Is a Foreign Debtor with No Assets in the U.S. Eligible for Chapter 15 Relief?

February 2014

Publication| Bankruptcy & Corporate Restructuring

Does section 109(a)’s requirement that a “only a person that resides or has a domicile, a place of business, or property in the United States . . . may be a debtor under this title” apply to foreign debtors in Chapter 15 proceedings? The Second Circuit Court of Appeals and the United States Bankruptcy Court for the District of Delaware addressed this novel issue in December and came to opposite conclusions. In Drawbridge Special Opportunities Fund LP v. Barnet (In re Barnet), No. 13-612, 2013 WL 6482499 (2d Cir. Dec. 11, 2013), the Second Circuit held that section 109(a)’s eligibility requirements apply in Chapter 15 proceedings, and therefore vacated an order of recognition. Less than one week later, the Delaware Bankruptcy Court in In re Bemarmara Consulting a.s., Case No. 13-13037 (KG) (Bankr. D. Del. Dec. 17, 2013) (Transcript; “Tr.”) issued an oral ruling, holding that section 109(a)’s requirements do not apply in Chapter 15 proceedings, and granting recognition to a debtor which an objector argued had no assets in the United States.

This article first sets forth the statutory provisions that led to the differing results in Barnet and Bemarmara and then explores the reasoning of the two opinions. It concludes with practical observations about the desirability and availability of chapter 15 relief for companies without significant assets located in the United States.

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