Concurrent Plenary Insolvency Proceedings: Additional Options for Cross-Border Reorganization and Liquidation

Mainbrace | March 2017 (No. 2)

Michael B. Schaedle and Bryan J. Hall

For the most part, the U.S. Bankruptcy Code formally and specifically deals with cross-border cases through chapter 15, a statute based on the Model Law on Cross-Border Insolvency promulgated by the United Nations Commission on International Trade Law (“UNCITRAL”) in 1997.1 The purpose of chapter 15 is to enhance cooperation between U.S. and foreign courts in connection with cross-border insolvencies to promote greater legal certainty for trade and investment, fairness, value optimization of a debtor’s assets, and the protection of investment and employment.2 Chapter 15 serves these goals by providing a foreign debtor’s representative with access to U.S. courts to assist a foreign main or non-main proceeding, which has been raised cross-border in a jurisdiction that is either the center of the debtor’s main interests or in which the debtor has an important facility.

The One Plenary Proceeding Myth

The chapter 15/UNCITRAL concept of cross-border reorganization assumes that most distressed companies will have a defined center of business and therefore will gravitate jurisdictionally to a specific court in a single country. This court then will have a dominant say—a “plenary” or full say, if you will— over the property and affairs of the debtor; a say that requires support and comity from other jurisdictions in which key debtor assets are located. Indeed, chapter 15 references “ancillary” (or supportive) cases in its title and, for the most part, is about using the power of the U.S. bankruptcy court to assist a foreign court with plenary power in restructuring a foreign debtor. The very idea of a jurisdiction with plenary or full power over a debtor’s restructuring might suggest that the existence of such power in a single jurisdiction limits the ability of other systems, nations, and courts to likewise assert plenary or full power over the debtor.3

This is a conceptual mistake, which can lead to strategic error in planning for a cross-border reorganization or other international collective remedy. It is critically important to recognize that bringing a plenary bankruptcy case in one jurisdiction does not preclude the filing of plenary cases for the same debtors in multiple jurisdictions4 or the filing of plenary cases for different, but closely related, sets of debtors that are integral parts of the same business.5 Indeed, chapter 15 explicitly recognizes that the same debtor can, and, in certain circumstances, should, be a debtor in an existing plenary foreign proceeding and also in a new plenary proceeding in the United States, even as the same debtor has a concurrent ancillary proceeding pending under chapter 15.

Concurrent Plenary Proceedings under the Bankruptcy Code

Bankruptcy Code section 1511 permits a foreign representative to file a plenary chapter 7 or chapter 11 case for a foreign debtor after its foreign main proceeding has been recognized in chapter 15.6 The authority to file a plenary proceeding in appropriate circumstances exists because a foreign representative in a chapter 15 proceeding cannot take advantage of the full suite of powers that are available to a trustee in chapter 7 or a trustee or debtor-in-possession in chapter 11 to maximize the value of the debtor’s property that is not otherwise subject to the pending foreign main proceeding. If (i) the foreign debtor has assets in the United States, (ii) such assets are not subject to the jurisdiction and control of the court in the foreign main proceeding, and (iii) the filing of a new plenary case in the United States would be “necessary to implement cooperation and coordination [under chapter 15],” then a plenary chapter 7 or 11 can be commenced to address the relevant U.S. assets and/or value even as the chapter 15 itself is pending.7

Typically, this kind of follow-on U.S. plenary case is filed to take advantage of the ability of a trustee to pursue avoidance actions under chapter 5 of the Bankruptcy Code. A foreign representative only has the power to seek the turnover or specified actions to recover property, but cannot sue to void a transaction as a preference or because it is constructively or actually fraudulent.8 Broader applications of the power under section 1511 are conceivable. For example, if the chapter 15 ancillary proceeding was filed in connection with a foreign main proceeding that has a territorial approach to staying creditors, then a follow-on plenary proceeding might enable application of the U.S. worldwide automatic stay9 to protect assets outside the jurisdiction of the court in the foreign main proceeding. Likewise, chapter 11 reorganization power can enable the issuance of plan/reorganization securities on certain terms that can be value maximizing and advantageous—perhaps, a foreign main proceeding’s rehabilitative power to restructure a foreign debtor on a stand-alone basis could be augmented by direct access to chapter 11 on a follow-on basis.10 Generally, approaches to the use of chapter 15 must be nuanced and recognize the flexibility of both the plenary and ancillary side of U.S. bankruptcy law.


