Chapter 15 of the Bankruptcy Code provides a mechanism pursuant to which a foreign insolvency, liquidation, or debt restructuring (known as a “foreign proceeding”) may be granted recognition in the United States. In 2019, foreign debtors and their trustees, liquidators and administrators, acting as “foreign representatives,” filed more than 70 Chapter 15 cases to, among other things, enjoin litigation against the debtor, preserve a debtor’s assets, and pursue claims in the US. The Southern District of New York was the preferred Chapter 15 venue with 34 filings, followed by the Southern District of Florida with 14 filings. The Chapter 15 cases filed in 2019 were ancillary to foreign proceedings pending in the following 20 foreign jurisdictions: Al Maghreb al Agsa, Belize, Brazil, British Virgin Islands, Canada, Cayman Islands, China, France, Germany, Guernsey, Hong Kong, India, Indonesia, Ireland, Mexico, Russia, South Korea, the Netherlands, New Zealand, and the United Kingdom.

During 2019, US courts issued several interesting decisions in the Chapter 15 context that are the focus of this “year in review” article. This article begins with a discussion of a trio of decisions analyzing the “center of main interest” or “COMI” element. The article then examines a decision addressing the scope of discovery in the Chapter 15 context and the ability of a court to enforce its own orders. The article continues with discussions focused on decisions concerning the importance of demonstrating a pecuniary interest in a Chapter 15 case and issues concerning a foreign representative’s personal exposure to litigation. It concludes with an analysis of a decision highlighting Chapter 15’s requirement that courts consider creditors’ and a debtor’s respective interests in granting certain discretionary relief.

Recognition of a foreign proceeding under Chapter 15

There are two types of foreign proceedings under Chapter 15: (i) a “foreign main proceeding,” which is defined as a foreign proceeding pending in the country where the debtor has its COMI, and (ii) a “foreign nonmain proceeding,” which is defined as a foreign proceeding pending in a country where the debtor has an “establishment,” which means “any place of operations where the debtor carries out a nontransitory economic activity.”  Arguably, the distinction is significant because upon recognition of a foreign main proceeding, the debtor and the foreign representative automatically receive certain protections, including the benefits of the automatic stay. Courts, however, have noted that the distinction may not be material because a court has discretion to grant similar relief upon recognition of a foreign nonmain proceeding. Nevertheless, a court must determine the location of a debtor’s COMI and/or establishment when ruling on a Chapter 15 petition.

Guidance for determining a group member’s COMI 

Under the Bankruptcy Code, a corporate debtor’s registered office (i.e., its place of incorporation) is presumed to be its COMI, but this presumption is rebuttable. Determining where a debtor’s COMI lies or the location of a debtor’s establishment is fact intensive and courts will consider, among other things, the debtor’s nerve center, location of operations and assets, and creditor expectations. When a debtor is a member of a group of companies, it may be more difficult to determine a debtor’s COMI because its operations and affairs may be commingled with others. In In re Serviços de Petróleo de Constellation S.A., 600 B.R. 237 (Bankr. S.D.N.Y. 2019), the bankruptcy court addressed some of those difficulties when it considered a request for recognition of Brazilian reorganization proceedings of a group of companies under Chapter 15.

Constellation Oil Services Holding S.A., a Luxembourg company, is the ultimate parent of a group of companies known as the “Constellation Group,” which operates principally in and from Brazil. Facing financial distress, members of the Constellation Group commenced reorganization proceedings (“recuperação judicial”) in Brazil. Certain Constellation debtors filed Chapter 15 petitions for recognition of the Brazilian proceedings as foreign main proceedings or foreign nonmain proceedings with the New York bankruptcy court. A creditor objected to recognition as foreign main proceedings, arguing that the COMI of all of the debtors was located in Luxembourg, where the parent company’s registered office was located. The bankruptcy court disagreed, holding that the location of a debtor’s COMI was not dependent on the COMI of its parent. Instead, COMI should be determined on a debtor-by-debtor basis for each member of the Constellation Group.

In this instance, finding that the statutory presumption had not been rebutted, the bankruptcy court found that the parent company’s COMI was Luxembourg. Accordingly, the parent’s Brazilian proceeding could not be recognized as a foreign main proceeding. The court, however, found that the parent had an establishment in Brazil premised on the activities of the parent’s subsidiaries. According to the court, given that the parent was a holding company with minimal operations, the activities of its subsidiaries should be considered. Because most of the parent’s subsidiaries’ operations were located in Brazil, the court found the parent had an establishment in Brazil and, therefore, recognized the parent’s Brazilian proceeding as a foreign nonmain proceeding.   

