Client Alert: Chapter 15: A Sword and A Shield

by Shumaker, Loop & Kendrick, LLP

Shumaker, Loop & Kendrick, LLP


On March 23, 2017, the United States Bankruptcy Court for the Southern District of Florida, Miami Division, ruled that a foreign debtor could use Chapter 15 to assert “avoidance actions” in the U.S. under state law (in this case New York fraudulent conveyance statutes). In 2010, the United States Fifth Circuit Court of Appeals similarly ruled that a foreign debtor could use Chapter 15 to assert “avoidance actions” in the U.S. based on foreign law.  My article in the International Committee Newsletter of the American Bankruptcy Institute (“ABI”) dated November 2011 discusses the Fifth Circuit case, Condor Insurance Ltd., in detail. By contrast, the statutory language of Chapter 15 is clear that foreign debtors cannot assert “avoidance actions” based on the provisions set forth in the U.S. Bankruptcy Code, specifically including Sections 547 (preferences) and 548 (fraudulent conveyances).


A U.S. company doing business globally will inevitably encounter issues with its foreign customers or counter-parties in the supply chain. Such issues include a foreign insolvency proceeding of such customer or counter-party in their “home” country. Since there is no uniform global insolvency law, the outcome for the U.S. company is primarily dependent on the insolvency law in the foreign jurisdiction, which will be quite different from Chapter 11, the primary insolvency law in the U.S. If the potential risk to or exposure of the U.S. company is material, participating in the foreign proceeding is advisable.

Global companies are likely to have assets, liabilities, contracts, property or employees throughout the world. If such a company initiates an insolvency proceeding in its home country, it is likely the company will also need to address issues in other countries. In recognition of this, and to promote comity among countries, in 1997, the United Nations Commission on International Trade Law (UNCITRAL) published its Model Law on Cross-Border Insolvency. To date, 43 countries have adopted the Model Law, including the U.S., which adopted the Model Law in 2005 as Chapter 15.

Chapter 15 is a U.S. proceeding that is ancillary to a foreign main proceeding regarding the debtor company’s overall restructuring. As such, Chapter 15 is a powerful tool for foreign debtors to deal with assets and claims in the U.S. Chapter 15 has primarily been utilized by foreign debtors as a sword, and as a shield. As a sword, Chapter 15 allows a foreign debtor to assert claims and to obtain discovery with respect to companies or assets in the U.S. As a shield, Chapter 15 allows a foreign debtor to protect its U.S. assets by invoking the “automatic stay” of Section 362 of the U.S. Bankruptcy Code, which is a broad injunction against any claims or lawsuits against the debtor or its U.S. assets. In fact, some U.S. Bankruptcy Courts have applied the “automatic stay” extraterritorially, to debtors’ assets outside the U.S.


The U.S. Bankruptcy Court in Miami, in the Chapter 15 proceeding of Brazilian bank Banco Cruzeiro Do Sul S.A. (“BCSUL”), expanded the “sword” for foreign debtors by allowing BCSUL’s trustee to assert a fraudulent conveyance claim under New York law to recover a New York City penthouse apartment. Ownership of BCSUL was controlled by the Indio da Costa family, and managed by Felippe and Octavio Indio da Costa. According to allegations in the trustee’s complaint in the Chapter 15 adversary proceeding, Felippe purchased a New York apartment with funds improperly diverted from BCSUL. The apartment was subsequently conveyed to a BVI Company, Alina Corporation (“Alina”), controlled by Felippe.

In response, Alina filed a motion to dismiss the adversary proceeding, in part arguing that Chapter 15 does not permit a foreign debtor to assert “avoidance actions”, based on an express exclusion of Sections 547 and 548 in Chapter 15. The Bankruptcy Court rejected this argument, and denied the defendant’s motion to dismiss on this issue. The Court concluded that as a matter of statutory construction, Chapter 15 expressly excludes the specified avoidance provisions in the U.S. Bankruptcy Code, and nothing more. Thus, the clear intent of Chapter 15 was to not exclude avoidance actions based on other law. The Bankruptcy Court also noted a Chapter 15 foreign debtor’s right to sue and be sued in the U.S.


The Condor Insurance and the Banco Cruzeiro cases make clear that foreign debtors in those jurisdictions are entitled to assert avoidance actions in the U.S. based on applicable state law and based on the avoidance laws of the foreign jurisdiction.

Since 2005, U.S. Bankruptcy Courts have broadly interpreted Chapter 15 to allow foreign debtors maximum flexibility in protecting assets and pursuing claims. It is predictable that other courts will follow Condor Insurance and Banco Cruzeiro, encouraging foreign debtors to assert avoidance actions in Chapter 15 cases under state law in the U.S. and under foreign law, to enhance the value of insolvent debtors’ estates.

A company with material risk associated with a customer or counter-party in an overseas insolvency proceeding is advised to participate in the foreign proceeding regarding its claims, contracts, and risks. In addition, the company should monitor any Chapter 15 filing of the foreign debtor in the U.S., which could increase “avoidance action” risk.

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.

© Shumaker, Loop & Kendrick, LLP | Attorney Advertising

Written by:

Shumaker, Loop & Kendrick, LLP

Shumaker, Loop & Kendrick, LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.