New Jersey Bankruptcy Court Ruling Highlights the Utility of Chapter 15 in Enforcing Foreign Bankruptcy Court Orders in the United States as a Matter of Comity
"Comity" is a principle of jurisprudence whereby, under appropriate circumstances, one country recognizes within its borders the legislative, executive, or judicial acts of another nation. Many recent court rulings have examined the indispensable role of comity in the context of foreign bankruptcy or insolvency proceedings that have been "recognized" by U.S. courts during the two decades since the enactment of chapter 15 of the Bankruptcy Code. However, U.S. courts have a long history of granting comity to foreign laws or tribunals (including bankruptcy courts) in cases outside the scope of cross-border bankruptcy cases filed under chapter 15. Recent rulings by the U.S. Court of Appeals for the Third Circuit and the U.S. Bankruptcy Court for the District of New Jersey involving the same company in a Singapore liquidation proceeding illustrate the advantages of chapter 15 in recognizing and enforcing foreign bankruptcy court orders as a matter of "adjudicative" comity.
The Third Circuit recently updated its previous guidance regarding deference under principles of comity to a foreign bankruptcy proceeding in Vertiv, Inc. v. Wayne Burt PTE, Ltd., 92 F.4th 169 (3d Cir. 2024) ("Vertiv"). The court vacated and remanded a New Jersey district court order dismissing breach of contract litigation commenced by a lender against a Singaporean company due to the pendency of the borrower's Singapore liquidation proceeding because, although the borrower's court-appointed liquidator made a prima facie showing that adjudicative comity was warranted, the district court did not fully apply the standard governing such relief.
Stymied by this avenue of attack, the liquidator then filed a petition under chapter 15 seeking recognition of the debtor's Singapore liquidation proceeding. He also sought an order recognizing and enforcing a judgment of the Singapore bankruptcy court directing the lender to surrender stock pledged to secure the loan for administration in the debtor's liquidation proceeding. The bankruptcy court granted the motion for recognition and enforcement of the Singapore court's turnover order as a matter of adjudicative comity. See In re Wayne Burt Pte. Ltd. (In Liquidation), 2024 WL 5003229 (Bankr. D.N.J. Dec. 6, 2024), appeal filed, No. 24-19956 (MBK) (Bankr. D.N.J. Dec. 17, 2024), motion for stay pending appeal filed, No. 24-19956 (Bankr. D.N.J. Dec. 18, 2024) (hearing adjourned to Apr. 16, 2025).
Thus, by filing a chapter 15 petition, the liquidator in 65 days obtained relief (albeit subject to a ruling on appeal) from the bankruptcy court that had eluded him for more than four years in non-chapter 15 litigation before the New Jersey district court and the Third Circuit. This outcome is one that chapter 15 was specifically designed to accomplish consistent with its underlying purpose as a framework for coordinating cross-border bankruptcy cases under principles of comity.
International Comity
Even if a U.S. court has jurisdiction over a lawsuit involving foreign litigants, the court may conclude that a foreign court is better suited to adjudicate the dispute out of deference to the foreign court as a matter of international comity.
Comity is "the recognition which one nation allows within its territory to the legislative, executive or judicial acts of another nation, having due regard both to international duty and convenience, and to the rights of its own citizens or of other persons who are under the protection of its laws." Hilton v. Guyot, 159 U.S. 113, 164 (1895).
International comity has been interpreted to include two distinct doctrines: (i) "legislative," or "prescriptive," comity; and (ii) "adjudicative" (or "adjudicatory") comity, or "comity among courts." In re Vitamin C Antitrust Litig., 8 F.4th 136, 144 n.7 (2d Cir. 2021) (citing Maxwell Comm'n Corp. v. Societe Generale (In re Maxwell Comm'n Corp.), 93 F.3d 1036, 1047 (2d Cir. 1996); Cooper v. Tokyo Elec. Power Co. Holdings, Inc., 960 F.3d 549, 566 (9th Cir. 2020)).
The former "shorten[s] the reach of a statute"—one nation will normally "refrain from prescribing laws that govern activities connected with another state when the exercise of such jurisdiction is unreasonable." Official Comm. of Unsecured Creditors of Arcapita Bank B.S.C.(C) v. Bahrain Islamic Bank (In re Arcapita Bank B.S.C.(C)), 575 B.R. 229, 237 (Bankr. S.D.N.Y. 2017), aff'd, 640 B.R. 604 (S.D.N.Y. 2022).
