Business Restructuring Review | November–December 2021

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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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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