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  • Writer's pictureRathee Law Firm




“This paper shall delve into the concepts of cross border insolvency under chapter 15 of the U.S. Bankruptcy Code. It shall focus on how international co-operation is achieved for managing insolvency proceedings of multinational companies. Especially, it shall elaborate upon the provisions requiring the administrators from different jurisdictions to co-operate and collaborate with each other for value maximization during the insolvency resolution process.”


The term "globalization" signifies various economic, cultural, social, and political changes. It covers from the still cherished revolution in information technology to the diminishing of national and geo-political boundaries in an ever-expanding, transnational movement of goods, services, and capital.

“The increasing homogenization of consumer tastes, the consolidation and expansion of corporate power, sharp increases in wealth and poverty, the "McDonaldisation" of food and culture, and the growing ubiquity of liberal democratic ideas are all, in one way or another, attributed to globalization.”

This continuing phenomenon of globalization for the last few decades have resulted in tremendous growth of international trade. The trend does not appear to be slowing down soon, rather it has gained unimaginable speed in the last two years. Businesses have abandoned their orthodox standard operating procedures and have resorted to the use of new age technologies. Many businesses have interests stretching beyond their home jurisdictions. Firms are increasingly organizing their activities on a global scale, forming production chains including inputs that cross national boundaries. With the advent of sophisticated communications and information technology cross-border trade is no longer the preserve only of large multi-national corporations.

As a direct consequence of globalization over the last decades, i.e., the growing importance of international trade, investments, and multinational operations of corporations - countries have been increasingly confronted with multinational defaults of the same debtor. This has given rise to potential conflicts amongst the different proceedings initiated different countries. The existence of such multiple proceedings in different jurisdictions undermines the widely respected principles of equal treatment and furthermore, the liquidation proceeds of the debtor’s assets cannot be used to achieve equitable satisfaction of all the creditors. Therefore, a reliable insolvency law framework that is predictable and equitable, however, is an essential requirement for well-functioning cross-border markets.


Insolvency refers to the situation in which a firm or individual is unable to meet financial obligations to creditors as debts become due. Cross-border insolvency is a term used to describe circumstances in which an insolvent debtor has assets and/or creditors in more than one country. The additional complexities surrounding cross-border insolvencies necessarily result in uncertainty, risk and ultimately costs to businesses. It would be of overall benefit to businesses in all countries to have adequate mechanisms in place to deal efficiently and effectively with cross-border insolvencies. Territoriality and universality have been for long the major concepts with respect to the choice of law and choice of jurisdiction (forum) in international insolvency cases. Territoriality provides for the exclusive application of national law to creditors resident in and to assets situated within that respective country and does therefore not recognize any extraterritorial judgement of a foreign court. The concept of universality, on the other hand, promotes a single forum in order to administer all the debtor’s assets. This simply means that all aspects are conducted in one proceeding according to one law with global effect. However, both approaches failed to satisfactorily provide for dealing with cross border insolvency cases. Therefore, the United Nations Commission on International Trade Law came up with concept of Modified Universalism and proposed a model framework for regulating cross border insolvency. The Model law was not directly enforceable within national borders, rather it was required from the adopting states to incorporate the principles laid down in the Model Law.


The Model Law is designed to assist States to equip their insolvency laws with a modern legal framework to more effectively address cross-border insolvency proceedings concerning debtors experiencing severe financial distress or insolvency. It focuses on authorizing and encouraging cooperation and coordination between jurisdictions, rather than attempting the unification of substantive insolvency law, and respects the differences among national procedural laws. The Model Law focuses on four elements identified as key to the conduct of cross-border insolvency cases: access, recognition, relief (assistance) and cooperation.

(a) Access: Foreign representatives, creditors and courts shall have a right to access the courts of the enacting State to seek assistance and authorize representatives of local proceedings to seek assistance from the foreign jurisdiction.

(b) Recognition: In order to avoid time consuming litigation, the model law envisions to establish simplified procedures for recognition of foreign proceedings. These core provisions of the model law accord recognition to orders issued by foreign courts commencing qualifying foreign proceedings and appointing the foreign representative of those proceedings.

(c) Relief: A basic principle of the Model Law is that the relief considered necessary for the orderly and fair conduct of cross-border insolvencies should be available to assist foreign proceedings. By specifying the relief that is available, the Model Law neither imports the consequences of foreign law into the insolvency system of the enacting State nor applies to the foreign proceedings the relief that would be available under the law of the enacting State.

(d) Cooperation and coordination: The Model Law expressly empowers courts to cooperate in the areas governed by the Model Law and to communicate directly with foreign counterparts. Cooperation between courts and foreign representatives and between representatives, both foreign and local, is also authorized.

Chapter 15 of the U.S. Bankruptcy Code: Chapter 15 is the domestic embodiment of the Model Law. It provides a mechanism for assertion of right to debtors, creditors, and other parties involved and interested in an insolvency case initiated in a foreign jurisdiction. Generally, a chapter 15 case is in addition to the primary proceedings initiated to supplement the proceedings initiated against the debtor in a foreign jurisdiction. It encourages co-operation and communication between the courts of the United States and parties in interest and foreign courts and parties in interest in cross-border cases. It provides for effective mechanisms to deal with cross border insolvency cases. The purpose of Chapter 15, and the Model Law on which it is based, is realized through five objectives specified in the statute:

(1) to promote cooperation between the United States courts and parties of interest and the courts and other competent authorities of foreign countries involved in cross-border insolvency cases;

(2) to establish greater legal certainty for trade and investment;

(3) to provide for the fair and efficient administration of cross-border insolvencies to protect the interests of all creditors and other interested entities, including the debtor;

(4) to afford protection and maximization of the value of the debtor's assets; and

(5) to facilitate the rescue of financially troubled businesses, thereby protecting investment and preserving employment.

