Court Encourages Use of Cross-Border Insolvency Provisions

Aside from the provisions affecting consumers, BAPCPA made several other notable changes to bankruptcy practice. One of these was the passage of Chapter 15, intended to provide more effective mechanisms for dealing with cross-border insolvencies (previously addressed only by the bare-bones provision for ancillary proceedings under 11 U.S.C. 304). The new provisions in Chapter 15 provide for the commencement of an ancillary case by an authorized foreign representative, and for a wide range of bankruptcy relief to be available upon recognition of the foreign proceeding.

A New York District Court has provided the first published commentary on the new Chapter 15 provisions of BAPCPA. In United States v. J.A. Jones Const. Group, LLC,333 B.R. 637 (E.D.N.Y. Nov. 29, 2005), the court suggests that a Chapter 15 ancillary case is now the exclusive means of obtaining a stay of pending litigation which involves an entity that is the subject of a foreign insolvency proceeding.

The J.A. Jones opinion was issued in response to a letter received by the court from an individual who represented that he was the interim receiver to the property of one of the defendants in the litigation pending in New York pursuant to an order entered in a Canadian insolvency proceeding. The Canadian bankruptcy proceeding involved the parent corporation of the entity which was a defendant in the New York case.

The District Court effectively held that Chapter 15 is now the exclusive means for obtaining such relief, stating that "In the absence of recognition under Chapter 15, this Court has no authority to consider [the receiver's] request for a stay." Out of concern for comity, the judge did stay the litigation for 60 days to give an appropriate representative an opportunity to commence a Chapter 15 case. As of this posting, there was no indication that a Chapter 15 petition has been filed.