6/20/18

Chapter 15
DAY 1 — PROCEDURE, RECOGNITION AND BASIC RELIEF

Background of Cross-Border Bankruptcy

oGlobal history to middle of 20 th Century was non-
recognition of most bankruptcy laws
oSuch laws were considered criminal, and thus fell
under the international disinclination to recognize
the criminal laws of another country
oMany bankruptcy and insolvency laws (I use the
terms interchangeably), however, were concerned
with money, not punishment

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Cross-Border Enforcement of Money

Judgments
oOutside of bankruptcy, many countries permitted the enforcement
of foreign money judgments
oScope of recognition limited generally to giving effect to “pure”
money judgments representing consensual or contractual debts
◦ Judgments for fines, taxes, domestic obligations such as alimony or child
support excluded
◦ Insolvency judgments excluded from the November 2017 Hague Draft
Convention and others
◦ UNCITRAL drafting a model law on the enforcement of insolvency-related
judgments
oBasis relied in part on “comity”

Comity
o“’Comity,’ in the legal sense, is neither a matter of absolute
obligation, on the one hand, nor of mere courtesy and good
will, upon the other. But it is the recognition which one nation
allows within its territory to the legislative, executive or
judicial acts of another nation, having due regard both to
international duty and convenience, and to the rights of its
own citizens or of other persons who are under the protection
of its laws.”
◦ Hilton v. Guyot, 159 U.S. 113, 163-64 (1895)
◦ Court also added: “When you call for my assistance to carry into
effect the decision of some other tribunal, you shall not have it, if it
appears that you are in the wrong.” Id. at 172.

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Maxwell – The Catalyst for Cross-Border

Legislation
o M axw e ll w as re gis te re d u n d e r En glis h law, b u t 8 0 % o f its as s ets w e re lo cate d in th e U .S.

o In 1 9 9 1 , M axw e ll tran sfe rre d fu n d s to th re e d iffe re nt b an ks:

◦ B arclays B an k p lc (h e ad q u arte re d in Lo n d o n b u t lo cate d inte rn atio n ally, in clu d in g N Y);
◦ N atio n al W e stm in ste r B an k p lc (s am e ); an d
◦ So ciete G e n e rale (h e ad q u arte re d in Paris, b u t lo cate d inte rn atio n ally, in clu d in g Lo n d o n an d
N Y).

o Each o f th e th re e tran sfe rs h ad U .S. co n n e ctio n s:

◦ B arclays w as re p aid by M axw e ll’s s ale o f a N ew Yo rk-b ase d su bsid iary, w ith th e fu n d s
tran s fe rre d fro m M axw e ll’s d o llar acco u nt in Lo n d o n to B arclays N ew Yo rk.
◦ N atio n al W e stm in ste r w as re p aid w ith B ritish p o u n d s M axw e ll p u rch ase d afte r se llin g
an o th e r o n e o f its U .S.-b as e d s u bs id iarie s .
◦ So ciete G e n e rale w as re p aid fro m M axw e ll’s Lo n d o n b an k to So ciete G e n e rale ’s Lo n d o n
b ran ch . Th e d e b to r d id n o t alle ge a U .S. co n n e ctio n ; h ow eve r, th e co u rt assu m e d th e fu n d s
cam e fro m th e s ale o f M axw e ll’s N ew Yo rk-b ase d su bsid iary.

In re Maxwell Communication Corp. plc by Homan, 93

F.3d 1036 (2d Cir 1996) (continued)
oM axwell commenced chapter 11 proceedings in the U.S. and, the
next day, petitioned for an administration order from the U.K. High
Court of Justice. The U.S. court recognized the British administrators
as the “corporate governance of the debtor-in-possession.”
oBarclays sought an ex parte order from the U.K. High Court to bar a
recovery action against three transfers under U.S. law because it w as
concerned about the differences between U.S. and U.K. avoidance
law :
◦ U.K. law limits avoidance to “those situations where placing the transferee in
a better position was something the debtor intended.” – Subjective intent
◦ U.S. law, Bankruptcy Code Section 547(b), permits avoidance of transfers to or
benefitting a creditor when the debtor was insolvent, made within 90 days
prior to the filing of the petition, and the creditor did not receive more than
what they would get in liquidation. – Objective requirements

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In re Maxwell Communication Corp. plc by Homan, 93

F.3d 1036 (2d Cir 1996) (continued)
oThe ex parte order was initially granted, but then vacated on the basis that it
interfered with the U.S. court’s determination of the reach of U.S. avoidance
law.
oThe U.K. administrators commenced adversary proceedings against all three
banks in the U.S. bankruptcy court, citing the transfers as avoidable
preferences under section 547(b) of the U.S. Bankruptcy Code.
oThe banks moved to dismiss the preference claims on the basis that the
transfers were extraterritorial and that the U.S. Bankruptcy Code does not
apply to them.
oHolding: The U.S. Bankruptcy Court dismissed the claims and held that the
transfers were extraterritorial because U.K. law was implicated to a greater
extent than U.S. law. The district court and the Second Circuit affirmed.

