Cross-Border Insolvencies: Plenary Cases and Ancillary Proceedings Involving Foreign Debtors in U.S. Bankruptcy Court

There are two types of insolvency proceedings under United States bankruptcy law which are available to entities formed outside the United States. First, a foreign entity that is already subject to a “foreign proceeding” may be made a debtor in an ancillary case commenced by the filing in the United States of a petition by a “foreign representative” pursuant to § 304 of the U.S. Bankruptcy Code. Second, a foreign entity may, subject to limitations discussed below, become a debtor in a full plenary case in the United States.

Bankruptcy Code § 304 is intended to invoke the powers of the bankruptcy courts, in a limited way, in proceedings that are supplemental to a plenary “foreign proceeding.” One of the central elements of § 304 is a requirement that the bankruptcy court weigh the request for relief in the § 304 petition against a number of factors, including those that stress the interests of the parties in the foreign proceeding and others that stress the interests of U.S. creditors. An examination of the reported decisions under § 304 demonstrates that, with at least one recent exception, courts are generally amenable to (1) granting foreign representatives access to United States bankruptcy jurisdiction upon the filing of § 304 petitions and (2) giving broad definition to the parameters of relief available under § 304.

For the full story, please view the PDF.