Chapter One Introduction

• Jurisdiction: United States

Chapter One Introduction

Over the last 10 years, globalization has increased as even the regular consumer now has a smart phone in his pocket or her purse that can connect them to anyone in the world. We regularly can now e-mail and video chat with anyone almost anywhere in the world at any time.

As the world gets smaller, the business interactions that cross borders are increasing. Prior to 2005, global cross-border failures were rare or were often between neighbors, such as the U.S. and Canada, or among countries within the European Union. Newspaper headlines now talk about billion- (with a "b") dollar Ponzi schemes, failed Japanese or Mexican airline companies, and too-big-to-fail financial institutions with investors and assets spread across the globe. In addition, German and Greek companies often change their operational location so that they can file insolvency proceedings in London far away from home, and then seek to recover assets in the U.S. related to those foreign operations.

These developments demonstrate that cross-border insolvency cases are not only on the rise, but are increasingly subject to public scrutiny. Even those cases that do not result in major headlines can be complex and cross multiple borders because even so-called middle-market companies now have operations in three, five or more jurisdictions. When these companies fail, it becomes necessary to coordinate their insolvencies across cultures and borders to maximize value for creditors. Sometimes, however, the practical outcome and the legal regimes of the various jurisdictions do not mesh easily with this goal.

In anticipation of this potential outcome, the U.S. revamped its insolvency law in 2005 and adopted a model law proposed by the international community that was to be interpreted by U.S. courts in light of its international origin, and in a manner consistent with the application of similar statutes adopted by other foreign jurisdictions. On the tenth anniversary of the enactment of this unique internationally focused law, it is appropriate to evaluate the manner in which courts have dealt with the law referred to as "chapter 15."

The U.S. Congress enacted chapter 15 of the U.S. Bankruptcy Code, 11 U.S.C. §1501-1532, as part of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub. L. 109-8, 119 Stat. 23 (Apr. 20, 2005) (BAPCPA), which the President signed into law on April 20, 2005 and which went into effect on Oct. 17, 2005. Chapter 15 represents the U.S.'s adoption of the Model Law on Cross-Border Insolvency (the Model Law) promulgated by the United Nations Commission on International Trade Law (UNCITRAL) in 1997. Chapter 15 repealed § 304 of the Bankruptcy Code,¹ which previously governed the commencement and administration of cross-border insolvency cases.²

The purpose of the Model Law and chapter 15 is to provide an effective legal system for managing insolvency cases with transnational implications.³ To ensure that this general purpose is fulfilled, chapter 15 sets forth five specific objectives at the outset: (1) to promote cooperation between U.S. courts and parties in interest and courts and other competent authorities of foreign countries involved in cross-border insolvency cases; (2) to establish greater legal certainty for trade and investment; (3) to provide for the fair and efficient administration of cross-border insolvencies that protects the interest...