CBInsolvency LLC

Thought Leadership

Section 1509 OF Chapter 15  – Do We Have All The Answers?

Leif_Clark_4x6@300dpiAt the 2015 Annual Spring Meeting of the American Bankruptcy Institute, CBI principal Hon. Leif M. Clark (ret.) gave a presentation on the topic of section 1509, highlighting some of the challenges presented for foreign representatives attempting to navigate the section. Often, an insolvency administrator has a litigation cause of action available to the estate, such as a collection matter, or an action to recover damages for breach of a contract, or some other action that has value to the estate. If the administrator wishes to prosecute such an action in the United States, must he or she first obtain recognition under Chapter 15 (the U.S. enactment of the Model Law on Cross Border Insolvency?

Article 9 of the Model Law simply says that “A foreign representative is entitled to apply directly to a court in this State.” The Guide to Enactment, with regard to this Article, explains that “Article 9 is limited to expressing the principle of direct access by the foreign representative to courts of the enacting State, thus freeing the representative from having to meet formal requirements such as licenses or consular action. Article 4 deals with court competence in the enacting State for providing relief to the foreign representative.” Guide, p. 55, para. 108 (UNCITRAL 2014). Thus, the original Article 9 only addressed the ability of the foreign representative to apply for ancillary relief but did not discuss whether recognition was a prerequisite for filing and prosecuting an action belonging to the estate. Section 1509, the more expansive U.S. version of Article 9 expressly addresses the question regarding what steps should be taken, if any, by a foreign representative seeking to prosecute litigation in a U.S. court. While section 1509 says that a foreign representative who has obtained recognition has the right to bring actions in any U.S. courts, section 1509(f) creates an exception to the recognition requirement for suits “to collect or recover a claim which is the property of the debtor.” Section 1509(f) raises the question of just what litigation falls within its exception.

pdf_icon   To view Judge Clark’s presentation, click on the pdf link.  As these power point slides illustrate, the answers are not yet clear.

By Hon. Leif M. Clark (ret.)