“How Low Can You Go? Minimum Jurisdictional Threshold for U.S. Bankruptcy Courts in Cross-Border Insolvency Cases”
In the modern global economy, there are numerous companies (for purposes of this article, each is referred to as a “foreign entity”) that, despite having a majority of their principal assets, operations, employees and/or management located outside of the United States, rely on the U.S. court system to adjudicate their issues. As economic markets shift, or as a foreign entity otherwise finds itself needing to restructure its debt or right-size its capital structure, complex cross-border jurisdictional and insolvency issues often arise, even in circumstances where U.S.-based investors are not a principal source of capital.
One such issue is the proper jurisdiction in which the foreign entity should commence its bankruptcy proceedings. Some foreign entities with only tenuous ties to the U.S. may still seek the protections of the Bankruptcy Code for many reasons. In some circumstances, a foreign entity or its investors may prefer the predictability of the chapter 11 bankruptcy process to the myriad uncertain (and often less nuanced) insolvency laws located throughout Europe and Asia, which often favor liquidation over restructuring. In other circumstances, however, a creditor may prefer to foreclose on assets securing the foreign entity’s obligations and avoid the obstacles (including the worldwide automatic stay) that a chapter 11 proceeding in the U.S. would impose.