90 Second Lesson: What is a Chapter 15 Proceeding of the Bankruptcy Code?

QUESTION:

Harry A asks, what is a Chapter 15 Proceeding?

ANSWER:

Chapter 15 of the Bankruptcy Code was enacted as part of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA). It replaced existing section 304 of the Bankruptcy Code. Section 304 empowered U.S. courts to open an “ancillary” proceeding to representatives of foreign debtors and grant various broad forms of relief over U.S. operations and assets. Section 304 ancillary proceedings, however, did not expressly authorize foreign representatives to operate the debtor’s business or sell its assets. Chapter 15 was designed to improve upon section 304 by providing a framework to coordinate the administration of cross-border insolvencies across multiple jurisdictions in a more flexible and efficient manner.

Generally, the Chapter 15 proceeding is ancillary to the main proceeding which will take place in the foreign debtor’s home country. Once the bankruptcy court has recognized the foreign proceeding, the automatic stay and select other provisions of the Bankruptcy Code will go into effect. Recognition will also give the foreign debtor access to state and federal courts and additional relief from the bankruptcy court. In fact, they are authorized to bring a full bankruptcy proceeding instead of just an ancillary proceeding.

[Editor’s Note: This 90 Second Lesson is based, in substantial part, in material reprinted from Commercial Bankruptcy Litigation 2d and Strategic Alternatives For and Against Distressed Businesses, with permission of Thomson Reuters. For more information about these publications, please visit www.legalsolutions.com.

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