Chapter 15 Bankruptcy

What is a Chapter 15 Bankruptcy?

Formally enacted through the passing of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Chapter 15 Bankruptcy is the United States domestic adoption of the Model Law regarding Cross-Border Insolvency. In 1997, the act was promulgated by the United Nations Commission on International Trade Law to replace section 304 of Bankruptcy Code. This provision, which is interpreted uniformly by developed nations, adopts a law to promote a coordinated legal regime for cross-border insolvency issues.

The primary purpose of Chapter 15 Bankruptcy is to provide an effective means for dealing with insolvency cases that involve assets, debtors, claimants and parties of interest involving multiple countries.

General Purpose of a Chapter 15 Bankruptcy Filing:

A Chapter 15 bankruptcy filing is comprehended through five objectives which are tangibly specified in the statute:

1. A Chapter 15 Bankruptcy filing aims to promote uniform cooperation between the U.S. court system and parties of interest with the courts and other authorities of foreign countries who are involved in any type of cross-border insolvency case.

2. A Chapter 15 Bankruptcy filing creates greater legal certainties for investment and trade

3. A Chapter 15 Bankruptcy filing promotes and provides for the fair and effective administration of cross-border insolvencies to protect the interests of creditors and other associated entities—including the debtor involves.

4. A Chapter 15 Bankruptcy filing facilitates the rescue of financially distressed business entities; the initiative protects investment and preserves employment.

Typically, a Chapter 15 Bankruptcy filing is an ancillary measure to the primary proceeding brought in another nation—typically the debtor’s home country. As suitable alternatives, the creditor or debtor may file a Chapter 7 or Chapter 11 bankruptcy case in the U.S. if the assets in the U.S. are deemed too complex to merit a singular domestic bankruptcy filing.

Particular Surrounding a Chapter 15 Bankruptcy Filing:

Ancillary cases may be commenced through a Chapter 15 filing by foreign representatives—these individuals will file the case through a petition for recognition of a “foreign proceeding.”

A Chapter 15 filing enables the foreign rep the right of access to the United States court system; however, the petition must be filed with accompanied documents definitively showing the existence of the proceeding and the authority of the foreign rep.

After a notice and the hearing, the court is then authorized to issue and order that recognizes the foreign proceeding. Immediately upon recognition, the automatic stay of the Bankruptcy Code is enacted within the U.S. Through this process, a Chapter 15 Bankruptcy filing operates as the vehicle for a foreign rep’s entry into the United States Court system. Once recognized, the foreign rep may seek additional relief from the courts to file a full-fledged bankruptcy case.

A Chapter 15 bankruptcy filing awards a foreign creditor with the right to participate in American bankruptcy cases while prohibiting discrimination against all foreign creditors associated with the case. One of the primary goals of the filing is to promote communication and cooperation between the American court system and all parties of interest with foreign courts in cross-border suits. This goal is achieved by demanding that the parties directly communicate with one another.

While Chapter 15 proceedings are by no means unimportant, in most instances, they are "ancillary" to existing proceedings in another court.

In all likelihood, a debtor's home country will be the jurisdiction in which the main bankruptcy hearing is held, although the preliminary hearing for a Chapter 15 case in a U.S. bankruptcy court may result in the assessment of one particular bit of bankruptcy information: that of whether or not the foreign court really is the site of a "main proceeding." Then again, normal bankruptcy guidelines may indeed come into play upon the request of either the debtor or a creditor to launch a Chapter 7 or Chapter 11 bankruptcy case.

In Chapter 15 proceedings, a good deal of bankruptcy information and leeway is bestowed upon foreign officers of the court to act on a debtor’s behalf and be involved. First of all, "foreign representatives" given the authority to operate on a debtor's behalf may use a U.S. bankruptcy court to officially recognize a hearing in a court abroad as a legally binding hearing by American Federal law. Other functions these parties may perform through U.S. courts include securing debt relief for applicants, serving as a party of interest, and even temporarily running a debtor's business in their stead.

At the same time, there are some bankruptcy guidelines native to Chapter 15 proceedings. Specifically, special protections are put in place for creditors to assure they are fairly treated. Part of this fair treatment is the idea that foreign creditors may also be represented in U.S. courts. Moreover, under Chapter 15 law, their nationality should have no bearing on whether or not they stand to recoup from businesses to whom they lent funds. Only the nature of their claims should decide these affairs.

NEXT: What is Business Bankruptcy