CHAPTER 3, C. Are Chapter 15's Principles of "Universalism" Too Parochial for the Realities of Today's Global Economy?

• Jurisdiction: United States

C. Are Chapter 15's Principles of "Universalism" Too Parochial for the Realities of Today's Global Economy?

ABI Journal

August 2019

George W. Shuster, Jr.

WilmerHale

Boston, Mass., and New York, N.Y.

Benjamin W. Loveland

Boston, Mass., and New York, N.Y.

Two recent bankruptcy court decisions — In re Serviços de Petróleo Constellation SA¹ and In re Agrokor d.d.² — demonstrate the increasing complexity of applying basic chapter 15 principles of "universalism" to global insolvency cases that span many jurisdictions. These decisions cast doubt on the meaning of the "universalism's" approach to cross-border insolvency in multinational cases. As a theory of international insolvency, universalism envisions that a "main" court in the debtor's "home" jurisdiction would administer the debtor's insolvency proceeding, while "ancillary" courts in other jurisdictions where the debtor has assets or liabilities would assist by recognizing the main court's orders and otherwise cooperating in aid of the main proceeding.

Previous chapter 15 decisions have grappled with whether the "center of main interests" (COMI) of a debtor company is in one country or another. Yet the Serviços de Petróleo decision addresses next-order questions: Should the COMI of a parent company be imputed to its subsidiaries, and should each entity within a corporate family have its COMI evaluated on a stand-alone basis? These questions invite further inquiry as to whether determining COMI independently for each entity within a global corporate enterprise serves the "universalism" goals under which chapter 15 emerged, or whether such a determination invites a new type of "territorialism" that focuses heavily on the "home" jurisdiction of an entity and its assets, to the exclusion of the entity's, or the entity's corporate family's, multinational status.

Likewise, the Agrokor decision addresses the extent to which the court in a chapter 15 case should recognize a settlement agreement approved by the Croatian court overseeing the "main" foreign proceeding of the debtor, where the settlement agreement purported to deal with debt claims governed by English (and New York) law. While the Agrokor court cited principles of "universalism" in recognizing the Croatian settlement agreement in the U.S., the court also made clear that its decision has strict limits. The court emphasized that the effect of its recognition order would not extend beyond the territory of the U.S., and that English creditors would still be free — at least from a U.S. perspective — to press for a "home" court determination of their claims under English law.

In this way, the Agrokor decision, like the Serviços de Petróleo decision, uses a window of "universalism" to enter a room where "territorialism" still has a place to sit. These decisions challenge whether cross-border univer-salism has an outer limit of utility and whether, at that outer limit, certain issues must still be resolved in, and on the basis of, a specific country and legal system.

Underpinnings of Universalism and Recognition Framework

When enacted in 2005, chapter 15 of the Bankruptcy Code — which governs the treatment afforded to international insolvency proceedings by U.S. bankruptcy courts — was widely viewed as a significant move toward more of a "universalism" theory of international insolvency. Universalism favors the centralized administration of a multinational debtor's insolvency proceedings in a court in a single "hub" jurisdiction, with the cooperation of courts in ancillary or "spoke" jurisdictions where the debtor might have other assets.

Universalism is generally understood to be in contrast to "territorialism," a theory under which each country where the debtor has assets would administer them independently and make distributions according to that country's local law — a system in which every country's insolvency proceeding is its own "hub."...