Year in review: Significant US Chapter 15 decisions in 2024

Under Chapter 15 of the United States Bankruptcy Code, a foreign debtor, trustee, administrator, liquidator, or the like (i.e., a “foreign representative”) may obtain recognition of a foreign bankruptcy, insolvency, liquidation, or restructuring proceeding (i.e., a “foreign proceeding”). In general, Chapter 15 is a flexible tool that allows a foreign representative to obtain orders from a U.S. court to “aid” the foreign proceeding. Such orders may include a stay of actions against the debtor or its assets in the US, discovery, and orders enforcing a foreign court’s order in the US, including an order approving the debtor’s restructuring plan.

In 2024, there were 65 new Chapter 15 cases filed (after factoring in cases that were jointly consolidated for procedural purposes). These Chapter 15 cases were filed in connection with foreign proceedings pending in Bermuda (1), Brazil (5), British Virgin Islands (9), Canada (25), Cayman Islands (8), Chile (1), England (1), France (1), Germany (2), Hong Kong (3), Ireland (1), Israel (1), Japan (1), Singapore (2), Sweden (1), and United Kingdom (3). The majority of the Chapter 15 cases were filed in the Southern District of New York (15), District of Delaware (15), and the Southern District of Florida (9).The remaining 26 cases were filed across fourteen other districts. 

This article highlights a handful of the more significant decisions issued in 2024. First, we discuss the Eleventh Circuit’s decision holding that the debtor eligibility requirements applicable to plenary US bankruptcy cases do not apply in Chapter 15 cases in that circuit, which includes Florida, a key venue for Chapter 15 cases. We turn next to a New York bankruptcy court’s decision recognizing a Hong Kong proceeding for a Cayman Islands debtor with operations and assets in the People’s Republic of China, finding the debtor had its “center of main interests” in Hong Kong. We look at another New York court’s decision denying recognition of a Cayman Islands liquidation of a US bank’s foreign branch. Next, we analyze a Delaware bankruptcy court’s consideration of a Canadian foreign representative’s request to for approval under Chapter 15 of certain transactions approved in a Canadian proceeding. We also cover two decisions that elaborate on the scope of the public policy exception to Chapter 15 relief. And, finally, we discuss the Third Circuit’s decision confirming that a US court may extend comity to a foreign insolvency without Chapter 15 recognition. 

Section 109(a) of the Bankruptcy Code does not apply in Chapter 15 cases

In 2013, the United States Court of Appeals for the Second Circuit, which includes New York, held that an entity must be eligible to be a debtor under section 109(a) of the U.S. Bankruptcy Code before its foreign proceeding can be granted recognition under chapter 15. See Drawbridge Special Opportunities Fund LP v. Barnet (In re Barnet), 737 F.3d 238, 247 (2d Cir. 2013).¹ The Second Circuit’s view, however, has not been followed by the majority of lower courts in others Circuits – but there had not yet been any further appellate court decisions on the matter. That changed in 2024, when the United States Court of Appeals for the Eleventh Circuit declined to follow the Second Circuit and held that section 109(a) does not apply in Chapter 15 cases based on existing Eleventh Circuit precedent. In real Zawawi, 97 F.4th 1244 (11th Cir. 2024).

Tala Qais Abdulmunem Al Zawawi (“Al Zawawi”), a citizen of Oman, indirectly owns several Florida entities that, in turn, own real estate in Florida valued at approximately US$94 million. In 2017, Al Zawawi and his then wife moved to the UK. Following their divorce, Al Zawawi’s former wife obtained a judgment in her favor for approximately US$31 million, which Al Zawawi failed to pay. Thereafter, a UK court adjudged Al Zawawi bankrupt and appointed joint trustees, who were entrusted with recovering Al Zawawi’s assets for the benefit of creditors. Given the Florida real estate, the trustees filed a petition for recognition of the UK bankruptcy proceeding as a foreign main proceeding with the United States Bankruptcy Court for the Middle District of Florida.

