Chapter Two The foreign Representative and the Start of a Chapter 15 Case

• Jurisdiction: United States

Chapter Two The foreign Representative and the Start of a Chapter 15 Case

A"foreign representative" is the person or body authorized to commence a chapter 15 case by filing a petition that seeks "recognition" of a "foreign proceeding."¹⁴ Chapter 15 was intended to streamline the recognition proceeding to make it more objective.¹⁵ Thus, if certain predicates are established, some of which benefit from statutory presumptions, the case must be recognized. In this chapter, we will examine who meets the definition of "foreign representative," as well as certain other predicates for eligibility, such as whether the foreign debtor must have sufficient assets or operations in the U.S. to qualify as a debtor in order to have its foreign proceeding recognized.

I. Predicates for Eligibility

Prior to filing a petition for recognition in the U.S., the foreign representative must ensure that certain eligibility predicates have been satisfied. The "foreign representative" must first be confident that he or she has been duly appointed and will qualify as a "foreign representative," a point that is usually a straightforward inquiry, but that should be analyzed for certainty nonetheless.¹⁶ The foreign representative should then consider the question of whether the debtor in a foreign proceeding may be a debtor under the Bankruptcy Code pursuant to 11 U.S.C. § 109. The foreign representative should then confirm that the foreign insolvency proceeding meets the Bankruptcy Code's definition of "foreign proceeding," and must determine whether the foreign proceeding for which recognition is sought qualifies as either a "foreign main proceeding" or a "foreign non-main proceeding." Subject only to a limited public policy exception,¹⁷ if a foreign proceeding is recognized as a foreign main proceeding, chapter 15 provides, among other types of mandatory relief, an automatic stay of proceedings by creditors against the foreign debtor's assets in the U.S.¹⁸ The chart at the end of this section shows the analytical decision path for a petition under chapter 15 and sets forth many of the principles that will be discussed in this chapter.

The foreign representative bears the burden of proof on each element within the recognition process, and while certain presumptions exist in the foreign representative's favor, these presumptions are rebuttable, and even in the absence of an objection, the bankruptcy court presiding over the chapter 15 case has an obligation to ensure compliance with the statutory framework and may not simply "rubber stamp" the petition in the absence of any objections. Therefore, counsel for the foreign representative should employ a thorough analytical framework to determine the debtor's eligibility for relief under chapter 15 prior to filing a petition for recognition.

A. Who Qualifies to Be a "Foreign Representative"?

The Bankruptcy Code defines a "foreign representative" as a "person or body, including a person or body appointed on an interim basis, 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 of such foreign proceeding."¹⁹ This definition is broader than the prior definition under § 304 of the Bankruptcy Code.

1. Initial Interpretation of the Term "Foreign Representative" Under U.S. Bankruptcy Law

The definition of a "foreign representative" under § 304 was a "duly selected trustee, administrator, or other representative of an estate in a foreign proceed-ing."²⁰ As the discussion below shows, the bankruptcy courts' interpretation of the term "foreign representative" in § 304 proceedings was broad enough to permit not only court-appointed liquidators to file § 304 petitions, but also boards of directors and officers of corporations designated to act as "foreign representatives" and petition for recognition of "foreign proceedings" under § 304 of the Bankruptcy Code.

Under § 304, it was rare for a petition for recognition of a foreign proceeding as an ancillary proceeding to be denied as a result of a petitioner not satisfying the definition of "foreign representative."²¹ Indeed, in the average § 304 case, the issue of whether the petitioner was a "foreign representative" was a simple inquiry that the bankruptcy court summarily addressed.²² The main method of challenging whether a petitioner was a "foreign representative" was to attack the underlying proceeding as not qualifying as a "foreign proceeding," which would then mean that the petitioner could not be a "foreign representative."²³

