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The Bankruptcy StrategistFeaturesBankruptcyLitigation

The Domesticity Barrier to Recognition of a Foreign Proceeding Under Chapter 15

By Brian L. Shaw and Christina M. Sanfelippo

This past April, in In re B.C.I. Finances Pty Limited, 583 B.R. 288 (Bankr. S.D.N.Y. 2018), Judge Sean Lane reiterated the low domestic presence threshold (Domesticity) that a foreign representative must meet when it is petitioning for recognition of a foreign proceeding under Chapter 15. While Judge Lane's decision was consistent with a developing body of case law that has generally accepted this low Domesticity threshold, it is significant because it: 1) arises out of the Second Circuit, whose precedent requires that the petition for recognition meets the requirements of both Section 1517 and Section 109(a) of the Bankruptcy Code before it may be granted; and 2) shows that even with the additional Domesticity requirement of Section 109(a), a foreign representative can successfully obtain recognition of a foreign proceeding with only a nominal domestic presence.

In B.C.I. Finances, the foreign representative was held to have met the Domesticity requirement of Section 109(a) because the debtor possessed breach of fiduciary duty claims whose situs was the United States. Similarly, other bankruptcy court decisions have held that cash and investment accounts, account receivables and attorney retainers are sufficient enough to meet the Domesticity requirement set forth in Section 109(a); namely, that the debtor reside or have a domicile, a place of business or property in the United States. 11 U.S.C. §109(a).

Background of Chapter 15

Chapter 15, entitled “Ancillary and Other Cross-Border Cases,” was added to the Bankruptcy Code with the enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, replacing former 11 U.S.C. §304 to govern cases of cross-border insolvency. Chapter 15 incorporates the Model Law on Cross-Border Insolvency, which was promulgated by the United Nations Commission on International Trade Law in 1997 to encourage cooperation between the United States and foreign countries with respect to transnational insolvency cases. See, House Report No. 109-31, Pt. 1, 109th Cong., 1st Sess. 105-106 (Apr. 8, 2005), reprinted in 2005 U.S.C.C.A.N. 88, 169.

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