From Maxwell to . . . More Complicated

Corporate Structures
oFinance through the 1990s and 2000s, and after
recession of 2008, became increasingly complex and
intricate to meet investors need for unique blends of
risk and reward
oThis need gave rise to the use of financial derivatives
and holding company strategies that crossed borders
and created complex corporate structures
oExamples: CGG and Oi

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Reorganization Plan – Debt for Equity

Swap
oFull equitization of the principal amount of senior
unsecured and convertible notes into common stock
of CGG S.A.
oCurrent equity holdings were diluted by the bond
equitizations to approximately 4.5% of CGG S.A.’s
equity

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Another Example: Oi, SA

oBrazilian telecommunications firm that made a bad
acquisition when it acquire Portugal Telecom
oBy 2016, had US$16 billion in financial debt (bonds
and other traded securities)
oHad used various financing entities to reduce
interest rates

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Oi’s Plan: Another Debt for Equity Swap

US$10 Billion in unsecured debt (traded
bonds):
◦ 80% reduction to US$2 billion
◦ 7-year term; negotiated interest around
10%
◦ Shares/warrants for up to 75% of Oi’s
equity
US$4.2 billion in unsecured bank debt
◦ No reduction in principal
◦ 17-year term
US$1 billion in secured bank debt
◦ No reduction in principal
◦ 15-year term

The Rise of the Model Law

oCases like Maxwell and cases like CGG and OI with
complex, cross-border capital structures gave rise to a
need for uniformity
oSuch uniformity had been proposed among EU members
since the mid-1980s, but no legislative action
oIn the early 1990s, as a parallel action to the drafting of
an EU statute, UNCITRAL took up the task of drafting a
statute

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Chapter 15 — History
o1997 UNCITRAL Model Law
◦Several years in the making
◦ http ://w w w.u n citral.o rg /u n citral/e n /u n citral_ texts/in so lve n cy/1 9 9 7 M o d e l.htm l

oAbout 44 Countries Have Adopted

◦Includes UK, Chile, Japan, Singapore, Canada, Mexico and
Australia
o2005 United States Adoption
◦About 125 Cases filed per year
◦Vast majority in New York (2/3 of all chapter 15 cases),
Delaware, or Texas

Broad Overview
oGoverns:
◦“Inbound” foreign proceedings
◦“Outbound” authority to act in a foreign country
◦Coordination of US, foreign cases
◦Rights of foreign parties in cases even when a Chapter 15
case may not be pending

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Basic Structure of Chapter 15

oProvisions Effective Without a Chapter 15 Case
◦Provisions regarding individual judgment recognition and
access to United states courts
◦Provisions regarding participation in a Chapter 11 case
oProvisions Which Require a Chapter 15 Case
◦Recognition of a foreign insolvency proceeding
◦Relief for a representative from a foreign insolvency
proceeding
◦Authorization for cooperation in cross-border cases

Broad Overview, Continued

oChapter 15 does not afford substantive relief
◦It does not allow debt or lien modification
◦It does not grant “claw-back” powers
◦It does not create an “estate”
◦It does not distribute funds to creditors
oInstead, it “channels,” or act ancillary to, a
proceeding pending in another country

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Broad Overview, Continued

oNotion of “modified universalism”
oOriginal desire to have a set of substantive rules, but that was a
non-starter
oRather, have a uniform set of choice of law rules (private
international law)
oDirect courts of one country to cooperate with courts on another
country which has a greater claim to manage the debtor’s
proceedings
◦ Keyed to concept we’ll see tomorrow– the center of main interests
◦ Idea is that if substantive law is linked to commercial or business activity,
then creditors can adjust their behavior to take into account different laws
that govern insolvency

Some Interpretive Rules

oInternational obligations of United States will prevail if
they conflict with chapter 15 — §1503
oCourt may decline to take an action under chapter 15 “if
the action would be manifestly contrary to the public
policy of the United States.” — § 1506
oIn interpreting chapter 15, the court must consider its
international origin and the goal of uniform application
among adopting countries — § 1508

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Implements Model Law Objectives —

§§ 1501, 1507
oCooperation, fair administration in cross-border
cases
oGreater legal certainty for trade, investment
oProtection, maximization of value of debtor’s assets
oFacilitation of rescue of businesses to protect
investment, enhance employment

Provisions Effective Without a

Chapter 15 Case
o§ 1509:
◦ (a) A foreign representative may commence a case under section
1504 by filing directly with the court a petition for recognition of a
foreign proceeding under section 1515. . . .
◦ (e) Whether or not the court grants recognition, and subject to
sections 306 and 1510, a foreign representative is subject to
applicable nonbankruptcy law.
◦ (f) Notwithstanding any other provision of this section, the failure of
a foreign representative to commence a case or to obtain recognition
under this chapter does not affect any right the foreign
representative may have to sue in a court in the United States to
collect or recover a claim which is the property of the debtor.