Al Zawawi argued that the Chapter 15 petition should be dismissed because he was not eligible to be a debtor in the US under section 109(a) of the Bankruptcy Code. The trustees, however, argued that section 109(a) does not apply to Chapter 15 cases, and that, Al Zawawi’s UK proceeding could be recognized under Chapter 15. The bankruptcy court agreed with the trustees and concluded that section 109(a) does not apply to Chapter 15. Thus, the bankruptcy court recognized the UK proceeding as a foreign main proceeding. On appeal, the United States District Court affirmed the bankruptcy court’s decision. 

On further appeal, the Eleventh Circuit noted that section 103 of the Bankruptcy Code provides that chapters 1, 3, and 5 of the Bankruptcy Code apply to Chapter 15. Consequently, section 109, which is found in chapter 1, applies to Chapter 15. Despite this “straightforward” statutory analysis, the Eleventh Circuit, nonetheless held that it was bound to its prior decision In re Goerg, 844 F.2d 1562 (11th Cir. 1988) where it held that section 109(a) did not apply to ancillary proceedings under former section 304 (the predecessor to Chapter 15). After comparing and contrasting Chapter 15 and former section 304, the Circuit found that despite the differences between the two, they “are sufficient similar in terms of their purposes such that our decision in Goerg controls our analysis of this case.” Thus, the Eleventh Circuit adopted the holding of Goerg and found that debtor eligibility under section 109(a) is not a prerequisite for the recognition of a foreign proceeding under Chapter 15.

Interestingly, two of the three judges issued separate concurring opinion. Circuit Judge Barbara Lagoa and Circuit Judge Gerald Bard Tjoflat agreed that Georg compels the result reached. However, they disagreed as to whether, absent Georg, section 109(a) would apply in Chapter 15 cases. According to Judge Lagoa, “if we were writing on a clean slate, I would reverse the bankruptcy court’s determination that 11 U.S.C. §109(a) does not apply to Chapter 15 cases in accordance with the plain text of 11 U.S.C. §103(a).”Because “§ 103(a) plainly provides that § 109(a) applies to cases under Chapter 15,” absent Georg, Judge Lagoa would have reversed the lower courts. In contrast, Judge Tjoflat found that “the current statutory provisions related to ancillary proceedings should cause us to double down on the reasoning we applied in In re Goerg.” Judge Tjoflat reasoned that the definition of a “foreign proceeding” under Chapter 15 is substantially the same as the one the Court soundly interpreted in In re Goerg, and whether a court can recognize a foreign proceeding depends on whether the proceeding meets that definition. Thus, according to Judge Tjoflat, there was no reason to deviate from the In re Georg reasoning, which applies equally under Chapter 15 as it did under its predecessor.

US Bankruptcy Court concludes that debtors’ center of main interest is Hong Kong

Under Chapter 15, a foreign proceeding may be recognized only if it is a “foreign main proceeding” or a “foreign nonmain proceeding.” A foreign main proceeding is defined as a foreign proceeding pending where the debtor has its center of main interest (“COMI”). A foreign nonmain proceeding is a foreign proceeding pending where the debtor has an establishment, which is defined as “any place of operations where the debtor carries out a non-transitory economic activity.” In the Second Circuit, which includes New York, a court will determine the location of a debtor’s COMI as of the date of the filing of the Chapter 15 petition. In 2024, the United States Bankruptcy Court for the Southern District of New York found that the COMI of a Cayman Islands corporation whose principal activity was to finance subsidiaries that operated and had assets in the People’s Republic of China was Hong Kong, which was the situs of the debtor’s restructuring proceeding. In re Sunac China Holdings Ltd., 656 B.R. 715 (Bankr. S.D.N.Y. 2024).

Debtor Sunac China Holding Limited is a Cayman Islands corporation and the ultimate parent of a corporate group of that operates one of the largest real estate businesses in the PRC. It was registered to do business in Hong Kong and was listed on the Hong Kong Stock Exchange. Sunac, a holding company, had no material operations. Its principal assets consist of stock in subsidiaries, most of which are organized under the laws of the PRC, and intercompany claims. With one exception, all of Sunac’s senior management lived and worked in the PRC. Sunac’s principal liabilities consisted of approximately US$9 billion of US dollar-denominated debt governed by the laws of New York, the UK, or Hong Kong. None of the debt being restructured was governed by the laws of the PRC.

