REGIONAL COMMITTEES: UCC
The Application of the U. S. Chapter 15“ Public Policy Exception” Continues to be Exceptional
By Maja Zerjal Fink 1
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1Section 1506 of the United States Bankruptcy Code provides a public policy exception authorizing a court to refuse to grant chapter 15 recognition or other relief that would be“ manifestly contrary to the public policy of the United States.” 2 Since chapter 15’ s adoption, courts have construed this exception narrowly and absent a clear and serious conflict with foundational U. S. policies, have routinely granted comity to foreign proceedings and orders even where stakeholder rights, procedures, or remedies differ from U. S. practice. But as restructuring regimes around the world have become increasingly sophisticated and U. S. companies consider using alternatives to chapter
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11 that can be implemented in the U. S. through chapter 15, the public policy exception and its reach are coming into renewed focus.
Section 1506 Has Been Narrowly Construed and Rarely Applied
The public policy exception has been applied rarely. If the underlying proceeding is procedurally fair and extension of comity would not“ severely impinge” a core U. S. statutory or constitutional right, courts will generally not deny recognition based on public policy alone, 3 even
1
The author thanks Arden Shapiro, Summer Law Clerk at Clifford Chance US LLP, for her invaluable contributions to the preparation of this article.
2
11 U. S. C. § 1506.
3
See, e. g., In re Crédito Real, S. A. B. de C. V., SOFOM, E. N. R., 677 B. R. 192, 205( D. Del. 2026) [ hereinafter Crédito Real II ](“[ S ] ection 1506 only applies‘ where the procedural fairness of the foreign proceeding is in doubt or cannot be cured...’ or where recognition when a foreign proceeding would yield a different result than in a U. S. plenary proceeding. For example, courts have recognized foreign proceedings that do not afford creditors the right to a jury trial or the benefits of the absolute priority rule. 4
Since chapter 15’ s enactment in 2005, the public policy exception has been applied only in a handful of cases. For example, in In re Toft 5, the court denied enforcement of a German court order that would have compelled two U. S. internet service providers to disclose a debtor’ s emails to a German insolvency administrator. The court found that the requested relief would have violated the U. S. federal laws and“ directly compromise privacy rights... built on constitutional safeguards incorporated in the Fourth Amendment.” 6
The court in In re Gold & Honey, Ltd. denied recognition of an Israeli insolvency proceeding initiated against a chapter 11 debtor after the chapter 11 petition had been filed because it would reward and legitimize violations of the automatic stay. 7
A court also denied recognition of a Brazilian ex parte preliminary asset freeze order
‘ would impinge severely a US constitutional or statutory right.’”)( quoting In re ABC Learning Centres Ltd., 728 F. 3d 301, 309( 3d Cir. 2013)).
4
See In re Ephedra Prods. Liab. Litig., 349 B. R. 333, 337( S. D. N. Y. 2006)( recognizing Canadian insolvency order even though it overrode a defendant’ s constitutional right to a civil jury trial In re Rede Energia S. A., 515 B. R. 69, 100( recognizing and enforcing Brazilian plan that consolidated debtors’ assets and authorized distributions inconsistent with the U. S. Bankruptcy Code).
5
See In re Toft, 453 B. R. 186( Bankr. S. D. N. Y. 2011).
6
Id. at 197 – 99.
7
In re Gold & Honey, Ltd., 410 B. R. 357, 372( Bankr. E. D. N. Y. 2009).