Recognition of Foreign Bankruptcy Proceedings Under Chapter 15


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Transnational insolvency proceedings primarily involve cases where debtors have assets or creditors in multiple jurisdictions. To avoid conflicts between different bankruptcy regimes, many countries allow recognition of foreign bankruptcies in their territories and provide aid to foreign bankruptcy trustees.

Recognition of foreign insolvency proceedings in the United States is governed by Chapter 15 of the U.S. Bankruptcy Code. The chapter is largely based on the UNCITRAL Model Law on Cross-Border Insolvency (1997), which has been adopted in 58 countries, including the United Kingdom, Canada, and Singapore.

The Model Law follows a modified universalist approach. In broad terms, this means that transnational insolvency proceedings generally should be recognized by the member states, and at the same time, that the law does not preclude the possibility of concurrent insolvency proceedings. Chapter 15 adopted the Model Law to harmonize transnational insolvency proceedings and provide effective mechanisms for dealing with them.

Chapter 15 is unfamiliar to many non-bankruptcy lawyers and even to some lawyers who specialize in bankruptcy. However, in litigation involving foreign parties, Chapter 15 proceedings can change the “game’s rules” and either help the plaintiff seek redress in U.S. courts or effectively prevent it from doing so. As a recent example, in the Smagin case, which was covered on TLB with regard to extraterritorial application of RICO, foreign bankruptcy proceedings and subsequent Chapter 15 proceedings were initiated against Vitaly Smagin soon after he had obtained the California judgment. As a result, the judgment has become a part of Smagin’s bankruptcy estate in Russia, and he is precluded from receiving distributions in the United States. In this post, I explain the basic procedure for recognition under Chapter 15, its requirements, and its exceptions.

Procedure for Recognition

Recognition under Chapter 15 involves a procedure in which a U.S. bankruptcy court recognizes a foreign insolvency proceeding and opens an ancillary proceeding in the United States. Depending on the type of a foreign proceeding, a U.S. court either automatically grants or may grant, upon request, specific relief under U.S. bankruptcy law. For example, a U.S. court may enjoin U.S. litigation against the debtor, stay execution against the debtor’s assets, or suspend third parties’ rights to dispose of the debtor’s property.

Following recognition, a foreign representative may intervene in U.S. litigation involving the debtor or the debtor’s assets, seek orders compelling discovery, and bring claims to recover assets from third parties. Thus, Chapter 15 provides an effective mechanism to prevent preferential or fraudulent dispositions of the debtor’s property in the United States and maximize the value of the bankruptcy estate.

By recognizing a foreign bankruptcy proceeding, a U.S. court incidentally recognizes the foreign court’s judgments and orders by which the bankruptcy procedure was initiated and the trustee was appointed. However, Chapter 15 recognition does not automatically extend to all court rulings in the foreign bankruptcy proceeding. In many cases, such rulings, especially when made against third parties, will need to be enforced separately. Without touching on this topic, it is worth mentioning that in 2018 UNCITRAL adopted and promulgated the Model Law on Recognition and Enforcement of Insolvency-Related Judgments.

Requirements for Recognition

A U.S. court will issue an order recognizing a foreign insolvency proceeding if three requirements are met: (1) the proceeding meets the definition of a foreign proceeding, (2) the petition is filed by a foreign representative, and (3) the petition is accompanied by sufficient evidence. Some courts also extend the general debtor-eligibility requirement to Chapter 15 proceedings.

The Foreign Proceeding Requirement

The foreign proceeding requirement is a two-pronged objective test, which, in many cases, can prevent foreign bankruptcies from being recognized under Chapter 15.

First, a proceeding must meet the term “foreign proceeding,” which is defined as “a collective judicial or administrative proceeding in a foreign country, including an interim proceeding … in which … the assets and affairs of the debtor are subject to control or supervision by a foreign court, for the purpose of reorganization or liquidation.” A “collective proceeding” considers rights and interests of all creditors. This requirement can be satisfied, for example, in an insurance company rehabilitation proceeding but will not be satisfied in a receivership proceeding initiated by and for the benefit of individual creditors.

Second, a foreign proceeding must fall within one of two categories—main or nonmain proceeding. A “foreign main proceeding” is a foreign proceeding pending in the country where the debtor has the center of its main interests (COMI). The debtor’s registered office or, in the case of an individual, habitual residence (domicile) is presumed to be the center of the debtor’s main interests. If evidence is presented to the contrary, the court may not rely on the presumption and must consider all relevant facts. For example, in In re Shimmin, the court held that a registered office that was merely a “letter box” could not be the debtor’s COMI where the evidence demonstrated it was elsewhere. For individuals, relevant factors may include the length of time spent in the location, ties to the area, the location of the debtor’s regular activities, and the location of the debtor’s primary assets or creditors.

For bankruptcy trustees, recognition of main proceedings is a preferred option because a U.S. court will automatically grant certain relief in their support upon recognition. However, there can be only one foreign main proceeding, and thus a debtor may have only one COMI. When two or more conflicting jurisdictions meet relevant factors for COMI, a U.S. court will have to choose one.