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Provisions Effective Without a

Chapter 15 Case
o§ 1513:
◦ (a) Foreign creditors have the same rights regarding the
commencement of, and participation in, a case under this title as
domestic creditors.
◦ (b) (1) Subsection (a) does not change or codify present law as to the
priority of claims under section 507 or 726, except that the claim of a
foreign creditor under those sections shall not be given a lower
priority than that of general unsecured claims without priority solely
because the holder of such claim is a foreign creditor.
◦ (2)(A) Subsection (a) and paragraph (1) do not change or codify present law
as to the allowability of foreign revenue claims or other foreign public law
claims in a proceeding under this title.
◦ ( B ) A llow an ce an d p rio rity as to a fo re ign tax claim o r o th e r fo re ign p u b lic law claim sh all
b e gove rn e d by any ap p licab le tax tre aty o f th e U n ite d State s, u n d e r th e co n d itio n s an d
circu m stan ce s sp e cifie d th e re in .

Provisions Effective Without a

Chapter 15 Case
o§ 1514:
◦(a) Whenever in a case under this title notice is to be given to
creditors generally or to any class or category of creditors, such
notice shall also be given to the known creditors generally, or to
creditors in the notified class or category, that do not have
addresses in the United States. The court may order that
appropriate steps be taken with a view to notifying any creditor
whose address is not yet known.
◦(b) Such notification to creditors with foreign addresses described
in subsection (a) shall be given individually, unless the court
considers that, under the circumstances, some other form of
notification would be more appropriate. No letter or other
formality is required.

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Provisions Effective Without a Chapter 15

Case — Continued
◦(c) When a notification of commencement of a case is to be
given to foreign creditors, such notification shall—
◦ (1) indicate the time period for filing proofs of claim and specify the
place for filing such proofs of claim;
◦ (2) indicate whether secured creditors need to file proofs of claim; and
◦ (3) contain any other information required to be included in such
notification to creditors under this title and the orders of the court.
◦(d) Any rule of procedure or order of the court as to notice or
the filing of a proof of claim shall provide such additional time
to creditors with foreign addresses as is reasonable under the
circumstances.

Recognition
oUS Court’s acknowledgment that there is an
appropriate insolvency proceeding pending with
respect to the debtor
oMany Consequences of Recognition
◦Look today at procedural consequences and basic relief.
◦Tomorrow, we’ll look at restrictions on the relief that can
be granted upon recognition

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Jurisdiction and Venue

oUnited States Bankruptcy Courts can hear and determine
chapter 15 cases
oVenue is determined by a hierarchy:
◦district where the debtor has its principal place of business in
the United States
◦if none, in the district in which there is an action pending
against the debtor
◦otherwise, where venue will be consistent with the interests
of justice and the convenience of the parties

Recognition Procedure
oSection 1517 states that recognition must be given if:
◦The foreign proceeding for which recognition is sought is
either a “foreign main proceeding” or a “foreign nonmain
proceeding”
◦The person or body apply for recognition is a “foreign
representative”
◦The procedural requirements of Section 1515 are met
◦ English versions of the documents authorizing the foreign proceeding
and authorizing the applicant to be a foreign representative

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Initial Definitions
o“Foreign Proceeding” — § 101(23):
◦(23) The term “foreign proceeding” means a collective
judicial or administrative proceeding in a foreign country,
including an interim proceeding, under a law relating to
insolvency or adjustment of debt in which proceeding the
assets and affairs of the debtor are subject to control or
supervision by a foreign court, for the purpose of
reorganization or liquidation.

Breakdown of “Foreign Proceeding”

oFrom Flynn v. Wallace (p.147):
◦to qualify as a foreign main proceeding, the foreign
representative must establish:
◦ (1) a proceeding,
◦ (2) that is judicial or administrative,
◦ (3) collective,
◦ (4) in a foreign country,
◦ (5) conducted under law relating to insolvency,
◦ (6) under the supervision of a foreign court, and
◦ (7) for the purpose of reorganization or liquidation.

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”Foreign Representative” — § 101(24)

oThe term “foreign representative” means
◦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.

Application – Questions
◦Will a debt collection action satisfy definition?
◦Will a receivership in which the secured creditor appoints
a person to collect the income of the debtor?
◦What if proceeding never has to go to court, but parties
have recourse to court if statutory procedures are not
followed?

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Documents Necessary for Recognition

oPetition accompanied by
◦ One (and only one) of the following three:
◦ (1 ) ce rtifie d co py o f d e cisio n co m m e n cin g fo re ign p ro ce e d in g an d ap p o intin g fo re ign
re p re se ntative ,
◦ (2 ) ce rtificate fro m fo re ign co u rt affirm in g existe n ce o f fo re ign p ro ce e d in g an d th e
ap p o intm e nt o f th e fo re ign re p re se ntative , o r
◦ (3 ) any o th e r evid e n ce acce ptab le to co u rt, (all tran slate d into En glish ), a n d
◦ A statement identifying all other foreign proceedings of debtor
o∂ 1516(b): “The court is entitled to presume that documents submitted in
support of the petition for recognition are authentic, whether or not they
have been legalized.”
◦ No letters rogatory necessary
oCourt shall decide on the application for recognition “at the earliest possible
time”

Effects of Recognition
oInitial Consequences of Recognition (§ 1509 again):
◦ (b) If the court grants recognition under section 1517, and subject to any limitations
that the court may impose consistent with the policy of this chapter—
◦ (1) the foreign representative has the capacity to sue and be sued in a court in the United
States;
◦ (2) the foreign representative may apply directly to a court in the United States for appropriate
relief in that court; and
◦ (3) a court in the United States shall grant comity or cooperation to the foreign representative.
◦ (c) A request for comity or cooperation by a foreign representative in a court in the
United States other than the court which granted recognition shall be accompanied
by a certified copy of an order granting recognition under section 1517.
◦ (d) If the court denies recognition under this chapter, the court may issue any
appropriate order necessary to prevent the foreign representative from obtaining
comity or cooperation from courts in the United States.