Following negotiations with creditors, Sunac filed a judicial proceeding in Hong Kong to restructure its debt pursuant to a scheme of arrangement. A scheme of arrangement is akin to a Chapter 11 plan in that it allows a company to restructure its debts without unanimous support from creditors. Under Hong Kong law, a court may approve a scheme if a majority of creditors in number, representing at least 75% in value vote in favor of the scheme. In this instance, creditors overwhelmingly voted in favor of Sunac’s scheme, with 99.75% in number representing 98.3% in value of creditors voting in favor of the scheme. The Hong Kong court subsequently sanctioned the scheme finding that it complied with all of the statutory requirements.

Sunac filed a Chapter 15 case with the New York bankruptcy court seeking recognition and enforcement of the scheme as a foreign main proceeding. No party objected to the request. The bankruptcy court, however, noted that it should not “rubber-stamp” a debtor’s Chapter 15 request and that it “should make its own COMI determination even if there are no objections.”

The court began its COMI analysis by noting the US Bankruptcy Code does not define COMI. Instead, the US Bankruptcy Code provides that the location of a corporate debtor’s registered office (i.e., place of incorporation) is presumed be a debtor’s COMI. According to the court, the presumption may be rebutted by relevant facts. In particular, relevant facts include the “SPhinX Factors,” named after one of the earliest Chapter 15 cases. The SPhinX Factors generally refer to the location of a debtor’s headquarters, the location of those who actually manage the debtor, the location of the debtor’s primary assets, the location of the majority of the debtor’s creditors, and/or the jurisdiction whose law would be applicable to most disputes concerning a debtor.

Here, Sunac’s COMI was presumed to be the Cayman Island because that is where it was incorporated. According to the bankruptcy court, the presumption was bolstered by the Sunac’s public filings, in which it stated that a future insolvency proceeding would likely be governed by Cayman Island’s law. However, Sunac had no other material connection to the Cayman Islands, such as an office, assets, or creditors there. Moreover, Sunac had not filed a proceeding in the Cayman Islands. Taken together, these facts, according to the court, were sufficient to rebut the Cayman Islands COMI presumption. Thus, the court determined that Sunac’s COMI was either Hong Kong or the PRC.

The court considered the SPhinX Factors and found that they were inconclusive. In particular, Sunac’s headquarters and managers were located either in the PRC or Hong Kong, depending on whether the court relied on the physical location of Sunac’s offices and managers (PRC), or on the place where decisions were made on behalf of Sunac (Hong Kong).The court found that Sunac’s primary assets, which consisted of intercompany claims due from its PRC subsidiaries, were located in the PRC. In contrast, Hong Kong law would govern most of the disputes involving Sunac. The court acknowledged that Hong Kong governed debt was relatively small compared to the other debt being restructured. However, Hong Kong law incorporates the “Gibbs Rule,” pursuant to which debt governed by Hong Kong law may only be restructured in a Hong Kong proceeding. Thus, according to the court, any restructuring of Sunac’s Hong Kong governed debt elsewhere would require a parallel proceeding in Hong Kong to avoid the risk of disgruntled creditors suing in Hong Kong to enforce their claims. The remaining factor-the location of the majority of Sunac’s creditors-would have little impact on the COMI analysis because they were located in many jurisdictions outside the PRC and Hong Kong.

In the end, the court concluded that the COMI analysis should focus on a debtor’s business activities and decision-making. This would ensure, consistent with existing precedent, that COMI would be found “where the debtor conducts its regular business, so the place is ascertainable by third parties.” The court noted that at the time of the Chapter 15 filing, third parties, including creditors, could determine that Sunac’s business activities were conducted and decisions were made in Hong Kong. Indeed, for the 18-month period prior to the Chapter 15 filing, Sunac’s primary business activity was restructuring its debt. Those efforts were led by Sunac’s CFO and ultimately approved by Sunac’s board of directors in Hong Kong. The court also emphasized that the center of the debtor’s business activities has always been in Hong Kong. Specifically, the primary business purpose of the debtor is to raise capital in the international capital markets. The debtor conducted businesses primarily in Hong Kong, was listed on the Hong Kong stock exchange, most board of directors’ meetings were hosted in Hong Kong and most financial institutions with which the debtor partnered to issue its debt were based in Hong Kong. The court thus concluded that Sunac’s COMI was in Hong Kong prior to and at the time of the Chapter 15 filing.