Adjudicatory comity is an act of deference whereby the court of one nation declines to exercise jurisdiction in a case that is properly adjudicated in a foreign court. Id. at 238; accord Mujica v. AirScan, Inc., 771 F.3d 580, 599 (9th Cir. 2014) (under the doctrine of adjudicatory comity, the court considers whether it should "decline to exercise jurisdiction over matters more appropriately adjudged elsewhere") (citation and internal quotation marks omitted). Adjudicatory comity comes into play only if a matter before a U.S. court is either pending in, or has resulted in a final judgment from, a foreign court. See Gross v. German Found. Indus. Initiative, 456 F.3d 363, 393 (3d Cir. 2006); Spencer v. Kugler, 454 F.2d 839, 847 n.17 (3d Cir. 1972).
Because a foreign nation's interest in the equitable and orderly distribution of a foreign debtor's assets is an interest deserving respect and deference, foreign bankruptcy proceedings are one category of foreign litigation that generally mandates dismissal of "parallel" U.S. court litigation under adjudicative comity. Canada Southern Railway Co. v. Gebhard, 109 U.S. 527, 532, 537–40 (1883); Royal and Sun Alliance Ins. Co. of Canada v. Century Int'l Arms, 466 F.3d 88, 92–93 (2d Cir. 2006); Stonington Partners, Inc. v. Lernout & Hauspie Speech Products N.V., 310 F.3d 118, 126 (3d Cir. 2002), as amended (3d Cir. Nov. 12, 2002).
Stated differently, there must be a "parallel" (i.e., duplicative) foreign proceeding. Arcapita, 575 B.R. at 238 (citing Sec. Inv'r Prot. Corp. v. Bernard L. Madoff Inv. Sec. LLC (In re Madoff), 2016 Bankr. LEXIS 4067, at *32 (Bankr. S.D.N.Y. Nov. 21, 2016), vacated and remanded, 917 F.3d 85 (2d Cir. 2019), and vacated and remanded, 12 F. 4th 171 (2d Cir. 2021); Royal & Sun Alliance Ins. Co. of Canada v. Century Int'l Arms, Inc., 466 F.3d 88, 92–97 (2d Cir. 2006)). U.S. courts typically consider adjudicatory comity in considering whether to: (i) abstain from exercising jurisdiction (akin to abstaining under the doctrine of forum non conveniens) in deference to a pending foreign proceeding; (ii) enforce a foreign court's judgment in the United States; or (iii) preclude re-litigation of a claim or issue previously adjudicated by a foreign court. See Diorinou v. Mezitis, 237 F.3d 133, 139–40 (2d Cir. 2001) (citing cases).
In this context, deference to the foreign court is warranted "so long as the foreign proceedings are procedurally fair and … do not contravene the laws or public policy of the United States." CT Inv. Mgmt. Co., LLC v. Cozumel Caribe, S.A. de C.V. (In re Cozumel Caribe, S.A. de C.V.), 482 B.R. 96, 114 (Bankr. S.D.N.Y. 2012).
A pair of rulings handed down by the Third Circuit prior to 2024 addressed what courts should examine in deciding whether to abstain on comity grounds in deference to a foreign bankruptcy proceeding. In the first, Remington Rand Corp. Del. v. Bus. Sys. Inc., 830 F.2d 1260 (3d Cir. 1987), the Third Circuit emphasized that comity is generally warranted if the foreign country's bankruptcy laws share the "fundamental principle" of U.S. bankruptcy law "that assets be distributed equally among creditors of similar standing." Id. at 1271. It also cautioned that U.S. courts must "guard against forcing American creditors to foreign proceedings in which their claims will be treated in some manner inimical to this country's policy of equality." Id. (citation omitted).
The Third Circuit provided additional guidance on this issue in Philadelphia Gear Corp. v. Philadelphia Gear de Mexico, S.A., 44 F.3d 187 (3d Cir. 1994). In that case, guided by Remington, the court ruled that a party seeking a stay of U.S. litigation based on comity to a foreign bankruptcy proceeding must make a prima facie showing that: "the foreign bankruptcy law shares our policy of equal distribution of assets," and "the foreign law mandates the issuance or at least authorizes the request for the stay." Id. at 193. In the event of such a prima facie showing, the court must determine "whether according comity to the [foreign] proceedings would be prejudicial to the interests of the United States." Id. at 194. In making that inquiry, a court should assess, "along with any other issues it finds relevant," the following four issues (the "Philadelphia Gear test"): (i) whether the foreign court presiding over the bankruptcy proceedings is a duly authorized tribunal; (ii) whether the foreign bankruptcy law provides for equal treatment of creditors; (iii) whether a stay of U.S. litigation would be "in some manner inimical to this country's policy of equality"; and (iv) whether the party opposing comity would be prejudiced by a stay of the U.S. litigation. Id.
