The Ambiguous Application of § 365 to Chapter 15 Proceedings

• Published in: American Bankruptcy Institute journal 2024-08, Vol.43 (8), p.20-68
• Main Authors: DiPietro, Michael V, Casal, Max
• Format: Article
• Language: English
• Subjects: Bankruptcy; Bankruptcy laws; Federal courts; Insolvency; Jurisdiction; Provisions; Public policy
• ISSN: 1931-7522

Effects of Recognition of a Foreign Main Proceeding: Section 1520 Where a foreign main proceeding has been recognized, the U.S. bankruptcy court's jurisdiction is generally limited to the debtor's assets that are located in the U.S.4 Upon recognition of a foreign main proceeding: 1. To grant discretionary relief pursuant to § 1521, § 1522 requires a bankruptcy court to first ensure that the interests of creditors and debtors alike are "sufficiently protected." [...]the overarching public policy provision of § 1506 represents an additional, independent hurdle that must be overcome before a court can apply § 365. The tensions between the foreign debtor's need to restructure, the court's mandate to carry out the rehabilitative intentions of the Code, the preservation of creditors' interests and expectations, and the multiple impediments currently in place under the statutory framework of chapter 15 all create substantial issues, both for creditors that hold interests in the foreign debtor's domestic assets and for domestic contract counterparties. [...]a supplemental order - entered at the beginning of the case without an established record, significant evidence or any meaningful opportunity for input from creditors - is at heightened risk of later being overruled and/or remanded for a failure of the bankruptcy court to adequately weigh the interests referenced in § 1522.13 As a separate basis for overruling and remanding the bankruptcy court's prior order, the district court in Qimonda also found that the bankruptcy court had failed to consider "whether § 365(n) embodies the fundamental public policy of the [U.S.], such that subordinating § 365(n) to German Insolvency Code §103 is an action 'manifestly contrary to the public policy of the [U.S.]'" under § 1506.14 The end result is a series of hoops that the court and parties must jump through to achieve some semblance of certainty as to the rights and duties of a foreign debtor and its U.S. counterparties.