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| vol 15, num 3 | September, 2018 |
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| ► IN this issue: Focus on Chapter 15
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| Third-Party Release in Uncontested Chapter 15 Cases |
| On April 9, 2018, Hon. Martin Glenn of the U.S. Bankruptcy Court for the Southern District of New York approved third-party releases of nondebtor affiliate guarantors in a chapter 15 proceeding, even though not all of the parties bound by the releases had voted in favor of the releases.
At first blush, this opinion raises the hope that the bankruptcy court would weigh in on the issue of third-party releases in chapter 11 cases. The opinion discusses chapter 11 third-party releases in two distinct instances in the opinion, but ultimately provides no analysis of third-party releases in chapter 11 cases.
The facts are not complicated or even particularly compelling. Avanti Communications Group PLC had become overleveraged and did not expect to be able to pay its 2023 Senior Secured Notes at maturity. Further, the 2023 Senior Secured Notes were effectively unsecured. Avanti and certain creditors negotiated a debt-restructuring agreement that swapped the 2023 Senior Secured Notes for equity and released Avanti’s affiliates that had guaranteed payment of the 2023 Senior Secured Notes.
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| Claims in the U.S. Can Make a Foreign Debtor Eligible for Chapter 15 |
| In the Second Circuit, § 109(a) of the Bankruptcy Code applies to cases brought under chapter 15, meaning that a foreign representative cannot seek recognition or any other type of relief under chapter 15 if the foreign debtor does not have a domicile, residence, place of business or property in the U.S.
Many courts have examined what exactly qualifies for § 109(a) and have generally ascribed broad definitions to “place of business” or “property” in the U.S. so that satisfying § 109(a) is relatively easy. For example, a “place of business” does not require a principal place of business. One court even found that a foreign debtor’s employment of a U.S. accountant who merely maintained books and records regarding the debtor in her office was sufficient to satisfy § 109(a). Courts have also stated that there’s a “relatively low bar” to show “property” in the U.S. As one court explained, “109(a) simply uses the word ‘property.’… It doesn’t say that [the] property needs to be significant in amount. It just has to be here.” Unearned retainers, small bank accounts and small receivables have all qualified as “property” in
the U.S.
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| Foreign Representatives “Discover” Another Chapter 15 Tool |
| Recently, the U.S. Bankruptcy Court for the Southern District of New York was asked to decide whether an auditor was required to provide its work papers to a foreign representative who sought to compel such production pursuant to certain provisions of the Bankruptcy Code and the Bankruptcy Rules, including Bankruptcy Code § 1521. Despite the auditor’s objections to the discovery request, the bankruptcy court held that the arbitration clause in the underlying engagement letter did not limit the requested relief, and there was no evidence that Cayman law prohibited the bankruptcy court from granting such relief. |
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