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Chapter 15 Can Impact Foreign Bankruptcy As Well As Domestic Civil Litigation
When a debtor that is subject to a foreign insolvency proceeding holds assets, contracts or other rights in this country, it requires a mechanism to ensure that it can deal with creditor claims in a manner consistent with the foreign restructuring regime. Chapter 15 specifically provides such relief by permitting foreign parties access to the U.S. federal court system for the purpose of facilitating cooperation between the courts and other authorities of foreign countries and U.S. courts. At first glance, Chapter 15 might appear to have the relatively minor role of staying actions against U.S. assets while the main foreign proceeding moves forward. However, as one recent case out of the Southern District of New York demonstrates, Chapter 15 carries the potential to significantly impact not only the main foreign bankruptcy, but civil litigation in the United States as well.
In In re Comair Limited (In Business Rescue), S.D.N.Y. Bankr. (Nov. 15, 2021), U.S. District Court Judge James L. Garrity Jr. of the Southern District of New York was tasked with analyzing Chapter 15 in the context of a discovery motion by the debtor in a South African restructuring proceeding. Specifically, the foreign representatives of Comair Limited moved for entry of an order permitting them to conduct discovery of The Boeing Company pursuant to section 1521 of the Bankruptcy Code and Rules 2004 and 9016 of the Federal Rules of Bankruptcy Procedure. After considering the purpose of Chapter 15's discovery provisions in light of the facts and posture of the parties' claims, Garrity found that Comair's foreign representative had established grounds under Section 1521(a)(4) to conduct discovery of Boeing.
Background
The history of the parties here involves a few of the major issues facing airlines in recent years. Comair is a large regional commercial airline company operating in southern Africa. In 2010, it entered into an agreement with Boeing, under which it agreed to purchase aircraft for Comair to operate. A subsequent purchase agreement entered in 2013 called for the manufacture and delivery of eight 737 MAX 8 aircraft. After one aircraft was delivered in February 2019, the remaining seven were scheduled to be delivered between March 2019 and March 2024. However, following the fatal 737 MAX 8 crashes in October 2018 and March 2019, all 737 MAX 8 aircraft worldwide were grounded, and the parties abandoned the delivery plan. Ultimately, in February 2020, Comair declared that it had terminated the 2013 purchase agreement, which Boeing disputed.
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