Turning to the other debtors, the court noted that several were registered in the British Virgin Islands or the Cayman Islands, and therefore their COMI was presumed to be outside of Brazil. However, the court found that the evidence was sufficient to rebut that presumption. In particular, five of the six offshore debtors were operating subsidiaries that maintained and operated offshore drilling rigs located in Brazil. Moreover, based on the evidence presented, creditors reasonably expected that any restructuring of the offshore debtors would occur in Brazil, and the nerve-center (i.e., where day-to-day operations were managed) of each was in Brazil. Consequently, the court found that Brazil was the COMI of those debtors. The sixth offshore debtor, which was registered in the British Virgin Islands, was the parent company of most of the operating companies. Because the offshore parent’s functions were limited to “own[ing] equity in subsidiaries, guarant[ying] debt and centraliz[ing] certain treasury function to support subsidiaries operating and generating in Brazil,” and creditors supported a Brazilian restructuring, the court found that Brazil was the offshore parent’s COMI. Accordingly, the bankruptcy court recognized the offshore debtors’ Brazilian proceedings as foreign main proceedings notwithstanding that they were registered elsewhere.

A range of activities can support a COMI finding

US courts have adopted a flexible approach to determine a foreign debtor’s COMI, finding that a broad range of activities can support fixing COMI in a particular jurisdiction. In In re Ascot Fund Ltd., 603 B.R. 271 (Bankr. S.D.N.Y. 2019), the US Bankruptcy Court for the Southern District of New York analyzed the COMI of Ascot Fund Ltd, an investment fund organized under Cayman Islands law, which, through its affiliate Ascot Partners (incorporated under Delaware law), invested substantially all of its assets with Bernard L. Madoff Investment Securities, LLC. After years of litigation, the funds entered into a settlement with the BLMIS estate, pursuant to which Ascot Partners would receive certain payments. Thereafter, an investor in the fund disagreed with the proposed distribution methodology for those recoveries. In the face of that dispute, Ascot Fund went into liquidation in the Cayman Island and its liquidators filed a petition for recognition of the Cayman proceeding as a foreign main proceeding under Chapter 15. The investor objected, arguing that Ascot Fund’s COMI was New York, not the Cayman Islands.

Under Chapter 15, Ascot Fund’s COMI was presumed to be in the Cayman Islands, where its registered office was located. Still, the bankruptcy court noted that the guiding principle for determining a debtor’s COMI is “where the debtor conducts its regular business, so that the place is ascertainable by third parties.”  Further, COMI is determined as of the time that the Chapter 15 petition is filed, but courts can examine the period between the “initiation of the foreign liquidation proceeding and the filing of the Chapter 15 petition” to ensure that COMI has not been manipulated. The bankruptcy court found that Ascot Fund had been actively managed from the Cayman Islands both before and after the liquidation proceeding (which had been pending for nearly four months), and contrary to the investor’s argument, such activity was not merely ministerial. For example, Ascot Fund’s board of directors conferred regularly in the Cayman Islands, directors resided or were based in the Cayman Islands, and before and after the Cayman Islands liquidation, the fund had employed an administrative-services company, which had offices throughout the world, including the Cayman Islands. Moreover, the court was not persuaded that, as the investor argued, New York was Ascot Fund’s COMI. According to the court, Ascot Fund’s only significant activity in New York post-liquidation was being “dragged into” and participating in certain litigation. Moreover, Ascot Fund “had not carried on any investment activity in New York or anywhere else for over ten years.”  Given the lack of evidentiary support to rebut the presumption, the court found that Ascot Fund’s COMI was the Cayman Islands and recognized the proceeding as a foreign main proceeding.

A foreign proceeding cannot be recognized if the debtor does not have its COMI or an establishment in the situs of the foreign proceeding

As emphasized by the US Bankruptcy Court for the Western District of Pennsylvania, a court will not recognize a foreign proceeding if there is insufficient evidence to support a finding that the debtor has its COMI or an establishment in the situs of the foreign proceeding. See Beveridge v. Vidunas (In re O’Reilly), 598 B.R. 784 (Bankr. W.D. Pa. Mar. 22, 2019). There, the Bahamian trustee of a debtor filed a petition seeking recognition of a Bahamian proceeding under Chapter 15. A creditor objected to recognition arguing that (i) the Bahamian proceeding was not a foreign proceeding as defined by the Bankruptcy Code, and (ii) the debtor, who lived in France, did not have its COMI or an establishment in the Bahamas. The bankruptcy court dispensed with the first argument, finding that the Bahamian proceeding satisfied all of the elements of a foreign proceeding. In particular, the Bahamian proceeding was “collective” because all creditors had a right to participate therein. Moreover, there is no per se rule precluding recognition of a proceeding governed by a law that does not mirror US law. The court, however, was persuaded by the creditor’s second objection.

