Getting Over the Starting Line: Recent Guidance in Navigating Multi-Entity Organizational Structures in Chapter 15

Chapter 15 of the Bankruptcy Code has been successfully utilized by non-US entities with assets located in the US in foreign insolvency proceedings. If certain requirements are met, Chapter 15 can protect the value of US assets by granting a stay of action against those assets during the administration of a complementary US insolvency process that is concurrent with the original foreign insolvency proceeding. To avail oneself of Chapter 15, a foreign debtor must clear two initial hurdles.

First, a foreign debtor must satisfy the debtor eligibility requirements of Section 109 of the Bankruptcy Code, which provides that “only a person [who] resides or has a domicile, a place of business or property in the United States … may be a debtor.” 11 U.S.C. § 109(a). Many courts have held that this can be satisfied by bank accounts in the US, including an undrawn retainer or even via a foreign debtor’s contract rights. See, e.g., In re US Steel Canada Inc., 571 B.R. 600, 610 (Bankr. S.D.N.Y. 2017). Importantly, a foreign debtor will not be eligible for Chapter 15 relief if it falls within one of the express exceptions set forth in Section 109(b), incorporated in Chapter 15 by Section 1501(c).

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