Chapter 15: A More Efficient Path for Recognition of Foreign Judgments as Compared with Adjudicatory Comity
EVAN JASON ZUCKER, JENNIFER K. MALOW, AND MICHAEL B. SCHAEDLE
EVAN JASON ZUCKER OF COUNSEL
JENNIFER K. MALOW ASSOCIATE
MICHAEL B. SCHAEDLE PARTNER
Chapter 15 of the United States Bankruptcy Code, which adopts the United Nations Commission on International Trade Law’ s(“ UNCITRAL”) Model Law on Cross- Border Insolvency, provides a streamlined process for recognition of a foreign insolvency proceeding and enforcement of related orders. In adopting the Mode Law, the legislative history makes clear that Chapter 15 was intended to be the“ exclusive door to ancillary assistance to foreign proceedings,” with the goal of controlling such cases in a single court. Despite this clear intention, U. S. courts continue to grant recognition to foreign bankruptcy court orders as a matter of comity, without the commencement of a Chapter 15 proceeding.
While it is tempting choice for a bankruptcy estate representative to seek a quick dismissal of U. S. litigation, without the commencement of a Chapter 15 case, it is not always the most efficient path. 1 First, because an ad hoc approach to comity requires a single judge to craft complex remedies from dated federal common law, there is a significant risk that such strategy will fail( and the estate representative will subsequently need Chapter 15 relief), increasing litigation / appellate risk and thus, the foreign debtor’ s overall transaction costs in administering the case. 2 Second, the ad hoc informal comity approach is of little use to foreign debtors, who need to subject a large U. S. collective of claims and rights to a foreign collective remedy in the United States because it does not give the foreign representative the specific statutory tools available in Chapter 15— the ability to turn over foreign debtor assets to the debtor’ s representative; to enforce foreign restructuring orders, schemes, plans, and arrangements;
to generally stay U. S. litigation against a foreign debtor in an efficient, predictable manner; to sell assets in the United States free and clear of claims and liens and anti- assignment provisions in contracts; etc. 3
Wayne Burt Pte. Ltd.(“ Wayne Burt”), a Singaporean company, has battled to recognize a Singaporean liquidation proceeding( the“ Singapore Liquidation Proceeding”)( and related judgments) in the United States, highlighting the inherent risks in seeking recognition outside of a Chapter 15 case. The unusually litigious and expensive pathway Wayne Burt followed to enforce certain judgments shows how Chapter 15 provides an effective streamlined process for seeking relief.
First, Wayne Burt sought dismissal, as a matter of comity, of a pending lawsuit in the U. S. District Court for New Jersey( the“ District Court”). On appeal, after years of litigation, the Third Circuit concluded that the District Court did not fully apply the appropriate comity test and remanded the case for further analysis. Thereafter, the liquidator sought, and obtained, recognition of Wayne Burt’ s insolvency proceeding under Chapter 15 in the U. S. Bankruptcy Court for the District of New Jersey( the“ Bankruptcy Court”), including staying District Court litigation that had been in dispute for five years in the United States and ordering the enforcement of a Singaporean turnover order that had been the subject of complex litigation as well within two months of the commencement of the Chapter 15 case.
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