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Different Types of Cases — Different

Types of Relief
oSection 1517(b) states:
◦Such foreign proceeding shall be recognized—
◦ (1) as a foreign main proceeding if it is pending in the country
where the debtor has the center of its main interests; or
◦ (2) as a foreign nonmain proceeding if the debtor has an
establishment within the meaning of section 1502 in the foreign
country where the proceeding is pending.

Main and Nonmain Cases — § 1502

o(4) “foreign main proceeding” means a foreign proceeding
pending in the country where the debtor has the center of its
main interests;
◦ § 1516(c): “In the absence of evidence to the contrary, the debtor’s
registered office, or habitual residence in the case of an individual, is
presumed to be the center of the debtor’s main interests.”
o(5) “foreign nonmain proceeding” means a foreign
proceeding, other than a foreign main proceeding, pending in
a country where the debtor has an establishment;
◦ § 1502(2): ““establishment” means any place of operations where
the debtor carries out a nontransitory economic activity;”

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Relief in a Foreign Main Proceeding — §

1520
o(a) Upon recognition of a foreign proceeding that is a foreign main
proceeding—
◦ (1) sections 361 and 362 apply with respect to the debtor and the property
of the debtor that is within the territorial jurisdiction of the United States;
◦ (2) sections 363, 549, and 552 apply to a transfer of an interest of the
debtor in property that is within the territorial jurisdiction of the United
States to the same extent that the sections would apply to property of an
estate;
◦ (3) unless the court orders otherwise, the foreign representative may
operate the debtor’s business and may exercise the rights and powers of a
trustee under and to the extent provided by sections 363 and 552; and
◦ (4) section 552 applies to property of the debtor that is within the
territorial jurisdiction of the United States.

Discretionary Relief in Any Recognized

Proceeding — § 1521
o(a) Upon recognition of a foreign proceeding, whether main or nonmain,
where necessary to effectuate the purpose of this chapter and to protect the
assets of the debtor or the interests of the creditors, the court may, at the
request of the foreign representative, grant any appropriate relief,
including—* * *
◦ (4) providing for the examination of witnesses, the taking of evidence or the delivery
of information concerning the debtor’s assets, affairs, rights, obligations or liabilities;
◦ (5) entrusting the administration or realization of all or part of the debtor’s assets
within the territorial jurisdiction of the United States to the foreign representative or
another person, including an examiner, authorized by the court;
◦ (6) extending relief granted under section 1519(a); and
◦ (7) granting any additional relief that may be available to a trustee, except for relief
available under sections 522, 544, 545, 547, 548, 550, and 724(a).

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Discretionary Relief in Any Recognized

Proceeding — § 1521(b)
o(b) Upon recognition of a foreign proceeding, whether
main or nonmain, the court may, at the request of the
foreign representative, entrust the distribution of all or
part of the debtor’s assets located in the United States to
the foreign representative or another person, including an
examiner, authorized by the court, provided that the court
is satisfied that the interests of creditors in the United
States are sufficiently protected.

Applications
oCitizen of Mexico files bankruptcy in Mexico. Has
property in US
oMexican syndico (equivalent of US Trustee) wants to
sell US property and repatriate proceeds to Mexico
for distribution in Mexican proceeding.
oMay she?

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Applications
oDebtor in possession in Chapter 11 case is being
sued in Japan over a patent issue.
oCan company use Chapter 15 to stop action?
Achieve anything more than a stay
◦(Assume Japan’s adoption of the Model Law is the same
as US’s)

Chapter 15
COMI, LIMITS ON RELIEF, AND COOPERATION

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Structure Thus Far

oChapter 15 deals with cross-border issues, both on a
case and on a creditor level
oIt contains provisions that apply:
◦Regardless of whether there is a Chapter 15 case pending
◦Only if a Chapter 15 case is pending

Provisions that always apply

oAbility of foreign representatives to pursue claims
oNon-discrimination against non-United States
creditors
oSpecial provisions regarding notice

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Provisions that require a Chapter 15 case

oChapter 15 cases seeks “recognition” of a ”foreign
proceeding”
oRecognition is either as a “foreign main proceeding”
or a “foreign nonmain proceeding”
oSome provisions apply regardless of what type of
recognition is granted; others require a particular
type of recognition

Provisions that always apply on

recognition
oForeign representative has capacity to sue and be sued
oForeign representative is entitled to “comity” if relief
sought requires it
◦Comity “is the ‘recognition which one nation allows within its
territory to the legislative, executive or judicial acts of another
nation, having due regard both to international duty and
convenience, and to the rights of its own citizens, or of other
persons who are under the protections of its laws.’”
◦ In re Vitro SAB de CV, 701 F.3d 1031, 1043-44 (5th Cir. 2012) (quoting
Hilton v Guyot, 159 US 113, 164 (1895)).

