This alert considers recent developments in the US Chapter 15 aspect of cross-border insolvencies that may lead to less "COMI-shifting" — a debtor establishing its COMI (center of main interest) in a new jurisdiction where it decides to file its insolvency proceeding. COMI-shifting can be expensive and time-consuming. Companies seeking recognition of foreign proceedings under Chapter 15 of the US Bankruptcy Code may find it easier to obtain broad relief, even if the foreign proceeding is not commenced in the jurisdiction in which the company has its COMI.
In recent Chapter 15 cases, broad discretionary relief has been granted in foreign nonmain proceedings — the same scope of relief as is available upon recognition as a foreign main proceeding. Unlike foreign main proceedings, it is not necessary that a debtor's COMI be located in the jurisdiction where the proceedings were commenced. In light of the relief granted in these cases, companies that directly or indirectly maintain an "establishment" in the foreign jurisdiction may be able to avoid COMI-shifting as a prerequisite to obtaining the full measure of relief and additional assistance in a Chapter 15 case. However, depending on the facts and circumstances of a particular debtor, establishing a COMI in a foreign jurisdiction where an insolvency proceeding is located may still be necessary.
- Companies that require recognition of an international insolvency proceeding in the US may have more latitude to seek rehabilitation in a foreign jurisdiction with well-respected insolvency laws than previously may have been thought.
- Companies seeking recognition of foreign proceedings under Chapter 15 of the US Bankruptcy Code may find it easier to obtain broad relief, even if the foreign proceeding is not commenced in the jurisdiction in which the company has its center of main interests (COMI).
- In a series of recent Chapter 15 cases, broad discretionary relief has been granted in aid of foreign nonmain proceedings — the same scope of relief as is available upon recognition as a foreign main proceeding. Unlike a foreign main proceeding, it is not necessary to recognition of a foreign nonmain proceeding that a debtor's COMI be located in the jurisdiction in which the proceeding was commenced.
- In light of the relief granted in these cases, companies that directly or indirectly maintain an "establishment" in the foreign jurisdiction may be able to avoid the expensive and time-consuming process of "COMI-shifting" — establishing their COMI in that jurisdiction — as a prerequisite to obtaining the full measure of relief and additional assistance in a US Chapter 15 case.
- However, where a debtor does not conduct nontransitory economic activity in the foreign jurisdiction in which it commences its plenary foreign proceeding, the necessity to establish COMI in order to obtain relief in its Chapter 15 case may be unavoidable.
- Additionally, while Section 1521(c) may serve as a basis to limit relief afforded upon recognition of a foreign nonmain proceeding, it should not be viewed as constraining a foreign debtor from seeking, or a court from granting, the full measure of Section 1521 discretionary relief in respect of a plenary case that happens to be filed in a jurisdiction outside the company's COMI.