In addition, creditor expectations reflected that Sunac’s COMI was Hong Kong. In this regard, the court noted that the COMI choice was really only between Hong Kong and the PRC. Because Sunac’s filings described the law of the PRC as undeveloped and uncertain, creditors had no expectation that the Debtor would file in the PRC, the court concluded that creditor expectation favored finding COMI in Hong Kong where some of the Debtor’s subsidiaries were located and whose laws governed some of the debt being restructured. Moreover, the overwhelming creditor support for the scheme and lack of objection to the Chapter 15 filing further bolstered a COMI finding in Hong Kong. The court emphasized that creditor support alone would not defeat a valid COMI objection. However, the court further noted that it would generally defer to a debtor’s choice of forum where no creditors object, which would be consistent with the stated purposes of Chapter 15, including the facilitation of a successful reorganization. Here, creditors’ overwhelming approval of the scheme, coupled with the absence of objections to COMI, provided further support for finding Hong Kong to be Sunac’s COMI. Thus, the court recognized the Hong Kong proceeding of the Cayman Islands debtor that principally existed to finance the business of PRC subsidiaries as a foreign main proceeding.

US Bankruptcy Court confirms that a foreign bank is not eligible for Chapter 15 recognition

Section 1501 of the Bankruptcy Code provides that Chapter 15 does not apply to a proceeding concerning an entity that is not eligible to be a debtor in a plenary proceeding under section 109(b), with the exception of a foreign insurance company. Thus, a railroad, a domestic insurance company, and a domestic or foreign bank (with limited exceptions) are not eligible for relief under Chapter 15. Last year, the United States Bankruptcy Court for the Southern District of New York confirmed that the liquidation of a foreign bank cannot be recognized under Chapter 15. In re Silicon Valley Bank (Cayman Islands Branch), 658 B.R. 75 (Bankr. S.D.N.Y. 2024), aff’d, 2025 WL 448403 (S.D.N.Y. Feb. 10, 2025).

In 2023, Silicon Valley Bank, a California-incorporated bank, failed and the Federal Deposit Insurance Corporation (the “FDIC”) was appointed as its receiver. The bank had a branch in the Cayman Island (“SVB Cayman”) that was licensed to operate in the Cayman Islands. At the time of the bank’s failure, customers of SVB Cayman had deposits totaling approximately US$866 million in accounts at SVB Cayman. After the bank’s failure, many of SVB Cayman’s account holders filed claims in the receivership. With limited exceptions, the FDIC rejected the claims of the SVB Cayman customers. Subsequently, upon a winding-up application made by several customers, the Grand Court of the Cayman Islands appointed joint official liquidators for SVB Cayman.

The SVB Cayman liquidators thereafter filed a Chapter 15 petition seeking recognition of the Cayman Islands liquidation as a foreign main proceeding. The FDIC objected to recognition, arguing, among other things, that SVB Cayman is not an entity separate from the bank. Instead, SVB Cayman is a branch of the bank, which is not eligible to be a debtor under section 109(b) of the Bankruptcy Code. The liquidators, however, contended that the bank’s failure and the FDIC receivership resulted in the “transmogrification” of SVB Cayman, which was no longer operating as a bank, into an entity eligible to be a debtor. 

The court agreed with the FDIC and concluded that SVB Cayman was not eligible for Chapter 15 relief. According to the court, the evidence, including testimony from one of the liquidators, demonstrated that SVB was not a separate legal entity from the bank. Moreover, “SVB Cayman’s operations were that of the Bank’s.” In particular, SVB Cayman did not have employees, but relied on the bank for its staffing needs. Indeed, customers never went to the Cayman Islands, where SVB Cayman only had a mail drop presence, to conduct its business with SVB Cayman. Instead, all transfers were done electronically. Accordingly, the court concluded that SVB Cayman’s “existence was inseparable from that of” the bank and thus, SVB Cayman itself was a bank.