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Provisions that depend on type of

recognition
oRecognition as a “foreign main proceeding” invokes
certain types of automatic relief (§ 1520)
oAll other relief is discretionary (§ 1519; 1521)
◦Provisional relief pending recognition (§ 1519)
◦Relief upon recognition as a “foreign nonmain
proceeding” (§ 1521)
◦Relief beyond that granted in § 1520 in a “foreign main
proceeding” (§ 1521)

Automatic Relief in Foreign Main

Proceedings (§ 1520)
◦Automatic stay applies
◦Section 363 applies to sales of assets within the United
States
◦Foreign representative may operate business

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Provisional Relief (§ 1519)

oRelief after filing and before formal recognition
o“where relief is urgently needed to protect the
assets of the debtor or the interests of the creditors”
oRelief includes:
◦Stay of any pending action
◦Entrusting administration of assets to foreign
representative
◦Other relief, including the taking of discovery

Discretionary Relief (§ 1521)

oRelief can include:
◦ (4) providing for the examination of witnesses, the taking of evidence or the delivery of
information concerning the debtor’s assets, affairs, rights, obligations or liabilities;
◦ (5) entrusting the administration or realization of all or part of the debtor’s assets within the
territorial jurisdiction of the United States to the foreign representative or another person,
including an examiner, authorized by the court;
◦ (6) extending relief granted under section 1519(a); and
◦ (7) granting any additional relief that may be available to a trustee, except for relief available
under sections 522, 544, 545, 547, 548, 550, and 724(a).
oProof of need is proof required for an injunction (§ 1521(e))
◦ Irreparable injury/Inadequate remedy at law
◦ Likelihood of success on the merits
◦ Balance of harms favors person requesting relief
◦ Public policy favors

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Additional discretionary relief — §

1521(b)
o(b) Upon recognition of a foreign proceeding, whether
main or nonmain, the court may, at the request of the
foreign representative, entrust the distribution of all or
part of the debtor’s assets located in the United States to
the foreign representative or another person, including
an examiner, authorized by the court, provided that the
court is satisfied that the interests of creditors in the
United States are sufficiently protected.

Additional Protections for Stakeholders –

§ 1522
o(a) The court may grant relief under section 1519 or 1521, or
may modify or terminate relief under subsection (c), only if the
interests of the creditors and other interested entities, including
the debtor, are sufficiently protected.
o(b) The court may subject relief granted under section 1519 or
1521, or the operation of the debtor’s business under section
1520(a)(3), to conditions it considers appropriate, including the
giving of security or the filing of a bond.
o(c) The court may, at the request of the foreign representative or
an entity affected by relief granted under section 1519 or 1521,
or at its own motion, modify or terminate such relief.

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More discretionary relief — § 1507(a)

o§ 1507(a) of the Bankruptcy Code also provides that:
◦ "[s]ubject to the specific limitations stated elsewhere in this
chapter[,] the court, if recognition is granted, may provide additional
assistance to a foreign representative under this title or under other
laws of the United States."

oPursuant to section 1507, the court is authorized to grant any

"additional assistance" available under the Bankruptcy Code
or under "other laws of the United States," provided that such
assistance is consistent with the principles of comity and
satisfies the fairness considerations set forth in section
1507(b).”

The Difference Between Mandatory and

Discretionary Relief? COMI
oIf the foreign proceeding is pending where the debtor’s COMI
is located, it is a foreign main proceeding, and entitled to
mandatory relief set forth in § 1520
oInitial Presumption: § 1516(c): the debtor’s registered office
or habitual residence is presumed to be its COMI.
◦ Habitual residence is not defined in the Bankruptcy Code but has
been analyzed as virtually identical to the concept of domicile, which
“is established by physical presence in a location coupled with an
intent to remain their indefinitely.”
oThe presumption regarding the debtor’s registered office is
also its COMI is included for “speed and convenience of
proof” where there is no serious controversy.

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COMI Summarized by ECJ

oAccording to the European Court of Justice, In re Eurofoods IFSC
Ltd., 2006 ECJ CELEX LEXIS 777 (E.C.J. M ay 2, 2006):
◦ In determining the COMI of a debtor company, the presumption in favor of
the registered office of that company can be rebutted only if “factors
which are both objective and ascertainable by third parties enable it to be
established that an actual situation exists which is different from that
which location at that registered office is deemed to reflect.”
◦ The COMI presumption has been though to be overcome “in the case of a
‘letterbox’ company not carrying out any business in the territory of the
Member State in which its registered office is situated.”
◦ The term “interests,” as used in the phrase “center of main interests,”
includes not only commercial, industrial, and professional activities but
also the general economic activities of private individuals. A debtor’s COMI
“must be identified by reference to criteria that are both objective and
ascertainable by third parties.”

U.S. interpretations
oSome U.S. courts have equated COMI with a debtor’s
“principal place of business.”
oThe general notion of “principal place of business” is
where the corporation’s officers “direct, control, and
coordinate the corporation’s activities, i.e., its nerve
center, which will typically be found at its corporate
headquarters.”

