New York Bankruptcy Court Rules That Good Faith Is Not The Gatekeeper To Chapter 15 -
Despite the absence of any explicit directive in the Bankruptcy Code, it is well understood that a debtor must file a chapter 11 petition in good faith. The bankruptcy court can dismiss a bad faith filing “for cause,” which has commonly been found to exist in cases where the debtor seeks chapter 11 protection as a tactic to gain an advantage in pending litigation. A ruling recently handed down by the U.S. Bankruptcy Court for the Southern District of New York suggests that no such good faith filing requirement applies to a petition seeking recognition under chapter 15 of the Bankruptcy Code of a foreign bankruptcy. In In re Culligan Ltd., 2021 WL 2787926 (Bankr. S.D.N.Y. July 2, 2021), the court granted recognition under chapter 15 to the liquidation proceeding of a Bermuda company despite allegations that the company’s court-appointed liquidators filed the chapter 15 petition solely to enjoin shareholder litigation pending in a New York State court. According to the bankruptcy court, although the Bankruptcy Code gives a U.S. court the discretion to deny any chapter 15 relief that is “manifestly contrary” to U.S. public policy, “this exception is not met by a simple finding that the Chapter 15 Petition has been filed as a litigation tactic.”
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