What Is Chapter 15 Bankruptcy?

Definition and Example of Chapter 15 Bankruptcy

Chapter 15 bankruptcy allows foreign nationals to file for bankruptcy in the U.S. bankruptcy courts if they have assets, property, or business in multiple countries, including the United States. It was added to the Bankruptcy Code in 2005 by the Bankruptcy Abuse Prevention and Consumer Protection Act. Chapter 15 is the newest adoption of the Model Law on Cross-Border Insolvency, which was created by the United Nations Commission on International Trade Law ("UNCITRAL") in 1997.

Chapter 15 bankruptcy is found in the United States Code, 11 U.S.C. § 15. It has five primary objectives:

• Cooperation between the courts and parties of interest in the United States with the courts, parties of interest, and other authorities of foreign countries involved in international insolvency cases.
• Increased legal certainty for trade and investment.
• Efficient and fair administration of cross-border insolvencies while protecting the interests of all creditors and interested parties, including the debtor.
• Protect and maximize the value of the debtor's assets.
• Facilitate the rescue of financially troubled businesses to protect investment and preserve employment.

A Chapter 15 proceeding is generally the secondary bankruptcy proceeding for the foreign individual or entity. The main proceeding typically takes place in the foreigner's home country.

How Chapter 15 Bankruptcy Works

A foreign company may choose to file a Chapter 15 proceeding if an insolvency case is pending in another country. When this happens, the petition must prove that the foreign proceeding exists.

After the filing, the bankruptcy court will designate the foreign proceeding as either "foreign main proceeding" or "foreign non-main proceeding," with the difference being that in a non-main proceeding, the debtor does not have its main interests in that country. Upon the recognition of a foreign main proceeding, the automatic stay goes into effect in the United States to protect the assets of the foreign debtor that are within the United States.

Once a foreign entity files for bankruptcy under Chapter 15, the U.S. bankruptcy court can authorize the appointment of a trustee or examiner to act in the other country on behalf of the bankruptcy estate in the United States. Chapter 15 also:

• Allows U.S. courts to offer additional aid to foreign representatives when the laws of the foreign country do not violate U.S. laws.
• Allows U.S. courts to offer additional assistance to foreign nationals filing bankruptcy cases when the laws of the foreign court may be lacking.
• Gives foreign creditors the right to participate in bankruptcy cases in the U.S.
• Prevents discrimination against foreign creditors in bankruptcy cases.
• Requires notice to foreign creditors in bankruptcy cases filed in the U.S.
• Gives foreign creditors the right to file claims in U.S. bankruptcy cases.

The U.S. bankruptcy court is instructed to "cooperate to the maximum extent possible" with foreign courts and entities, so the U.S. court will defer to many actions of the foreign court in Chapter 15 cases. This approach promotes cooperation with foreign nations and courts not only in allowing for a foreign entity to protect its rights in the United States but also to avoid excessive interference in a foreign country's affairs.

Notable Happenings

Since it was created, few cases have been filed under Chapter 15 each year.

As of the first quarter of 2021, the highest number of Chapter 15 bankruptcy cases have been filed in 2009, 2016, 2019, and 2020.

During the spring of 2020, a number of foreign companies filed for Chapter 15 bankruptcy, including:

• French media company Technicolor SA
• Canadian tea distributor DAVIDsTEA
• Australian airline Virgin Australia
• Canadian circus company Cirque du Soleil Entertainment Group