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Factors Used by US Courts

oFactors to be considered in determining a corporation’s nerve center
include:
◦ (i) location of corporate and executive offices;
◦ (ii) the site where day-to-day control is exercised;
◦ (iii) the exclusivity of decision making at the executive office and the amount of
managerial authority at that location;
◦ (iv) the location where corporate records and bank accounts are kept;
◦ (v) where the board of directors and stockholders meet;
◦ (vi) where executives live, have their offices, and spend their time;
◦ (vii) the location where corporate income tax is filed;
◦ (viii) the location designated in the corporate charter; and
◦ (ix) the location where major policy, advertising, distribution, accounts receivable
departments and finance decisions originate.”

Summary
o “[A] commonality of cases analyzing debtors’ COMI
demonstrates that courts do not apply any rigid formula
or consistently find one factor dispositive; instead, courts
analyze a variety of factors to discern, objectively, where a
particular debtor has its principal place of business. This
inquiry examines the debtor’s administration,
management, and operations along with whether
reasonable and ordinary third parties can discern or
perceive where the debtor is conducting these various
functions.”
◦In re Betcorp Ltd., 400 B.R. 266, 290 (Bankr. D. Nev. 2009)

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But what of “foreign nonmain

proceedings”?
oIf not a foreign main proceeding, is it a foreign nonmain
proceeding?
oNO.
oTo be a foreign nonmain proceeding, the country from which
the foreign representative comes from has to have an
“establishment”
◦ § 1502(2): “establishment” means any place of operations where the
debtor carries out a nontransitory economic activity
◦ Mere presence of assets insufficient. Must conduct some regular
economic activity – agency office; take and make orders; etc.

Restrictions on relief
oThere are nonetheless certain restrictions.
◦ If relief is discretionary, then under § 1521(a) that relief may be
granted "only if the interests of the creditors and other interested
entities, including the debtor, are sufficiently protected”
◦ Further, under § 1522(b) a court may place upon discretionary relief
"conditions it considers appropriate."
◦ One court has observed that the policy underlying section 1522 is that there
should be “a balance between relief that may be granted to the foreign
representative and the interests of the person that may be affected by such
relief”
◦ Finally, § 1506 states that:
◦ Nothing in this chapter prevents the court from refusing to take an action
governed by this chapter if the action would be manifestly contrary to the
public policy of the United States.

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Summary of Model Law’s Universalism

oCan only be one main proceeding
◦ As stated in the Legislative Guide accompanying the Model Law:
◦ Main insolvency proceedings have universal scope. They aim at
encompassing all the debtor’s assets on a world-wide basis and at affecting
all creditors, wherever located.
◦ Only one set of main proceedings may be opened in the territory covered by
the Convention.
oSection 1521(a)(5) then allows the court to “entrust[] the
administration or realization of all or part of the debtor’s
assets located in this State to the foreign representative or
another person designated by the court”, and
oSection 1521(b) allows the distribution of the proceeds of the
assets realized

In re Rede Energia S.A. (p. 159)

oBrazilian reorganization confirmed nonconsensually
oChapter 15 case filed to seek an injunction requiring US participants
to abide by and follow Brazilian confirmation order
oNo doubt that the Brazilian plan contained provisions that would
have precluded it from being confirmed if Brazilian company had
instead filed a chapter 11 case
oArguments were that:
◦ Brazilian procedure was not fair
◦ Brazilian law allowed for actions and results not permitted under US
reorganization law

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Arguments under § 1521

oArgument was that interest were not “sufficiently
protected”
oCourt looked to
◦Brazilian majority vote
◦Consequences of not entering order, and
◦Rights to appeal in Brazil
oFinds interests in US protected

Arguments under § 1507

oIf recognition is granted, the bankruptcy court may grant “additional
assistance” to a foreign representative under chapter 15 or under other laws
of the United States, pursuant to section 1507 of the Code.
oSection 1507(b) directs the Court to “consider whether such assistance,
consistent with principles of comity, will reasonably assure” the following:
◦ (1) just treatment of all holders of claims against or interests in the debtor’s property;
◦ (2) protection of claim holders in the United States against prejudice and
inconvenience in the processing of claims in such foreign proceeding;
◦ (3) prevention of preferential or fraudulent dispositions of property of the debtor;
◦ (4) distribution of proceeds of the debtor’s property substantially in accordance with
the order prescribed by this title; and
◦ (5) if appropriate, the provision of an opportunity for a fresh start for the individual
that such foreign proceeding concerns.

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Section 1507(b)(1)
oSection 1507(b)(1) requires that additional relief only be granted if
the “just treatment” of creditors is ensured.
oThe “just treatment” factor is generally satisfied upon a showing
that the applicable law “provides for a comprehensive procedure for
the orderly and equitable distribution of [the debtor]’s assets among
all of its creditors.”
oConversely, a foreign proceeding fails this factor when the
proceeding “fails to provide creditors ‘access to information and an
opportunity to be heard in a meaningful manner,’ which are
‘[f]undamental requisites of due process,’” or when the proceeding
“would not recognize a creditor as a claimholder.”
oCourt finds Brazilian law complies

Section 1507(b)(2)
oThe second factor of section 1507(b) requires that
U.S. creditors be protected against “prejudice and
inconvenience in the processing of claims” in the
foreign proceeding.
oCourt finds Brazil processes claims fairly