One issue that did arise under § 304 was whether either a board of directors of a foreign debtor, or an individual appointed by that board that petitioned for recognition of the foreign debtor's foreign proceeding, qualified as a "foreign representative." In In re Bd. of Dirs. of Hopewell Int'l Ins. Ltd., the bankruptcy court examined whether the board of directors appointed as administrators under a solvent scheme of arrangement sanctioned by a court in Bermuda could be a "foreign representative" permitted to petition for recognition of the Bermuda court's order sanctioning the scheme of arrangement.²⁴ In Hopewell, the objectors contended that a board of directors "cannot be a foreign representative because it is not appointed by the court to be in charge of the scheme and is therefore neither a trustee nor a fiduciary of the foreign estate."²⁵ The court rejected this argument because the statute did not require court appointment of the foreign representative, courts had previously recognized creditor-elected or creditor-appointed liquidators, and the board of directors in the foreign proceeding can be likened to a chapter 11 debtor in possession.²⁶ Other courts routinely followed the logic of the Hopewell and Kingscroft decisions and expressly rejected challenges to recognition of a § 304 petition on the ground that a board of directors was not a "foreign representative" under the relevant definition of "foreign representative."²⁷

2. Determination of the Term "Foreign Representative" Under Chapter 15

Under the definition as revised by the enactment of chapter 15, the cases where the "foreign representative" is appointed by the foreign court remain straightforward and uncontroversial.²⁸ Additionally, under chapter 15 the bankruptcy courts have continued to permit boards of directors to qualify as "foreign representatives" entitled to petition for recognition of chapter 15.²⁹ similarly, under chapter 15 the bankruptcy courts have recognized that individuals appointed by corporate debtors or their boards of directors or shareholders may serve as foreign representa-tives.³⁰ Often in these situations, the foreign debtor obtains an order from the court presiding over the foreign proceeding that either authorizes the foreign debtor to file chapter 15, identifies the properly appointed "foreign representative," or both. While such an order is not required (and perhaps not dispositive on the issue), it can be helpful should litigation arise over the issues.

3. Special Questions Regarding the Term "Foreign Representative" Under Chapter 15

The case law under chapter 15 has dealt with a few issues regarding the qualification of a "foreign representative," namely (1) whether a supervisory board appointed by the foreign court to oversee implementation of a court-approved foreign plan qualifies as a foreign representative and (2) which official in a foreign proceeding, the law of which appoints multiple officials, is the proper person to petition for recognition as a foreign representative. Additionally, like the practice under § 304, rather than attacking the qualification of a foreign proceeding, the typical attack is on whether the foreign insolvency qualifies as a "foreign proceeding," which is discussed below.³¹

4. May a Supervisory or Collective Group Serve as a Foreign Representative?

The first issue, regarding whether a supervisory board qualifies as a "foreign representative," was addressed in Aviánzit.³² In this case, a Spanish corporation, Aviánzit, had obtained court approval of a "convenio" which the U.S. bankruptcy court considered similar to a chapter 11 plan of reorganization.³³ This convenio "established an Oversight Commission, which consisted of five members, including a non-voting member representing Avánzit."³⁴ This Oversight Commission acted as the representative of the creditors and supervised and controlled strict compliance with the convenio, but it could not interfere in Avánzit's operations, which were returned to the company.³⁵ The Oversight Commission's existence terminated as soon as the convenio was fulfilled in its entirety.³⁶ The bankruptcy court determined that the Oversight Commission was a "foreign representative" under 11 U.S.C. § 101(24) and was a "person or body" under 11 U.S.C. § 1517(a)(2) because it was created under the convenio for "the stated purpose of protecting the interests of the creditors and assuring Avánzit's compliance with its payment obligations."³⁷ The legal basis for the court's ruling that the appointed body was a "person or body" that could be approved as a foreign representative was that the Bankruptcy Code says, in relevant part, that "[t]he term 'person' includes individual, partnership and corporation."³⁸ The bankruptcy court then noted that the Bankruptcy Code defines the term "includes" as not limiting and that a "person or body" encompasses "persons" who do not fit squarely within the statutory examples.³⁹ The court then noted that neither the Bankruptcy Code nor the Model Law defines "body," but determined that the context in which the term was enacted suggests that it includes an artificial person created by a legal authority.⁴⁰

Similar to recognizing a court-appointed body as a "foreign representative," the U.S. Bankruptcy Court for the District of Delaware recognized two individuals that had been appointed by a foreign debtor's creditors to liquidate the foreign debtor in...