A Bankruptcy Code Chapter 15 Primer: Decision in New York Addresses Key Issues of Jurisdiction, Recognition, Public Policy, and More
Judge Martin Glenn last week issued a decision in two related chapter 15 cases, In re Foreign Econ. Indus. Bank Ltd. “Vneshprombank” Ltd., No. 16-13534, and In re Larisa Markus, No. 19-10096, 2019 Bankr. LEXIS 3203 (Bankr. S.D.N.Y. Oct. 8, 2019). The decision is chock full of case citations and offers a tutorial on chapter 15. Practitioners should refer to the decision as a helpful, up-to-date resource.
Two insolvency proceedings had been filed in Russia. One debtor was a bank and the other was an individual. The chapter 15 cases that followed were initially assigned to Bankruptcy Judge Mary Kay Vyskocil. She issued orders recognizing both Russian cases as foreign main proceedings. An attorney who was involved in the cases filed a motion to vacate the recognition orders. Six days later the cases were transferred to Judge Martin Glenn. The opinion doesn’t say why the transfer occurred.
Judge Glenn’s decision discusses the elements for recognition, the role of a foreign representative, and the distinction between foreign main and foreign non-main proceedings, and notes that documents submitted in support of recognition are presumed to be authentic. The decision also explains that upon recognition the Bankruptcy Code’s automatic stay applies, that courts can fashion discretionary relief that is “exceedingly broad,” and that foreign representatives can take discovery concerning the “property and affairs” of the foreign debtor. Moreover, courts can “entrust the distribution” of assets of a debtor’s property located in the U.S. to the foreign representative.
On the merits, Judge Glenn denied the motion to vacate the petitions and recognition. The movant questioned whether the debtors had sufficient property in the U.S. for the bankruptcy court to maintain jurisdiction, citing Bankruptcy Code section 109(a). Judge Glenn noted that there’s a “low bar to satisfy the eligibility requirements.” 2019 Bankr. LEXIS 3203, at *11. “Bank accounts, attorney retainers deposited in New York, or causes of action owned by the foreign debtor with a situs in New York” all count. Here, both debtors had property in New York, including attorney retainers.
The movant also sought to vacate the recognition orders under Federal Rule of Civil Procedure 60(b). This rule is often invoked in litigation on motions for reconsideration of orders and judgments. But Judge Glenn observed that the rule doesn’t apply in chapter 15 because section 1517(d) “provides the standard for a request to terminate or modify recognition.” 2019 Bankr. LEXIS 3203, at *14.
The movant asserted that the petitions weren’t served in accordance with Federal Rule of Civil Procedure 4 or Federal Rule of Bankruptcy Procedure 7004. But Judge Glenn said those rules don’t apply in chapter 15. Bankruptcy Rule 2002(q) does. Notice of the recognition hearing must be given to the debtor, persons or others authorized to administer foreign proceedings of the debtor, entities against whom provisional relief is sought, all parties who are involved in litigation with the debtor in the U.S., and any other entities as the court may direct. The movant didn’t contest that Rule 2002(q) had been satisfied.
Judge Vyskocil had held hearings on both chapter 15 petitions, ruling that the petitions and supporting documentation satisfied the chapter’s elements for recognition. The movant, however, sought to vacate those orders on the ground that the hearings weren’t evidentiary hearings. But Judge Glenn said that argument was “meritless” because chapter 15 doesn’t require an evidentiary hearing for recognition to be granted.
Finally, the movant asserted that the recognition orders should be vacated based on chapter 15’s public policy exception. 11 U.S.C. § 1506. Judge Glenn’s decision observed that ‘“[t]he key determination is whether the procedures used in the foreign court meet our fundamental standards of fairness.’” 2019 LEXIS 3202, at *33 (quoting In re ENNIA Caribe Holding N.V., 594 B.R. 631, 640 (Bankr. S.D.N.Y. 2018)). Here, Judge Glenn concluded, the movant had merely cited conclusory allegations in support of his argument and “no competent factual support.” Thus, the public policy exception was inapplicable.