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Section 1507(b)(3)
oThe third factor of section 1507(b) requires that the
additional assistance reasonably assure the
“prevention of preferential or fraudulent dispositions
of property of the debtor.”
oCourt finds nothing fraudulent or preferential about
Brazilian court’s determination of secured status

Section 1507(b)(4)
oThe fourth factor of section 1507(b) requires that the
additional assistance provided to a foreign representative will
reasonably assure the “distribution of proceeds of the
debtor’s property substantially in accordance with the
[Bankruptcy Code].”
oArgument that plan did not comply with “absolute priority”
rule, and thus distributed value to shareholders before
creditors paid in full
oCourt responds that cramdown provisions of Brazilian law
were fair and not dissimilar to US provisions, and thus this
factor met

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“Manifestly contrary to public policy”

oStatute provides, in § 1506:
◦Nothing in this chapter prevents the court from refusing
to take an action governed by this chapter if the action
would be manifestly contrary to the public policy of the
United States
oCourt notes that this defense is to be used
“sparingly”

Summary of arguments
oThe public policy arguments were:
◦ (i) an unfair marketing process;
◦ (ii) the use of “phantom” consolidation and a single insider vote to cram
down an otherwise unconfirmable plan;
◦ (iii) a significant extraction of value for shareholders which is violative of
the distribution scheme under U.S. law;
◦ (iv) disparate treatment of similarly situated creditors; and
◦ (v) targeting of that disparate treatment at U.S.-based creditors, including
to protect local creditor interests.
oCourt dispenses with all of these as follows:
◦ “Brazilian bankruptcy law meets our fundamental standards of fairness
and accords with the course of civilized jurisprudence.”

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Problems Under Chapter 15 (page 180)

o1. A Nevada businessman owns a condo in Cabo San
Lucas. He files for chapter 11 relief in Nevada. Can he
open up a chapter 15-type proceeding in Mexico? If so,
who gets the net proceeds of the sale of the condo – the
debtor, or his Mexican creditors, or both?
o2. A Mexican businessman owns a condo in Las Vegas.
He files a suspension of payments proceeding in Mexico
(their rough equivalent to a chapter 11 proceeding). Can
he open up a chapter 15 proceeding in Las Vegas? If so,
who gets the net proceeds of the sale of the condo?

Problems Under Chapter 15 (page 180)

o3. The tax claims of foreign governments are typically disallowed by
all insolvency systems; that is, the claim for taxes by a M exican or
Thai or Australian taxing authority would not be allowed in a United
States (or an English or an Israeli) proceeding.
oW hat would you do if you represented the government who has a
sizable tax claim against a debtor, the debtor has obtain recognition
of a foreign main proceeding in the courts of your country, and then
the foreign representative proposes to expatriate all funds now in
bank accounts in your country to the jurisdiction of the foreign main
proceeding?
◦ See Akers v. Deputy Commissioner of Taxation, 311 ALR 167, 100 ACSR 287,
32 ACLC 14-028, 2014 WL 2202842, [2014] FCAFC 57, [2014] ALMD 6260,
[2014] ALMD 5912, [2014] ALMD 5913

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Cooperation
oBroad powers to communicate and cooperate:
o§ 1525:
◦(a) Consistent with section 1501, the court shall cooperate to
the maximum extent possible with a foreign court or a foreign
representative, either directly or through the trustee.
◦(b) The court is entitled to communicate directly with, or to
request information or assistance directly from, a foreign
court or a foreign representative, subject to the rights of a
party in interest to notice and participation.

Forms of Cooperation — § 1527

o§ 1527:
◦ Cooperation referred to in sections 1525 and 1526 may be implemented
by any appropriate means, including—
◦ (1) appointment of a person or body, including an examiner, to act at the direction
of the court;
◦ (2) communication of information by any means considered appropriate by the
court;
◦ (3) coordination of the administration and supervision of the debtor’s assets and
affairs;
◦ (4) approval or implementation of agreements concerning the coordination of
proceedings; and
◦ (5) coordination of concurrent proceedings regarding the same debtor.
oThe rise of protocols.

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COMI-Shifting: Trend?

The Internal Weakening of Universalism:

Statutory Exceptions
oSection 1522(a) conditions the entrustment of
assets for administration or realization to the
requirement that creditors be “adequately
protected.”
oSection 1521(b) places the same restriction on
distribution of assets
oSection 1506 contains the ”manifestly contrary to
public policy” exception

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Akers, and “adequate protection”

oThe tax claims of foreign governments are typically
disallowed by all insolvency systems; that is, the
claim for taxes by a Mexican or Thai or Australian
taxing authority would not be allowed in a United
States (or an English or an Israeli) proceeding.
oThis is a problem for universalism; it means that
governmental claims from non-COMI governments
may be disallowed, even if there are assets in the
non-COMI states

Akers, continued
oEnter Akers v. Deputy Commissioner of Taxation, 311 ALR
167, 100 ACSR 287, 32 ACLC 14-028, 2014 WL 2202842,
[2014] FCAFC 57, [2014] ALMD 6260, [2014] ALMD 5912,
[2014] ALMD 5913
oIn Akers, the Australian government had a sizable tax claim
against a debtor, the debtor had obtained recognition of a
foreign main proceeding in the courts of Australia, and then
the foreign representative proposed to expatriate all funds
now in bank accounts in Australia to the jurisdiction of the
foreign main proceeding
oAustralian court held that adequate protection required the
amount of the government’s claim to be retained in Australia

