Originally published in the New York Law Journal on January 3, 2012.

On Nov. 28, 2012, the U.S. Court of Appeals for the Fifth Circuit in In re Vitro S.A.B. de C.V. issued a groundbreaking decision under Chapter 15 of the Bankruptcy Code, which provides the mechanics for U.S. bankruptcy courts to deal with cross-border insolvency proceedings. Although deference to judgments of foreign courts is the norm under Chapter 15, in this instance the Fifth Circuit refused to enforce a court-approved Mexican plan of reorganization on the ground that it contained non-consensual non-debtor releases of noteholders’ claims against the debtor’s non-debtor subsidiaries. Unlike the bankruptcy court below, the Fifth Circuit did not hold that non-consensual non-debtor releases are “manifestly contrary” to U.S. public policy. Instead, the court held that such releases could theoretically be approved in Chapter 15 cases, but only upon a showing of the same type of “exceptional circumstances” that are deemed to justify such releases in U.S.-based cases under Chapter 11.

The Fifth Circuit also developed an impressive new analytical framework for interpreting and reconciling the various provisions of Chapter 15. If adopted by courts in other jurisdictions, the Fifth Circuit’s systematic approach to the application of Chapter 15 could prove even more influential than the specific holdings of the case.

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