Four recent decisions in the Chapter 15 arena all support the use of Chapter 15 by a foreign representative in the pursuit of relief in the US.
On April 24 of this year, Judge Sean H. Lane of the US Bankruptcy Court for the Southern District of New York issued his opinion in the Chapter 15 cases of Australian debtors B.C.I. Finances Pty Limited (in Liquidation) and affiliates, granting recognition of the Australian liquidation proceedings of these related debtors. The Chapter 15 cases were filed by the joint provisional liquidators in the Australian proceedings because certain of the debtors' principals (who had been found liable in Australia for various tax and breach of statutory and fiduciary duty violations) had relocated to New York, likely in an effort to avoid recovery by the liquidators. The provisional liquidators commenced the Chapter 15 cases to pursue discovery and possible litigation against these insiders.
Certain parties objected to the debtors’ eligibility for Chapter 15 in the US on the grounds that they did not comply with the Section 109(a) requirement that the debtor have “a domicile, a place of business, or property in the United States….” In an oft-discussed decision—Drawbridge Special Opportunities Fund LP v. Barnet (In re Barnet, 737 F.3d 238 (2d Cir. 2013)—the Second Circuit had ruled that the property requirement of section 109(a) applies in Chapter 15 cases (based on the fact that section 103(a) of the Bankruptcy Code provides that all of Chapter 1 applies in Chapter 15 cases). The Second Circuit so ruled even though in Chapter 15, it is the foreign debtor’s legal representative, not the debtor itself, that files the petition for recognition, and it is section 1517 that provides the requirements for Chapter 15 recognition. A number of courts since Barnet have endorsed workarounds that have allowed for Chapter 15 eligibility based on minimal connections to the US.
In B.C.I., the court overruled the objection based on section 109(a), and found that the provision by each debtor of US$1,250 in retainers to the liquidators’ US counsel as well as the existence of breach-of-fiduciary-duty claims against the insiders who were located in the US, each constituted property in the US sufficient to satisfy the Barnet standard and section 109(a). Judge Lane made clear that even a minimum amount of property satisfied section 109(a) and rejected the argument that the very small retainers were provided to “manufacture” statutory eligibility.
Finally, the court undertook a thorough analysis to determine the situs of the fiduciary duty claims, including considering expert testimony. The court concluded that, under New York’s “greater interest test,” Australian law should determine the situs of the claims, and under Australian law, the claims were deemed to be situated in New York because they were properly recoverable where the defendants were located. Thus, these claims constituted property in the US for purposes of section 109(a).
The use of Chapter 15 has also been sanctioned by courts in aid of foreign representatives looking for discovery from US parties in interest. Recently, in the jointly administered Chapter 15 cases of Platinum Partners Value Arbitrage Fund L.P. and Platinum Partners Value Arbitrage Intermediate Fund L.P...
