Cross-Border Insolvency Proceedings: Recent Chapter 15 Filings in the United States

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It is not surprising that the amount of Chapter 15 bankruptcy filings is growing in the global economy. Chapter 15 was added to the Bankruptcy Code by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. It is the United States’ adoption of the Model Law on Cross Border Insolvency (the Model Law) that was promoted by the United Nations Commission on International Trade Law. 

The purpose of Chapter 15 and the Model Law is to provide an effective mechanism for dealing with insolvency cases involving debtors, assets, claimants, creditors and other parties in cases involving more than one country. This general purpose is specified in the statute through five objectives: (1) to promote cooperation between the United States courts, parties of interest, and the courts and other competent authorities of foreign countries involved in cross-border insolvency cases; (2) to establish greater legal certainty for trade and investment; (3) to provide for the fair and efficient administration of cross-border insolvencies that protect the interests of all creditors and other interested entities, including the debtor; (4) to afford protection and maximization of the value of the debtor's assets; and (5) to facilitate the rescue of financially troubled businesses, thereby protecting investment and preserving employment. 11 U.S.C. § 1501.

Recently, two Chapter 15 cases have garnered national and international attention: Mt. Gox and Veris Gold Corporation. 

Mt. Gox is the failed Tokyo-based bitcoin exchange which has entered insolvency proceedings in Japan. However, the company filed for Chapter 15 bankruptcy protection in March to prevent U.S. customers who had filed a class action lawsuit from seizing its United States assets, such as computer servers. On June 16, 2014, Judge Stacey Jernigan of the United States Bankruptcy Court in Dallas granted recognition of the Chapter 15 case, which allows Mt. Gox's foreign representative to file lawsuits and pursue potential funds to repay creditors here in the United States. As there is a foreign proceeding taking place in Japan, the bankruptcy court’s jurisdiction is generally limited to the debtor's assets that are located in the United States. 11 U.S.C. § 1528. The limitation promotes cooperation with the foreign main proceeding by limiting the assets subject to United States jurisdiction, so as not to interfere with the foreign main proceeding. 

Another recent Chapter 15 bankruptcy is mining company Veris Gold Corporation who filed for Chapter 15 protection in Nevada bankruptcy court on June 10, 2014 in an attempt to protect its assets in the United States from creditors as it enters insolvency proceedings in its native Canada. As the automatic stay is not automatically invoked in a Chapter 15 proceeding, Veris immediately moved for a temporary restraining order to stop creditors from pursuing its assets—most notably a gold mine located in Elko, Nevada. Contemporaneously, Veris announced that the Supreme Court of British Columbia had granted its application for creditor protection under Canada's Companies Creditors Arrangement Act. The order also extends the protection to its subsidiaries, including Veris Gold USA Inc. and Queenstake Resources Ltd. 

For the bankruptcy courts involved in the Mt. Gox and Veris cases, they will have to “cooperate to the maximum extent possible” with foreign courts and the respective foreign representatives in their cases. 11 U.S.C. §§ 1525-1527. These cases should also be watched as they may provide additional guidance as to the interpretation of still rather new Chapter 15 rules and their outcomes will likely impact trade creditors.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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