CBInsolvency LLC

Thought Leadership

CBI Principal Dan Glosband reports on the continuing controversy over whether Section 109(a) applies to Chapter 15 eligibility – one recent ruling erroneously says it does, and one correctly concludes it does not – and both are on appeal!

Section 109(a) of the Bankruptcy Code requires a debtor to have its domicile, a place of business or property in the U.S. to be eligible to be a debtor in a case under Chapters 7 (liquidation), 9 (municipalities), 11 (reorganization), 12 (family farmers) and 13 (individual debtors’ payment plans), but does not apply to Chapter 15.

A foreign proceeding must meet eligibility requirements to obtain recognition but the debtor is extraneous to the recognition process.  When the Second Circuit Court of Appeals ruled in 2013 that the debtor-eligibility requirements of Bankruptcy Code Section 109(a) applied to Chapter 15 recognition (In re Katherine Elizabeth Barnet (Drawbridge Special Opportunities Fund, LP v. Katherine Elizabeth Barnet, Foreign Representative), 737 F. 3d 238 (2d Cir. 2013), CBI principal Dan Glosband and his co-draftsman of Chapter 15, Prof. Jay Westbrook, published articles explaining why the decision was wrong.

These articles can be viewed and downloaded by clicking these links:

IRR Barnet Article
ABI Barnet Article

They then joined with the other members of the International Aspects Committee of the National Bankruptcy Conference to suggest, in a letter to Congress, that it modify the Bankruptcy Code to clarify that Section 109(a) does not apply to recognition.  That letter can be viewed and downloaded by clicking this link:

NBC-Ltr-to-Cong-re-Ch-15-Amendments2

Continuing the effort to confine the Barnet requirements to the Second Circuit, Dan and Jay, joined by Hon. Ralph Mabey (Ret.) and CBI principal Hon. Leif Clark (Ret.), filed a brief amici curiae in an appeal to the Northern District of California, supporting reversal of a decision by a bankruptcy judge who denied recognition of an Australian proceeding on Section 109(a) grounds. On February 12, 2018, the District Court in In re Forge Group Power Pty Ltd affirmed the application of Section 109(a) but remanded the decision on other grounds. That brief and the District Court opinion can be viewed and downloaded by clicking these links:

Forge Power Brief

Forge Group Appeal

The same group of amici curiae is now drafting another brief, this time to support a decision of a bankruptcy judge in the Southern District of Florida who refused to apply Section 109(a) to a petition for recognition and granted recognition to the Brazilian proceeding of MMX Sudeste Mineração S.A.

Stay tuned and we will report on the results in these two appeals.  Please feel free to forward this Newsletter to people who may be interested in these developments.

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By Dan Glosband