Getting over the starting line: How multi-entity organizational structures can become a barrier to Chapter 15 relief

Chapter 15 of the Bankruptcy Code provides a valuable tool for non-US entities going through foreign insolvency proceedings when they have assets located in the United States. Chapter 15 can protect the value of US assets by granting a stay of actions against those assets during the concurrent administration of a complementary US insolvency process with that of the original foreign insolvency proceeding.

Recognition is the cornerstone of a Chapter 15 bankruptcy proceeding. It enables a foreign representative of the foreign debtor to seek assistance from US courts in administering the debtor's assets located within the United States. Chapter 15 provides for two types of foreign proceedings: (i) a foreign main proceeding, which is a foreign proceeding pending in a country where the debtor has its center of main interests (COMI); and (ii) a foreign nonmain proceeding, which is a foreign proceeding pending in a country where the debtor has an “establishment” (in other words, a place of operations). The distinction between the two is arguably significant because recognition as a foreign main proceeding automatically grants protections provided by the Bankruptcy Code, like the automatic stay, while a nonmain proceeding does not.

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