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The Domesticity Barrier to Recognition of a Foreign Proceeding Under Chapter 15
This past April, in In re B.C.I. Finances Pty Limited, 583 B.R. 288 (Bankr. S.D.N.Y. 2018), Judge Sean Lane reiterated the low domestic presence threshold (Domesticity) that a foreign representative must meet when it is petitioning for recognition of a foreign proceeding under Chapter 15. While Judge Lane's decision was consistent with a developing body of case law that has generally accepted this low Domesticity threshold, it is significant because it: 1) arises out of the Second Circuit, whose precedent requires that the petition for recognition meets the requirements of both Section 1517 and Section 109(a) of the Bankruptcy Code before it may be granted; and 2) shows that even with the additional Domesticity requirement of Section 109(a), a foreign representative can successfully obtain recognition of a foreign proceeding with only a nominal domestic presence.
In B.C.I. Finances, the foreign representative was held to have met the Domesticity requirement of Section 109(a) because the debtor possessed breach of fiduciary duty claims whose situs was the United States. Similarly, other bankruptcy court decisions have held that cash and investment accounts, account receivables and attorney retainers are sufficient enough to meet the Domesticity requirement set forth in Section 109(a); namely, that the debtor reside or have a domicile, a place of business or property in the United States. 11 U.S.C. §109(a).
Background of Chapter 15
Chapter 15, entitled “Ancillary and Other Cross-Border Cases,” was added to the Bankruptcy Code with the enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, replacing former 11 U.S.C. §304 to govern cases of cross-border insolvency. Chapter 15 incorporates the Model Law on Cross-Border Insolvency, which was promulgated by the United Nations Commission on International Trade Law in 1997 to encourage cooperation between the United States and foreign countries with respect to transnational insolvency cases. See, House Report No. 109-31, Pt. 1, 109th Cong., 1st Sess. 105-106 (Apr. 8, 2005), reprinted in 2005 U.S.C.C.A.N. 88, 169.
A case is commenced under Chapter 15 by a foreign representative's filing of a petition for recognition of a foreign proceeding under Section 1515. See, 11 U.S.C. §1504. Under Section 1517, an order of recognition shall be entered if the following requirements are satisfied: 1) the proceeding is either a foreign main proceeding, pending in the country where the debtor has the center of its main interests, or a foreign non-main proceeding, pending in the country where the debtor has an establishment, as defined by Section 1502; 2) the foreign representative is a person or body; and 3) the petition meets the requirements of Section 1515. 11 U.S.C. §1517(a). While some courts end their analysis with Section 1517(a), courts in the Second Circuit and at least some courts within the Ninth Circuit do not. Rather, they also look at whether the applicable debtor (on whose “behalf” the foreign representative is acting) meets the Domesticity requirement in Section 109(a).
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