  1. This Model Law has been adopted in varying iterations in forty-three (43) jurisdictions worldwide, including the United States. While very effective in improving cross-border reorganizational efficiency and having importantly leveraged the United States as an adopting nation with its powerful markets and courts, the Model Law is not the only rubric that is followed for cross-border reorganization. See S. Chandra Mohan, Cross-border Insolvency Problems: Is UNCITRAL Model Law the Answer?, 21 Int’l Insolvency Rev. 199 (2012).
  2. 11 U.S.C. § 1501(a)(1)-(5); Tacon v. Petroquest Res. Inc. (In re Condor Ins. Ltd.), 601 F.3d 319, 329 (5th Cir. 2010).
  3. See, e.g., Odd-Bjorn Huse v. Huse-Sporsem (In re Birting Fisheries, Inc.), 300 B.R. 489, 499 (B.A.P. 9th Cir. 2003) (stating that “plenary Article I bankruptcy power” includes “’the implied power to protect” exercises of plenary authority and “will be construed as exclusive” in certain contexts).
  4. See, e.g., In re BPS U.S. Holdings Inc., et al., Case No. 16-12373 (KJC) (Bankr. D. Del.) and In the Matter of a Plan of Compromise or Arrangement of Performance Sports Group, Ltd., et al., Court File No. CV-16-11582-00CL (Ont. Sup. Ct. of Just. (Comm. List)) (identical debtors filed simultaneously in U.S. chapter 11 and Canadian CCAA, subject to cross-border protocol and joint/unitary hearing structure on all important administrative matters). It might be instructive to consider whether the mega-Hanjin Shipping Co. bankruptcy filed under the Debtor Rehabilitation and Bankruptcy Act in Korea might have been more successful in its initial, rehabilitational phase, which was characterized for a time by substantial, successful enforcement action by attaching creditors and blockading terminal operators outside Korea, if Hanjin Shipping Co., Ltd. had filed plenary cases in Korea and also in the United States and perhaps in China, and then created a working cross-border protocol. In such a circumstance, the practical authority of multiple courts exercising plenary bankruptcy power over a broader set of critical assets might have created a softer landing for the line and better enabled a complex multi-jurisdictional merger or acquisition.
  5. See, e.g., In re Nortel Networks, Inc., 532 B.R. 494, 554 (Bankr. D. Del. 2015), appeal certified, slip op., 2016 WL 2899225 (D. Del., May 17, 2016) (in the context of a decision, which allocated sale proceeds between three separate plenary cases/estates on a modified pro rata basis, the court described the three sets of Nortel debtors in their three plenary proceedings “as a unified global enterprise”).
  6. Bankruptcy Code section 1511 states that “(a) [u]pon recognition, a foreign representative may commence – (1) an involuntary case under section 303 [of the U.S. Bankruptcy Code]; or (2) a voluntary case under section 301 or 302 [of the U.S. Bankruptcy Code], if the foreign proceeding is a foreign main proceeding.”
  7. 11 U.S.C. § 1528; see also British Am. Ins. Co. v. Fullerton (In re British Am. Ins. Co.), 488 B.R. 205, 226 (Bankr. S.D. Fla. 2013). If a plenary chapter 7 or 11 case is commenced after the foreign main proceeding has been recognized, the bankruptcy court may modify or terminate the relief granted in the chapter 15 proceeding to the extent it is inconsistent with the new commenced plenary proceeding. See 11 U.S.C. § 1529(2).
  8. 11 U.S.C. § 1521(a)(7); see, e.g., In re Awal Bank, BSC, 455 B.R. 73, 79-80 (Bankr. S.D.N.Y. 2011) (follow-on chapter 11 case commenced and was sustained, while chapter 15 was pending, for Bahraini bank in order to avoid an improper setoff); see also In re Gold & Appel Transfer S.A., Bankr. Case No. 14-00089 (Bankr. D.C. 2014) (follow-on chapter 7 case commenced and sustained to enable trustee to exercise so-called strong arm powers under Bankruptcy Code section 544, enabling lien avoidance as to key property—all while a proceeding under Bankruptcy Code section 304, the predecessor to chapter 15, was pending).
  9. See, e.g., Sec. Investor Prot. Corp. v. Bernard L. Madoff Inv. Sec., LLC, 474 B.R. 76, 82 (S.D.N.Y. 2012) (observing that, in a plenary case under the U.S. Bankruptcy Code, the automatic stay under Bankruptcy Code section 362(a) “extends beyond the territorial boundaries of the United States” and applies to all assets of the debtor “wherever located and by whomever held”).
  10. 10.11 U.S.C. § 1145 (exempting chapter 11 reorganizations from the registration requirements of the Securities and Exchange Act of 1933); see also In re Bd. of Dirs. of Multicanal S.A., 340 B.R. 154, 166 (Bankr. S.D.N.Y. 2006) (in a case where Argentine debtors filed an ancillary proceeding in the U.S. seeking recognition of a prepackaged reorganization under Argentine law, the court observed in dicta that Section 1145 would not apply because the securities were being exchanged in a proceeding under Argentine law not under the Bankruptcy Code). Depending on the circumstances, debtors in foreign proceedings may be able to avail themselves of section 1145 either by filing a chapter 15 ancillary proceeding and then filing a follow-on chapter 11 (perhaps with a prepackaged or prenegotiated plan) or by filing simultaneous plenary proceedings in a foreign jurisdiction and in the United States under chapter 11.

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