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Have recent cases provided greater clarity as to what courts expect from non-US organisations under Chapter 15 proceedings?
Nava Hazan, who is based in the New York office of Squire Patton Boggs where she is a partner in the restructuring and insolvency practice group, explains the goals, use and development of Chapter 15 proceedings.
What are the goals of Chapter 15?
Chapter 15 is designed to provide a mechanism for a foreign representative in non-US insolvency proceedings to protect a debtor's US assets from US creditors' collection actions or to stay any litigation commenced in the US. The ultimate goal in a Chapter 15 proceeding is to preserve the value of the assets of a foreign debtor for the benefit of all of its creditors globally rather than them only being available to US creditors.
First, it prevents piecemeal (and potentially contrary) adjudication relating to the same insolvent estate. Secondly, it prevents inequitable distributions to creditors of the same estate located in different countries, which may otherwise receive different distributions based on local law. Finally, it encourages better cooperation between courts in different countries, with an eye toward a globally efficient administration of all of a foreign debtor's assets.
How can Chapter 15 be used defensively?
Chapter 15 can be used to stay litigation in the US against the debtor. Upon recognition of a foreign main proceeding, certain relief is imposed by operation of law--an automatic stay takes effect, certain sections of the Bankruptcy Code are made applicable, and the foreign representative is entitled to operate the debtor's business. The automatic stay imposed in a Chapter 15 proceeding does not have extraterritorial reach and only applies to assets in the US. Other examples of the defensive use of Chapter 15 include using it to stay execution on the debtor's assets located in the US or to protect the assets from creditors' attacks.
How can it be used offensively?
A debtor that has obtained a foreign court's approval of a plan of reorgani
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