Multinational insolvency: chapter 15 and a foreign representative's rights to administrate debtor's assets in the United States.(international)

Chapter 15 of the Bankruptcy Code provides a powerful tool for the foreign creditor in seeking satisfaction of a debtor's debts in the United States. One of the most important concerns for local U.S. creditors is the amount of payoff that maybe expected on an account and the possibility of dividing up local assets with foreign creditors in a bankruptcy setting. In broad summary, Chapter 15 provides the foreign representative in a foreign insolvency proceeding to interface with U.S. state and federal courts for the purposes of administrating a foreign debtor's assets. State and federal courts are obligated to cooperate "to the maximum extent possible" with the foreign representative once a foreign proceeding has been "recognized" in the United States.

Although Chapter 15 is intended to provide effective mechanism for dealing with cases of multinational insolvency, U.S. vendors face the risk of an "everyone-in" approach when all the debtor's worldwide creditors are invited to share the local assets of the debtor, thus minimizing a U.S. vendor's pay off.

Procedural Framework of Chapter 15

In In re Jonathan A. Loy, the United States Bankruptcy Court, Eastern District of Virginia ("Bankruptcy Court") reviewed the procedural framework of Chapter 15 within which an English trustee sought recognition in the United States in connection with an English insolvency proceeding.

Jonathan Loy (the "debtor") was a British citizen residing in Virginia and the owner of undeveloped real property located in Hampton, VA. Falling into financial distress, the debtor made a Proposal for a Voluntary Arrangement with Creditors pursuant to England's Insolvency Act of 1986 (IVA) and was able to sell other property to satisfy his debts while retaining the Hampton property. When the debtor accumulated additional debt and was unable to meet IVA terms, the trustee filed a Default Petition and the English Court adjudicated the debtor as bankrupt. A trustee ("English Order") was appointed and a bankruptcy proceeding commenced.

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The trustee then filed a Petition for Recognition of Foreign Main Proceeding in the United States in an effort to seek recognition of the English insolvency proceeding by the Bankruptcy Court and the Hampton property in an attempt to satisfy the debtor's debts. The trustee had already filed a Memorandum of Lis Pendens in the Circuit Court for the City of Hampton, VA against the Hampton property prior to filing the petition for recognition in the Bankruptcy Court.