Generally, a chapter 15 case is ancillary to a primary proceeding brought in the foreign jurisdiction, typically where debtor's business is functioning from. As an alternative, the debtor or a creditor may commence a full chapter 7 or chapter 11 case in the United States if the assets in the United States are sufficiently complex to merit a full-blown domestic bankruptcy case. Under chapter 15 the court may also authorize a trustee or other entity (including an examiner) to act in a foreign jurisdiction on behalf of a U.S. bankruptcy estate.

An ancillary case is commenced under chapter 15 by a "foreign representative" filing a petition under 11 USCS § 1515 for recognizing the "foreign proceeding." Such proceedings may be recognized as “Foreign Main Proceedings” or “Foreign Non-Main Proceedings.” The authorized foreign representative shall have the right the direct access to U.S. courts for such proceedings. The petition must be accompanied by documents showing the existence of the foreign proceeding and the appointment and authority of the foreign representative. A petition for recognition shall also be accompanied by a statement identifying all foreign proceedings with respect to the debtor that are known to the foreign representative. The court is entitled to presume that documents submitted in support of the petition for recognition are authentic, whether or not they have been legalized. Such petition shall be decided at the earliest possible time. After notice and a hearing, the court is authorized to issue an order recognizing the foreign proceeding as either a "foreign main proceeding" or a "foreign non-main proceeding". From the time of filing a petition for recognition until the court rules on the petition, the court may, at the request of the foreign representative, where relief is urgently needed to protect the assets of the debtor or the interests of the creditors, grant relief of a provisional nature. Immediately upon the recognition of a foreign main proceeding, the automatic stay and selected other provisions of the Bankruptcy Code take effect within the United States. Upon recognition of a foreign proceeding, whether main or nonmain, the court may, at the request of the foreign representative, entrust the distribution of all or part of the debtor’s assets located in the United States to the foreign representative or another person, including an examiner, authorized by the court, provided that the court is satisfied that the interests of creditors in the United States are sufficiently protected. The foreign representative is also authorized to operate the debtor's business in the ordinary course. The U.S. court is authorized to issue preliminary relief as soon as the petition for recognition is filed.

Through the recognition process, chapter 15 operates as the principal door of a foreign representative to the federal and state courts of the United States. Once recognized, a foreign representative may seek additional relief from the bankruptcy court or from other state and federal courts and is authorized to bring a full (as opposed to ancillary) bankruptcy case. Additionally, the foreign representative is also authorized to participate as a party of interest in any pending U.S. insolvency case against the debtor and to intervene in any other U.S. case where the debtor is a party.

It also required that a notice shall be given to the foreign creditors concerning a U.S. bankruptcy case, including notice of the right to file claims. Foreign creditors also have the same rights regarding the commencement of, and participation in, a case under this title as domestic creditors. There shall be no discrimination against foreign creditors. There shall same priority as provided by in the U.S. Bankruptcy Code for domestic creditors. However, it is specifically provided that foreign creditors shall not be given priority lower than the general unsecured creditors solely because they are foreign creditors. Some claims may be treated differently if their treatment is governed by any other treaty with the foreign jurisdiction.





  5. 11 U.S.C.S. § 101 (32) (A):

  6. “The term “insolvent” means—

  7. (A) with reference to an entity other than a partnership and a municipality, financial condition such that the sum of such entity’s debts is greater than all of such entity’s property, at a fair valuation, exclusive of—

  8. (i) property transferred, concealed, or removed with intent to hinder, delay, or defraud such entity’s creditors; and (ii) property that may be exempted from property of the estate under section 522 of this title”



  11. 11 U.S.C.S. § 1501

  12. 11 U.S.C.S. § 1502(1) - “debtor” means an entity that is the subject of a foreign proceeding

  13. 11 U.S.C. § 1520(c)

  14. 11 U.S.C. § 1505

  15. 11 U.S.C.S. § 1502(8) - “recognition” means the entry of an order granting recognition of a foreign main proceeding or foreign nonmain proceeding under this chapter

  16. 11 U.S.C. § 1504

  17. 11 U.S.C.S. § 1502(4) - “foreign main proceeding” means a foreign proceeding pending in the country where the debtor has the center of its main interests;

  18. 11 U.S.C.S. § 1502(5) - “foreign nonmain proceeding” means a foreign proceeding, other than a foreign main proceeding, pending in a country where the debtor has an establishment.

  19. 11 U.S.C. § 1509

  20. 11 U.S.C. § 1515

  21. Id.

  22. 11 USCS § 1516(b)

  23. 11 USCS § 1517(c)

  24. 11 U.S.C. § 1517

  25. 11 USCS § 1519(a)

  26. 11 U.S.C. § 1520

  27. 11 USCS § 1521

  28. 11 U.S.C. § 1519

  29. 11 U.S.C. §§ 1509, 1511

  30. 11 U.S.C. §§ 1512, 1524.

  31. 11 U.S.C. § 1514

  32. 11 U.S.C. § 1513 1.

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