Following the rational of decisions from the Second and Fifth Circuits, the Pennsylvania bankruptcy court held that the location of a debtor’s COMI or an establishment should be determined as of the Chapter 15 filing date, not the date that the foreign proceeding commenced. In this instance, the debtor, a senior citizen in poor health, lived in France and had no physical presence in the Bahamas when the Chapter 15 petition was filed. Accordingly, the court concluded that the debtor’s COMI was in France. Given the lack of any existing ties in or evidence of the debtor’s intent to return to the Bahamas, the court found that the debtor did not have an establishment in the Bahamas. Accordingly, the court denied the petition for recognition.

Discovery issues in a Chapter 15 case

Chapter 15 offers an array of tools to assist foreign representatives in identifying and collecting assets for administration in foreign insolvency proceedings, including the authority to conduct broad discovery of a foreign debtor’s property and affairs. The US Bankruptcy Court for the Southern District of New York’s decision in In re Markus, 607 B.R. 379 (Bankr. S.D.N.Y. 2019) highlights the reach and utility of Chapter 15’s discovery provisions. Following the recognition of a Russian bankruptcy proceeding, the foreign representative sought and obtained orders authorizing him to obtain discovery from the debtor and her counsel under Chapter 15. The debtor, who was incarcerated in Russia, and her US counsel, ignored the discovery requests. Upon the foreign representative’s request, the bankruptcy court imposed sanctions on the debtor’s counsel. According to the court, the debtor’s incarceration did not justify counsel’s refusal to comply with the discovery orders and requests. Moreover, counsel was not excused from discovery simply because the documents were in the possession of the debtor’s agents and attorneys outside the US. The bankruptcy court had “exceedingly broad” discretion to grant relief, including enabling a foreign representative to take broad discovery concerning a debtor’s property and affairs, as long as the requirements of Chapter 15 are satisfied. Moreover, there is no jurisdictional limitation on discovery available under Chapter 15. Accordingly, a foreign representative could be allowed to obtain “broad discovery” concerning the debtor’s “worldwide financial affairs,” notwithstanding that such information may be located outside the US.

On appeal, the debtor’s attorney challenged the bankruptcy court’s decision to allow discovery, as well as the award of sanctions and fees. The US District Court for the Southern District of New York did not reach the question of whether the bankruptcy court erred in authorizing discovery because the debtor and her attorney failed to timely appeal the applicable order. Markus v. Rozhkov, No. 19-CV-09611 (LJL), 2020 WL 1659862, at *12-*13 (S.D.N.Y. Apr. 3, 2020). The district court, however, did partially vacate the order imposing sanctions for “imposing [a] lump-sum retroactive sanction[ ] [that] was improperly criminal in nature” and remanded that portion of the order imposing the payment of attorneys’ fees to permit the bankruptcy court assess whether it was issued pursuant to proper authority.

Limitations on relief available to parties in Chapter 15 cases

In the Second Circuit, which includes New York, an “aggrieved person” has standing to pursue an appeal. An aggrieved person is “a person directly and adversely affected pecuniarily by the challenged order of the bankruptcy court.”  As noted by the Second Circuit in Wiener v. Ocean Rig UDW Inc. (In re Ocean Rig UDW Inc.), 764 F. App’x 46 (2d Cir. 2019), the appellant has the burden of demonstrating that it is an aggrieved person. There, the appellant, a purported shareholder of a debtor, appealed the order of the US Bankruptcy Court for the Southern District of New York granting recognition to Cayman Islands proceedings. On appeal, the district court found that the debtor was insolvent and unable to pay its creditors in full, and  there would thus be no recovery to shareholders under Cayman Islands law. According to the district court, recognition did not adversely affect the shareholder pecuniarily and therefore it dismissed the appeal. On further appeal, the Second Circuit came to the same conclusion and reaffirmed the principle that an appellant must demonstrate that it is an aggrieved person before it can proceed with its appeal.

On similar grounds, the US Bankruptcy Court for Southern District of Florida denied a request for discovery from a foreign representative in a Chapter 15 case. As an initial matter, the foreign representative argued that nothing in Bankruptcy Rule 2004 or Chapter 15 authorized parties other than the foreign representative to seek discovery in a Chapter 15 case. The bankruptcy court refused to address that issue. Instead, it denied the request after finding that the discovery proponent was neither a creditor nor a shareholder of the foreign debtor and never appeared in the foreign proceeding. Given the lack of a pecuniary interest in the case, the court found that the discovery proponent could not show that “cause” existed for permitting it to proceed with discovery in the Chapter 15 case.

