Second Circuit limits availability of Chapter 15

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In a recent opinion on an issue of first impression, the US Court of Appeals for the Second Circuit held that foreign entities seeking recognition under Chapter 15 of the Bankruptcy Code must, in addition to satisfying the requirements for recognition set forth in that chapter, have a residence, domicile, place of business or assets in the US. The Second Circuit’s decision reversed an earlier Bankruptcy Court ruling that granted recognition under Chapter 15 to an Australian company that had not introduced evidence of any assets or operations in the US and conflicts with a recent ruling of the Bankruptcy Court for the District of Delaware holding that a Chapter 15 debtor is not required to have assets in the US. In so doing, the Second Circuit added an additional barrier to Chapter 15 recognition, which could be problematic for foreign companies looking to benefit from the advantages of the US legal system.

In connection with its ongoing liquidation proceedings in Australia, the foreign representatives of Octaviar Administration, an Australian company, petitioned the Bankruptcy Court for an order recognising the Australian liquidation as a ‘foreign main proceeding’ under Chapter 15. The Bankruptcy Court granted recognition and shortly thereafter Octaviar’s foreign representatives filed a motion seeking discovery from Drawbridge Special Opportunities Fund in connection with an ongoing lawsuit in Australia. Drawbridge appealed the recognition order and requested a stay of discovery pending appeal. The Bankruptcy Court granted the parties’ joint application for certification of the recognition order for direct appeal to the Second Circuit on the grounds that there was no controlling precedent governing whether or not a ‘debtor’ within the meaning of Chapter 15 is or is not required to comply with the domicile, residence, place of business or property requirement set out in section 109(a) of the Bankruptcy Code…

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