On appeal by the liquidators, the United States District Court for the Southern District of New York affirmed the bankruptcy court’s decision. In re Silicon Vally Bank (Cayman Islands Branch), Case No. 24 Civ. 1871 (S.D.N.Y. Feb. 10, 2025). The district court was unpersuaded by the liquidators’ argument that the FDIC receivership caused SVB Cayman to cease being a foreign branch and resulted in SVB Cayman being “orphaned” and becoming “an estate and a trust that is subject to the Cayman Islands proceeding.” The court described the liquidators’ argument as “extraordinary,” “faulty,” and without legal support. According to the court, to find that the initiation of an FDIC receivership would convert a bank or its branches to an entity eligible to be a debtor under the Bankruptcy Code would contradict the purpose of having the FDIC administer failed banks and their branches. Instead, the court found that “SVB Cayman was at all relevant times a foreign branch of a United States, FDIC-insured bank and, as such, is ineligible to be a debtor under 11 U.S.C. § 109(b).”Consequently, the district court affirmed the bankruptcy court’s decision. The liquidators have appealed the district court’s decision to the United States Court of Appeals for the Second Circuit. Stay tuned.

US Court approves Canadian RVO and defers ruling on a sale order

In a US bankruptcy case, section 363 of the Bankruptcy Code requires a debtor (or a trustee) to obtain bankruptcy court approval to use or sell assets outside the ordinary course of business. Section 1520 of the Bankruptcy Code provides that, upon recognition of a foreign main proceeding under Chapter 15, section 363 applies to the transfer of a debtor’s interest in property located in the US. Thus, upon recognition as a foreign main proceeding, a foreign representative must obtain US bankruptcy court approval to sell assets located in the US.

Goli Nutrition Inc., a Canadian corporation, and its US subsidiary were distributors and retailers of certain nutritional products and supplements. Facing financial difficulties, Goli filed insolvency proceedings under the Canadian Companies Creditor Arrangement Act with a court in Montreal. In accordance with Canadian law, the Canadian court appointed a monitor to, among other things, oversee Goli’s operations and to act as a foreign representative in any subsequent Chapter 15 case.

In the Canadian proceedings, Goli obtained court approval of two restructuring transactions. First, pursuant to a “reverse vesting order,” which is often referred to as an “RVO,” the Canadian court approved a reverse vesting transaction, pursuant to which (1) Goli Canada would issue new shares of its own stock, which would be sold to a purchaser, (2) Goli Canada would redeem and cancel all preexisting shares of stock, (3) certain undesired assets and liabilities of Goli Canada would be transferred into a new “Residual Co.,” which would replace Goli Canada as the debtor in the Canadian insolvency proceeding, and (4) Goli Canada would exit from the Canadian proceeding under new ownership. Second, pursuant to a separate order, the Canadian court approved the sale of certain assets located in the US over the objections of certain parties that argued over the ownership of the assets being sold. While the Canadian court approved the asset sale, it provided that US$1 million of the sale proceeds would be segregated and preserved for the benefit of the objecting parties, whose ownership interest would be addressed at a subsequent hearing.

Thereafter, upon the request of the monitor, the United States Bankruptcy Court for the District of Delaware granted recognition to the Canadian proceedings as foreign main proceedings. In addition, the court agreed to enforce the RVO, but deferred ruling on the request to approve the sale of the US inventory pending resolution of an ownership dispute. Goli Nutrition Inc., 2024 WL 1748460 (Bankr. D. Del. Apr. 23, 2024).

The Delaware bankruptcy court summarily concluded that it would enforce the RVO, noting that all parties had notice of the request and there were no objections to the request. The court, however, emphasized “that I do not know how I would rule on a similar reverse vesting transaction if there were objections.” In enforcing the RVO, the court noted that the transaction did not involve a sale of US assets, but entailed the issuance and sale of stock in a Canadian company. Thus, according to the court, sections 363 and 1520 did not apply to the RVO transfer and it could enforce the RVO without “all the bells and whistles” of a typical US bankruptcy sale order. In contrast, the sale of US inventory did implicate sections 363 and 1520. 

