What type of foreign debtors are eligible for relief under Chapter 15 of the Bankruptcy Code? Is a circuit-level split in the offing?

Whether a foreign bankruptcy case can be recognized under chapter 15 if the foreign debtor fails to comply with the mandates of section 109 (of chapter 1) and section 1517 (of chapter 15) of the Bankruptcy Code has long been a controversial issue. As anticipated in oral argument held on March 10, 2023, the Eleventh Circuit has now waded into this thicket, setting up the possibility of a circuit-level counterbalance to the Second Circuit’s pivotal decision in In re Barnet.

Statutory Text

Appearing in chapter 1 of the Bankruptcy Code, section 109(a) provides that “only a person residing or having a domicile, place of business, or property in the United States, or a municipality, may be a debtor under this title.” ,” that is to say the entire Bankruptcy Code.

But what about an entity seeking protection under Chapter 15, the part of the Bankruptcy Code dedicated exclusively to cross-border proceedings and foreign debtors?

This question involves two provisions.

First, section 103(a) makes “all of (c)chapter 1,” which includes section 109(a), “applicable to (c)chapter 15.”

Second, under section 1517, a US bankruptcy court “shall” make an order recognizing a foreign proceeding provided that: (1) “such foreign proceeding for which recognition is sought is a foreign proceeding principal or non-principal foreign proceeding within the meaning of section 1502”; (2) “the foreign representative requesting recognition is a person or an organization”; and (3) the petition for recognition meets the requirements of section 1515.

divided precedent

In In re Barnett, the Second Circuit decided that both section 109 and section 1517 refer to the chapter 15 eligibility of a foreign debtor. In other words, it ruled that the above provision, which requires US residence, property, or a place of business, applies in chapter 15 cases, as well as cases filed under other chapters.

Dissidence has continued. Less than a week later, the Delaware US Bankruptcy Court said otherwise in Regarding Bemarmara Consulting as, No. 13-13037-KG (Bankr. D. Del.). Years later, like the bankruptcy court, the US District Court for the Middle District of Florida similarly found in In re Talas Qais Abdulmunem Al Zawawi637 BR 663 (MD Florida 2022).

This was the decision whose merits will now be the subject of a future opinion of the Eleventh Circuit.


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