Protecting foreign representatives from suit in Chapter 15 cases

The Barton doctrine is a common law rule that bars suits against court-appointed fiduciaries in any venue without first obtaining leave of the appointing court. Traditionally, the Barton doctrine has been applied to state-court receivers, but courts have extended its protections to lawsuits against bankruptcy trustees. The bankruptcy and district courts in a case emanating from the liquidation of Irish financial institutions analyzed the applicability of the Barton doctrine in a Chapter 15 case. McKillen v. Wallace (In re Irish Bank Resolution Corp. Ltd.), No. BR 13-12159-CSS, 2019 WL 4740249 (D. Del. Sept. 27, 2019).

The Irish Bank Resolution Corporation held the remaining assets of two Irish banks that were nationalized following the 2008 financial crisis. As the Irish economy continued to decline after the global financial crisis, the Irish government determined that it was necessary to wind down the IBRC. Thereafter, the Delaware bankruptcy court entered an order granting recognition to the Irish proceeding as a foreign main proceeding. Consequently, all persons and entities were enjoined from taking any action against the IBRC or its assets in the US. Following recognition, the foreign representatives sued a former client of one of the banks in Ireland. In response, the former client filed a motion seeking a declaration that his suit against the foreign representatives in their individual capacities was not subject to the Chapter 15 stay or the Barton doctrine or, alternatively, requesting relief from the Chapter 15 stay. The client wanted to assert, among other things, claims for alleged violation of Chapter 15, breach of fiduciary duties, and fraud and misconduct in the Irish proceedings. All of the allegations concerned actions taken by the foreign representatives in Ireland, which the former client argued adversely affected their US business interests. The bankruptcy court denied the motion. The bankruptcy court first addressed the Barton doctrine and found that it was not the “appointing court” as its role in Chapter 15 was only to “recognize[ ], not appoint[ ]” foreign representatives. The bankruptcy court noted that, absent at least some precedent, invoking the doctrine as the sole reason to deny relief in this case “would be a very expansive application of Barton.”  Instead, the bankruptcy court extended the automatic stay to the foreign representatives, finding a “significant identity of interests” between the IBRC and the foreign representatives, and then denied stay relief based on a balancing of potential harms and further found that the court lacked subject matter jurisdiction over acts that happened in Ireland. The former client appealed, but the Delaware district court affirmed.

The district court declined to decide the applicability of the Barton doctrine in a Chapter 15 case, including whether the doctrine applies extraterritorially. The district court further observed that US bankruptcy courts cannot appoint replacement foreign representatives, such that removing the foreign representatives would “essentially leave IBRC unable to administer assets in the United States and unable to take any action in the ongoing Chapter 15 proceeding.”  The district court noted that, “[w]ithout foreign representatives, IBRC would lose the ability to effectuate its own foreign proceeding and protect its assets within the United States, to the immediate detriment of IBRC”; thus there was “such an identity between the debtor and these third-party defendants that a judgment against [the foreign representatives] individually ‘will in effect be a judgment or finding against the [d]ebtor.’”   

Protecting parties’ interests in Chapter 15 cases

Chapter 15 provides courts and foreign representatives with substantial flexibility in crafting relief to meet the needs of a particular case. However, there are some important limitations. In particular, Bankruptcy Code section 1522 provides that “[t]he court may grant relief under section 1519 or 1521 . . . only if the interests of the creditors and other interested entities, including the debtor, are sufficiently protected.”  The court addressed this requirement in In re ENNIA Caribe Holding N.V., 596 B.R. 316 (Bankr. S.D.N.Y. 2019).

After the US court granted recognition to the Curaçao proceeding as a foreign main proceeding, the foreign representative requested an order entrusting the foreign representative with the administration, realization, and distribution of approximately US$240 million held in accounts in the names of the debtors at Merrill Lynch in the New York. The non-debtor parent of the debtors objected to the motion, arguing that it was not “sufficiently protected.”  The bankruptcy court acknowledged that it could not grant the requested relief unless all interested parties were sufficiently protected. It adopted a balancing test to analyze that requirement.

In this instance, the court was satisfied that interested parties were sufficiently protected because the debtors and all creditors and other parties would benefit from the debtors’ improved liquidity. The court was convinced that the funds being entrusted would be used to rehabilitate and finance the debtors’ business, which would clearly benefit the debtors and its creditors. Moreover, absent the relief, the potential harm to the debtors and “most importantly, to the [d]ebtors’ creditors” was far greater than any potential harm to the parent. The court therefore concluded that the relief was necessary to effectuate the purposes of Chapter 15 and to protect the debtors’ assets given their growing liquidity concerns.


Chapter 15 is a useful tool for a foreign representative to administer a foreign proceeding. As highlighted above, US courts are generally inclined to cooperate with a foreign representative and a foreign court if the requirements of Chapter 15 are satisfied. A US court, however, will not simply rubber stamp a foreign representative’s request for relief in a Chapter 15 case.


Senior Counsel
Senior Counsel

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