In addressing the inventory sale, the court found that it had in rem jurisdiction over the assets in the US and could not simply defer to the Canadian court’s ruling. The court further found that under section 363, a sale can be approved if “(i) a sound business purpose exists, (ii) the sale price is fair, (iii) adequate notice has been provided and (iv) the purchaser has acted in good faith.” Here, the court found that those factors have been met. However, it was still faced with two interrelated ownership issues that influenced the court’s ability to approve the asset sale.

First, the court needed to determine whether the ownership issue had to be resolved before the sale could be approved. The court ultimately concluded that ownership must be decided before a sale could be approved. Simply stated, a court does not have authority to approve a sale of assets that do not belong to the debtor. However, a US court could approve a sale of a debtor’s interest in property, even if ownership is in dispute, as long as the buyer was willing to buy the debtor’s interest and not the property, in which case, the ownership dispute would survive the sale. In this instance, however, the buyer was not willing to buy just the debtors’ interests in the inventory; it wanted to buy the inventory outright.

Second, having found that the ownership issue needed to be resolved before the sale was approved, the court then considered which court should decide the issue. According to the US court, it or the Canadian court could make that determination. Given that the Canadian court had already conducted one hearing and scheduled a further one, the US court found that it would be “appropriate” to defer to the Canadian court. Interestingly, the court found that it would have reached the same conclusion in a Chapter 11 case if presented with the same facts (i.e., the Canadian court had conducted one hearing and had scheduled another to consider ownership). Thus, the US court held its ruling on the monitor’s motion to approve the sale of the US inventory in abeyance until the Canadian court decided the ownership dispute.

Recognizing pre-judgment asset freeze order is manifestly contrary to US public policy

Many foreign jurisdictions permit a court to issue an order enjoining a target of litigation from transferring its assets before the court issues a judgement against it. Conceptually, this injunction or freezing order is intended to ensure that a defendant does not transfer its assets while a trial is pending. The United States Supreme Court has held that a party generally has a claim against another’s assets only after a judgment. Thus, US federal courts do not have the authority to issue such a freezing order prior to a judgment. Grupo Mexicano de Desarrollo S.A. v. All. Bond Fund, Inc., 527 U.S. 308 (1999). The United States Bankruptcy Court for the Southern District of Florida, citing the US Supreme Court’s decision, found that a foreign court’s injunction freezing a defendant’s assets was not entitled to comity and could not be enforced in the US under Chapter 15. In re Nexgenesis Holdings Ltda, 662 B.R. 406 (Bankr. S.D. Fla. 2024). 

Following recognition of Brazilian insolvency proceedings by the Florida bankruptcy court, the foreign representative requested an order enforcing a Brazilian court’s order enjoining certain targets of litigation claims in Brazil from transferring their assets. The Brazilian order was obtained ex parte and prior to the issuance of a judgment. Moreover, it purportedly froze all of the assets, including cash, of the litigation targets, wherever located. 

As an initial matter, the Florida court noted that recognition does not mandate that all of a foreign court’s orders in the recognized foreign proceeding should automatically be extended comity. Instead, it remains the burden of the foreign representative to show that comity should be afforded to the specific orders of the Brazilian court. In this instance, the court was troubled by several aspects of the foreign representative’s request to extend comity and enforce the freezing order in the US. In particular, the court noted that this sort of pre-judgement freezing order was prohibited by the Supreme Court. Moreover, the court was troubled that the order froze the assets of non-debtors, and the record did not reflect that the litigation targets had sufficient minimum contacts with Brazil to satisfy traditional standards of due process in the US. Given these critical concerns, the court refused to enforce the freezing order finding that to do so would be manifestly contrary to US public policy.

Court may limit foreign representative’s ability to transfer assets to comply with US sanctions

The United States Bankruptcy Court for the Central District of California, like other courts, recognized a Russian foreign proceeding, finding that recognition did not implicate public policy concerns. However, the court limited the ability of the foreign representative to transfer assets as a result of US sanctions. In re Sabadash, 660 B.R. 304, 309 (Bankr. C.D. Cal. 2024).

