Publication

“Minimum Jurisdictional Threshold for U.S.Bankruptcy Courts in Cross-border Insolvency Cases”

Numerous companies (each, a "foreign entity") rely on the U.S. court system to restructure their debts despite having their principal assets, operations, employees and/or management located outside of the United States. In these situations, complex cross-border jurisdictional and insolvency issues often arise, even in circumstances where U.S.-based investors are not a principal source of capital. For example, a foreign entity with only tenuous ties to the U.S. may nevertheless seek to commence a Chapter 11 proceeding because the entity or its investors prefers the predictability of the Bankruptcy Code when compared to certain insolvency laws in Europe and Asia. These often favour liquidation over restructuring.  

However, when a foreign entity commences (or is otherwise subjected to) a U.S. insolvency proceeding, it must meet certain minimum requirements set forth in the Bankruptcy Code that apply to all entities, foreign and domestic. Pursuant to § 109(a) of the Bankruptcy Code, only an entity with a domicile, place of business or property within the U.S. can be a debtor under the U.S. Bankruptcy Code. Nevertheless, the Bankruptcy Code is silent as to the extent of the property interests a foreign entity (that does not have a place of business or domicile in the U.S.) must possess in the U.S. in order to reorganize under the Bankruptcy Code. Moreover, within the context of § 109(a), case law indicates that bankruptcy courts have required only nominal amounts of property to be a debtor in the U.S. Two recent cases in the U.S. Bankruptcy Court for the Southern District of New York, Almatis B.V. and Marco Polo Seatrade B.V. (MPS), further illustrate the point.

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