COMI is established at the time of filing a Chapter 15 petition rather than at the time when the foreign proceeding was commenced. Courts strictly enforce this rule because “inquiry into a debtor’s past operations … might lead to conflicting COMI determinations and the possibility of competing main proceedings, thus defeating the purpose of using the COMI construct.” In practice, this rule creates opportunities for debtors, especially individuals, to manipulate jurisdiction by changing their COMIs after they go bankrupt and before a foreign representative initiates Chapter 15 proceedings.

A “foreign nonmain proceeding” is a “foreign proceeding, other than a foreign main proceeding, pending in a country where the debtor has an establishment, which is a place of operations where the debtor carries out a nontransitory economic activity.” In In re Shimmin, the court held that “a local effect on the marketplace” must be demonstrated to meet the requirement, “more than mere incorporation and record-keeping and more than just the maintenance of property.” Similar to a COMI, an establishment must be present at the time of filing a Chapter 15 petition, although the number of nonmain proceedings against one debtor is not limited.

Unlike recognition of main foreign proceedings, a U.S. court does not automatically grant relief in support of nonmain proceedings and may do so upon request if it is necessary to carry out the purpose of Chapter 15. Therefore, recognition of nonmain proceedings is typically sought by bankruptcy trustees as a fallback when COMI is not established.

The Foreign Representative Requirement

A foreign representative is “a person or body … 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 in that foreign proceeding.” Because the definition is rather broad, foreign bankruptcy trustees meet this requirement in most cases. Notably, Chapter 15 does not require a foreign representative to be disinterested.

The Evidence Requirement

The evidence requirement is rather formal and easy to meet. The law provides that a petition for recognition under Chapter 15 must be accompanied by evidence proving the existence of a foreign proceeding and the appointment of the foreign representative. Additionally, the petitioner must provide a statement identifying all known foreign proceedings with respect to the debtor.

The Debtor-Eligibility Requirement

The Bankruptcy Code contains a general rule that “only a person that resides or has a domicile, a place of business, or property in the United States, or a municipality, may be a debtor.” Courts are divided on whether this requirement extends to Chapter 15 proceedings.
The Second Circuit has held that a foreign debtor must have assets in the United States for Chapter 15 to apply. Othershave held that this requirement does not apply under Chapter 15.

Public Policy Exemption

Although recognition of foreign insolvency proceedings under Chapter 15 is mandatory, the statute provides that a court can refuse to take an action provided by Chapter 15 “if the action would be manifestly contrary to the public policy of the United States.” This exemption must be narrowly construed and is intended to be invoked only under exceptional circumstances “concerning matters of fundamental importance for the United States.” A party’s litigation tactic or “bad faith” would not provide a basis for denial of recognition under Chapter 15.

Typically, courts in the United States do not invoke the public policy exemption in cases where foreign bankruptcy laws differ from U.S. bankruptcy law, assuming the procedures meet fundamental standards of fairness. However, in cases involving issues concerning property distribution, courts have reached conflicting decisions. In a case where a Mexican reorganization plan extinguished claims of certain creditors, the Fifth Circuit held that “the protection of third party claims in a bankruptcy case is a fundamental policy of the United States” and denied enforcement of the plan. In another case, the Bankruptcy Court for the Southern District of New York, under similar circumstances, enforced a Canadian reorganization plan that included a third-party release and held that “[i]n this [Second] Circuit, where the third-party releases are not categorically prohibited, it cannot be argued that the issuance of such releases is manifestly contrary to public policy.”

International Comity

Under Chapter 15, a U.S. court “shall grant” comity or cooperation to the foreign representative upon recognition of foreign insolvency proceedings. Thus, Chapter 15 recognition is “the exclusive door to ancillary assistance to foreign proceedings” imposed “as a condition to further rights and duties of the foreign representative.”

The majority view is that recognition under Chapter 15 is a prerequisite to staying or dismissing U.S. proceedings based on comity to foreign insolvency proceedings and that a foreign representative’s Chapter 15 petition is an exclusive remedy. However, some courts have recently held that, in the context of transnational bankruptcies, dismissal of a U.S. action based on comity does not require recognition under Chapter 15, stating that the opposite view would be “absurd and would fly in the face of comity principles.”


Recognition of foreign insolvency proceedings under Chapter 15 provides an effective and straightforward mechanism for foreign bankruptcy trustees to seek redress in U.S. courts. Assuming the petitioner can meet the foreign proceeding requirement, other requirements in most cases will be met, and the court will grant the petition. Because the only ground for non-recognition is the public policy exemption, U.S. courts use their discretion to deny recognition only under exceptional circumstances.

Legal practitioners can implement the Chapter 15 mechanism in their legal strategies, for example, as an alternative to foreign judgment enforcement or Section 1782 discovery and should be aware that the mechanism can be used against them in transnational disputes.