In 2020, a Russian court entered a judgment against Aleksandr Vitalievich Sabadash declaring that he was bankrupt and owed approximately US$2 million to Tavrichesky Bank Joint-Stock Company. In addition, the Russian court appointed a “Financial Manager” to collect that amount from Mr. Sabadash for the benefit of creditors, including Tavrichesky Bank. Upon the request of the Financial Manager and over the objection of the debtor, the California bankruptcy court granted recognition to the Russian proceeding. The debtor thereafter asked the California court to reconsider its ruling, arguing that subsequently imposed sanctions by the US on the owner of Tavrichesky Bank mandated denial of recognition. According to the debtor, it would be manifestly contrary to US public policy to recognize the Russian proceeding and allow the Financial Manager to transfer assets outside the US to pay an entity subject to US sanctions. The court disagreed with the debtor and found that it was “still appropriate” to recognize the Russian proceeding. However, according to the court, it would violate US public policy to allow the Financial Manager to violate US sanctions and make any transfers that could benefit Tavrichesky Bank.“ That means prohibiting any transfer of control of AFB that would benefit the Russian Bankruptcy Proceeding, because any benefit accruing to that Russian bankruptcy estate presumably will benefit Tavrichesky Bank – i.e., money is fungible, so if control of AFB would generate more assets to pay other creditors in the Russian Bankruptcy Proceeding then that will also increase the dividend to Tavrichesky Bank, which is manifestly against the public policy of the United States.” Thus, the parties were directed to submit an order recognizing the Russian proceeding, but appropriately limiting the Financial Manager’s ability to transfer assets. 

Chapter 15 recognition is not a prerequisite to comity

On the one hand, Section 1509 of the Bankruptcy Court provides that a US court shall extend comity upon recognition of a foreign proceeding. However, Section 1509, unlike other sections of the Bankruptcy Code, applies whether or not a bankruptcy case is pending in the US. This has led to divergent results. Some courts have held that Chapter 15 recognition is a prerequisite for dismissing litigation in the US against a debtor in a foreign bankruptcy case. Others have disagreed and have dismissed litigation under principles of comity without Chapter 15 recognition. Last year, the United States Court of Appeals for the Third Circuit concluded that litigation may be dismissed against a foreign debtor under “adjudicatory comity” without Chapter 15 recognition. Vertiv, Inc. v. Wayne Burt PTE Ltd., 92 F.4^th 169 (3d Cir. 1014).

Vertiv, Inc. and certain affiliates filed a complaint asserting breach of contract claims against Wayne Burt, PTE Ltd., a Singaporean company, with the United States District Court for the District of New Jersey. Prior to the filing of the complaint, the defendant Wayne Burt was placed into liquidation in Singapore. Upon learning of the lawsuit, the Singaporean liquidator filed a motion to dismiss the complaint under principles of comity. The district court granted the motion finding that dismissal was appropriate under comity. On appeal by Vertiv, the Third Circuit affirmed the district court’s decision and clarified the appropriate test for dismissal under comity.

According to the Third Circuit, there are two types of comity. First, there is adjudicatory comity, which refers to a local court’s discretion to defer to a foreign court. It generally applies where a US court is asked “(1) to abstain from exercising jurisdiction in deference to a pending foreign proceeding; (2) to enforce a judgment rendered by a foreign tribunal; and (3) to preclude a particular claim or issue previously adjudicate by a foreign tribunal.” Second, there is prescriptive comity, which refers to a sovereign nation’s respect of other countries “by limiting the reach of their laws.” In this instance, the US courts were being asked to exercise adjudicatory comity and defer to Singaporean liquidation proceeding.

The Third Circuit noted that US courts generally favor extending comity to foreign bankruptcy cases, especially “where the foreign country’s bankruptcy laws share the ‘fundamental principles’ of the United States bankruptcy law: ‘that assets be distributed equally among creditors of similar standing.’” In particular, the Circuit mentioned that Chapter 15 of the Bankruptcy Code embodies the US policy in favor of deferring to foreign bankruptcy cases. However, the court did not address any of Chapter 15’s specific requirements or section 1509. Instead, it took the opportunity to elaborate on the appropriate test for extending comity to a foreign bankruptcy case.

