US Chapter 15: Recognition of Indonesian Reorganization Plan

On September 14, 2020, the US Bankruptcy Court for the Southern District of New York recognized the Indonesian court-supervised restructuring plan for the Indonesian Duniatex textiles group ("Duniatex Group") under Chapter 15¹. Chapter 15 is a powerful and accessible tool for protection under the US Bankruptcy Code for non-US debtors facing litigation claims in the US. Non-US debtors subject to restructuring or liquidation cases outside the US may obtain protections from creditor action in the US by commencing a Chapter 15 case, thereby facilitating the debtor's ability to restructure.

A Chapter 15 case is ancillary to a primary restructuring proceeding brought outside the US. Chapter 15 governs the provision of relief under US bankruptcy law to non-US companies and individuals in "foreign proceedings"² that seek to protect their US-located assets from enforcement proceedings or direct appropriation by individual creditors. Chapter 15 largely adopted the UNCITRAL Model Law on Cross-Border Insolvency and divides foreign insolvency proceedings into two categories: main proceedings and non-main proceedings. Main proceedings are cases pending in the country where the debtor has its centre of main interest. If a US bankruptcy court recognizes a case as a foreign main proceeding, Chapter 15 provides an automatic stay within the territory of the US which is subject only to a limited public policy exception.³ In addition, Chapter 15 provides discretionary relief for non-main proceedings which may also include an automatic stay,⁴ subject to the requirement that all creditors be "sufficiently protected".⁵

Filing a Chapter 15 case requires that:

(1) a debtor is subject to a foreign proceeding;⁶

(2) a "foreign representative"⁷ files a Chapter 15 petition; and

(3) certain English-translated documents accompany the petition.⁸

In addition, the US bankruptcy court will also likely require the debtor to show some connection to the US in the form of a residence, domicile, place of business or assets in the US.⁹ However, the US Bankruptcy Court for the Southern District of New York ("SDNY bankruptcy court") has clarified that these requirements should not be prohibitive or onerous. For example, in Berau Capital¹⁰ the SDNY bankruptcy court held that an attorney retainer held by the foreign representative's New York counsel and intangible property such as the debtor's contractual rights under a NY law governed indenture was sufficient to provide a basis for Chapter 15 eligibility. Similarly, in BCI Finance¹¹, a minimal retainer placed in the trust account of the foreign liquidator's US counsel and a claim of the debtor in respect of a breach of fiduciary duties by a former director was sufficient. In PT Bakrie Telecom¹², a debtor's contractual rights under an indenture containing both a New York choice of law and forum selection clause was sufficient.

The various SDNY bankruptcy court decisions indicate that even foreign debtors with no substantial property, and only litigation claims against parties in the US, are able to seek Chapter 15 protection.

The court will typically grant provisional or interim relief to the debtor following the filing of a Chapter 15 petition and grant permanent relief once the petition is recognized.¹³ This relief will typically include an automatic stay within the territorial jurisdiction of the US.

The automatic stay operates as a stay applicable to all entities of, among others:

(1) the commencement or continuation of any judicial, administrative or other action or proceeding against the debtor that was or could have been commenced prior to the petition date; and

(2) any act to obtain possession of property of the debtor's bankruptcy estate or to exercise control over property of the estate.¹⁴

In...