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Beyond the Statute to Gaps in Coverage

– The UK Supreme Court and Rubin
oIn 2012, Rubin v. Eurofinance, S.A., [2012] UKSC 46,
[2013] 1 AC 236, took universalists by surprise
oIn Rubin, one Roman and his company Eurofinance
(and others) ran a scheme called ”The Consumers
Trust” to defraud American consumers
oThe scheme filed bankruptcy, and Rubin was
appointed trustee

Rubin, continued
oRubin sued the perpetrators of the scheme, including
Eurofinance, to recover money for consumers
oRubin served the lawsuit on Eurofinance in England,
where Eurofinance’s registered office was located, in a
manner that complied with both US and UK law
oEurofinance never answered the complaint.
oRubin then obtained a default judgment for US$160
million

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Rubin, continued
oRubin then took the judgment to the UK.
oEurofinance responded, and claimed the US court,
even though clearly the COMI court, did not have
jurisdiction.
oThe UK Supreme Court agreed.

Rubin, continued
oSummary of holding:
oUnder United Kingdom common law, foreign judgments based on in
personam jurisdiction cannot be enforced in England unless the
traditional common law principles governing the jurisdictional
competence of the foreign court in respect of in personam orders
(through presence in the jurisdiction or submission) or in rem orders
(confined to assets in the jurisdiction) were satisfied.
oAs Eurofinance was not present in the United States, and had not
submitted to jurisdiction there, the Supreme Court declined to
recognize the authority of the United States judgment to establish
Eurofinance’s in personam liability on the claims alleged.
oEurofinance thus won

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Lessons from Rubin

oThe Model Law does not purport to change the non-
insolvency-related rules and jurisprudence regarding recognition
of foreign judgments, even if such foreign judgments relate to
insolvency
oIf universalism’s deference to all judgments from a COMI court
is to be realized, must change other laws
oThis have given rise to UNCITRAL’s work on a new Model Law
on the Recognition of Insolvency-Related Judgments (due to be
approved by UNCITRAL this summer)
◦ http://daccess-
ods.un.org/access.nsf/Get?OpenAgent&DS=a/cn.9/wg.v/wp.150&Lang=E

Manipulations of Universalism – COMI

Shifting and Bankruptcy Tourism
oUniversalism has a strong pull
oTo resolve all issues under one law can be attractive,
especially when the one law is designed to facilitate
restructuring
oThis has lead to companies in financial trouble to
attempt to shift their COMI from a state with no or
with poor restructuring laws to a state with a more
developed restructuring law

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COMI Shifting – In re Ocean Rig UDW

Inc., 570 B.R. 687 (Bankr. S.D.N.Y. 2017)
oOcean Rig was an offshore ultra deep water drilling contractor
oIt was originally registered in Cyprus, then the Marshall Islands (tax reasons).
oThe Marshall Islands have no equivalent to UK schemes of arrangement or
US chapter 11. In fact, it has no restructuring law at all; only liquidation
oKnowing that some form of court restructuring would be necessary, Ocean
Rig moved its registration before commencing its restructuring to the
Cayman Islands
oAs part of the move, Ocean Rig maintained its head offices and books and
records in the Caymans, conducted board meetings in the Caymans,
conducted restructuring negotiations with creditors in the Caymans,
appointed registered agents for payment and notices in the Caymans and
provided notification of the change to investment services providers.
oAll of this happened over a period of less than a year

Ocean Rig, continued

oOcean Rig then filed for administration and approval
of a scheme of arrangement in the Cayman Islands
oThe scheme of arrangement affected US$3.6 billion
of debt, some secured, some unsecured
oThe Grand Court of the Cayman Islands approved

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Ocean Rig, continued

oThe parties then went to the US (in New York) to open a
Model Law case (chapter 15 under US law)
oAlthough the court noted that it had the ability to decline
to recognize cases in which COMI-shifting was illegitimate,
it found Ocean Rig’s reasons valid:
◦“[Ocean Rigs’] COMI shift to the Cayman Islands was done for
legitimate reasons, motivated by the intent to maximize value
for their creditors and preserve their assets.”
oThe court recognized the Cayman case as a foreign main
proceeding, and the Cayman Islands as Ocean Rig’s COMI

COMI-shifting: Singapore
oStarting in 2010, the Singapore government sought to change its
restructuring laws to make Singapore a more attractive restructuring hub
oLaw enacted in 2017; in many cases language “borrowed” from US Chapter
11
◦ Specifically recognized that non-Singapore companies could file insolvency in
Singapore if they had substantial assets or carried on business in Singapore
oAlso adopted the UNCITRAL Model Law
oIn 2016, Singapore courts proposed and have obtained growing acceptance
of Guidelines For Communication And Cooperation Between Courts In Cross-
Border Insolvency Matters
◦ Now adopted in BVI, the Chancery Division of the High Court of England & Wales,
and in New York, Delaware and Florida

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