As an initial mater, the Third Circuit held that a US court should only consider granting comity to a parallel pending proceeding. According to the Circuit, US litigation is parallel to a foreign bankruptcy cases where “(1) the foreign bankruptcy proceeding is ongoing in a duly authorized tribunal while the civil action is pending before the United States court; and (2) the outcome of the United States civil action may affect the debtor’s estate.” Assuming the proceedings are parallel, then the party seeking comity must make a “prima facie” case, which requires a showing that the foreign bankruptcy law is similar to US law in that it promotes the “equal distribution of assets” and provides for a stay of actions against the debtor and its assets. Once the party seeking comity makes a prima facie case, the court must then consider the following four questions. First, is the foreign proceeding pending before a duly authorized tribunal. This question is typically not controversial. Second, does the foreign court provide for the equal treatment of creditors. This question generally requires a court to consider whether creditors of differing priority are being treated fairly and equitably in the foreign bankruptcy case. Third, would extending comity be “inimical” too the US policy of equality. The Third Circuit noted that this third inquiry is intended to ensure that the foreign bankruptcy case reflects “indicia of procedural fairness,” including providing creditors and other parties with notice and the ability to participate in the bankruptcy case. The foreign bankruptcy case, however, does not have to contain the identical protections that a US case. Finally, a court must consider whether the party opposing comity would be prejudiced by dismissal. 

According to the Third Circuit, the US litigation against Wayne Burt was parallel to its Singaporean liquidation. Moreover, the Third Circuit agreed with the lower court’s finding that the liquidator had demonstrated a prima facie case for comity in that Singaporean law was akin to US law as it reflected a policy of equality of distribution of assets and provided for a stay of litigation against a debtor. However, according to the Third Circuit, the district court had not considered the other elements of the comity test. Thus, the Third Circuit vacated the lower court’s judgment and remanded to the district court for further proceedings.

Following the remand, the liquidator decided to short circuit the matter and petitioned the Bankruptcy Court for the District of New Jersey for recognition of the Singaporean liquidation as a foreign main proceeding under Chapter 15. The bankruptcy court granted recognition resulting in a stay of the district court litigation. In re Wayne Burt Pte Ltd., Case No. 24-19956, 2024 WL 5003229 (Bankr. D. N.J. Dec. 6, 2024). In addition, the bankruptcy court issued a decision recognizing and enforcing an order from the Singaporean court requiring the plaintiffs in the litigation to return certain assets to the liquidator. Vertiv has appealed the bankruptcy court’s decision to the district court, which appeal is currently pending. Time will tell if the dispute between these parties will be centralized in Singapore or proceed in the US as well.

Conclusion

As is evident from the above, 2024 was an active year for Chapter 15 cases. This trend is likely to continue in 2025. As of the date of this article, there have already been several developments that will likely result in new decisions this year. First, as noted above, the New York district court affirmed the bankruptcy court’s dismissal of the SVB Cayman Chapter 15 case. That decision has been appealed to the Second Circuit. Depending on the court’s schedule, that appeal may be decided this year. Second, in a matter of first impression, the United States Bankruptcy Court for the District of Delaware enforced a Mexican concurso plan that contains a non-consensual third party release over an objection, finding that the Supreme Court’s prohibition of non-consensual third party releases in Chapter 11 cases is not applicable to Chapter 15 cases. In re Credito Real S.A.B. de C.V., 2025 WL 977967 (Bankr. D. Del. Apr. 1, 2025). That decision has also been appealed and may be decided this year. Another bankruptcy court similarly ruled in a different case. In re Odebrecht Engenharia e Consruçãou S.A., 2025 WL 1156607 (Bankr. S.D.N.Y. Apr. 25, 2025). These and other rulings in the first quarter of 2025 suggest that this will be a banner year for Chapter 15 decisions.

1 Section 109(a) states that “only a person that resides or has a domicile, a place of business, or property in the United States. . . may be a debtor” in a US bankruptcy case. 11 U.S.C. § 109(a).