Chapter 15:

Chapter 15 outlines its objectives in Title 11, Chapter 15, Section 1501 of the U.S. Code, which include:

  1. Promoting cooperation: The provision emphasizes the importance of cooperation among U.S. courts, parties of interest, and foreign courts engaged in cross-border insolvency cases. This objective ensures efficient communication and coordination between jurisdictions.

  2. Establishing legal certainty: By enacting Chapter 15, the U.S. aims to enhance legal certainty for international trade and investment. The statute provides a clear framework for resolving cross-border insolvencies, reducing uncertainty for parties involved.

  3. Ensuring fair and efficient administration: Chapter 15 seeks to facilitate the fair and efficient administration of cross-border insolvency cases, prioritizing the protection of the interests of all creditors, interested entities, and the debtor.

  4. Protecting the value of debtor's assets: The provision aims to safeguard the value of the debtor's assets, minimizing potential losses and ensuring a more equitable distribution to creditors.

  5. Facilitating financial rescue: Chapter 15 recognizes the importance of preserving financially troubled businesses, safeguarding investments, and maintaining employment opportunities.

Chapter 15 Procedure and Recognition:

Under Chapter 15, a representative of a corporate bankruptcy case filed outside the United States can gain access to the U.S. court system. This provision enables efficient resolution of insolvencies involving debtors, creditors, and assets spanning multiple countries. Once recognized, the foreign representative can seek additional relief from the bankruptcy court and other state and federal courts. Chapter 15 also provides foreign creditors the right to participate in U.S. bankruptcy cases while prohibiting discrimination against them.

Global Adoption and Purpose:

Chapter 15 was enacted as part of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, based on the United Nations Commission on International Trade Law's "Model Law on Cross-Border Insolvency." A total of 48 countries, including major economies like Japan, Canada, China, Australia, and the United Kingdom, have adopted similar legislation, demonstrating its global significance.

Historical Background:

Originally, Chapter 15 referred to a different section of the Bankruptcy Code, related to the United States Trustee Program. However, in 2005, recognizing the need for a comprehensive framework to address cross-border insolvencies, Section 304 was repealed and replaced with Chapter 15.

Summary

Chapter 15 bankruptcy is a newer type of bankruptcy filing that has only been around since 2005.

It allows foreign companies access to the US bankruptcy court system in certain circumstances. This is part of the US’s compliance with international trade laws. Part of the aim of bankruptcy law is to preserve employment and protect investment.

In an increasingly globalized economy it is understandable that the US could offer hearings to corporations which straddle national borders but are not based in the US.

The United Nations Commission for International Trade Law (UNCITRAL) made agreements and resolutions concerning international bankruptcy cases, and Chapter 15 is the US’s compliance with those agreements. Chapter 15 can be filed by a foreign entity if an insolvency case in another country has begun.

The US may decide to classify it as foreign-main or non-main depending on how much of the foreigner’s interests lie in that country or in the US. Foreign-main designations may still allow the foreigner to protect all of their assets held within the US, which is called an automatic stay.

The idea is that the US proceeding can be ancillary to the foreign proceeding or the foreigner can ultimately have a Chapter 7 or 13 filing start in the United States.

In either case, the US court attempts to offer some protection for the rights of foreigners who have some assets within the US, especially in the event that the court system in the foreign country behaves questionably.

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