Role of Comity in Chapter 15 Cases
Comity is the bedrock of chapter 15 of the Bankruptcy Code, which was enacted nearly 20 years ago to provide a framework of principles patterned on the 1997 UNCITRAL Model Law on Cross-Border Insolvency (the "Model Law") to govern cooperation and coordination among courts presiding over cross-border bankruptcy cases. The Model Law has been implemented in some form by more than 50 countries.
Section 1501(a) of the Bankruptcy Code states that the purpose of chapter 15 is to "incorporate the [Model Law] so as to provide effective mechanisms for dealing with cases of cross-border insolvency with the objectives of," among other things, cooperation between U.S. and foreign courts, greater legal certainty for trade and investment, fair and efficient administration of cross-border cases to protect the interests of all stakeholders, protection and maximization of the value of a debtor's assets, and the rehabilitation of financially troubled businesses.
Section 1508 requires U.S. courts interpreting chapter 15 to "consider its international origin, and the need to promote an application of this chapter that is consistent with the application of similar statutes adopted by foreign jurisdictions."
Under section 1515, the "foreign representative" of a foreign debtor may file a petition in a U.S. bankruptcy court seeking "recognition" of a "foreign proceeding."
Section 101(24) defines "foreign representative" as "a person or body, including a person or body appointed on an interim basis, authorized in a foreign proceeding to administer the reorganization or the liquidation of the debtor's assets or affairs or to act as a representative of such foreign proceeding."
"Foreign proceeding" is defined in section 101(23) of the Bankruptcy Code as:
[A] collective judicial or administrative proceeding in a foreign country, including an interim proceeding, under a law relating to insolvency or adjustment of debt in which proceeding the assets and affairs of the debtor are subject to control or supervision by a foreign court, for the purpose of reorganization or liquidation.
More than one bankruptcy or insolvency proceeding may be pending with respect to the same foreign debtor in different countries. Chapter 15 therefore contemplates recognition in the United States of both a foreign "main" proceeding—a case pending in the country where the debtor's center of main interests ("COMI") is located (see 11 U.S.C. §§ 1502(4) and 1517(b)(1))—and foreign "nonmain" proceedings, which may be pending in countries where the debtor merely has an "establishment" (see 11 U.S.C. §§ 1502(5) and 1517(b)(2)). A debtor's COMI is presumed to be the location of the debtor's registered office, or habitual residence in the case of an individual. See 11 U.S.C. § 1516(c). An establishment is defined by section 1502(2) as "any place of operations where the debtor carries out a nontransitory economic activity."
Upon recognition of a foreign "main" proceeding, section 1520(a) of the Bankruptcy Code provides that certain provisions of the Bankruptcy Code automatically come into force, including: (i) the automatic stay preventing creditor collection efforts with respect to the debtor or its U.S. assets (section 362, subject to certain enumerated exceptions); (ii) the right of any entity asserting an interest in the debtor's U.S. assets to "adequate protection" of that interest (section 361); and (iii) restrictions on use, sale, lease, transfer, or encumbrance of the debtor's U.S. assets (sections 363, 549, and 552).
Following recognition of a foreign main or nonmain proceeding, section 1521(a) provides that, to the extent not already in effect, and "where necessary to effectuate the purpose of [chapter 15] and to protect the assets of the debtor or the interests of the creditors," the bankruptcy court may grant "any appropriate relief."
Such relief includes, among other things, a stay of any action against the debtor or its U.S. assets not covered by the automatic stay, an order suspending the debtor's right to transfer or encumber its U.S. assets, an order "entrusting the administration or realization of all or part of the debtor's assets within the territorial jurisdiction of the United States to the foreign representative or another person, including an examiner, authorized by the court" (11 U.S.C. § 1521(a)(5)), and an order "granting any additional relief that may be available to a trustee," with certain exceptions. 11 U.S.C. § 1521(a)(7)).
Section 1521(b) similarly provides that, upon recognition of a foreign main or nonmain proceeding, the court may entrust the distribution of the debtor's U.S. assets to the foreign representative or another person, provided the court is satisfied that the interests of U.S. creditors are "sufficiently protected."
Section 1507(a) of the Bankruptcy Code provides that, upon recognition of a main or nonmain proceeding, the bankruptcy court may provide "additional assistance" to a foreign representative "under [the Bankruptcy Code] or under other laws of the United States." However, the court must consider whether any such assistance, "consistent with principles of comity," will reasonably ensure that: (i) all stakeholders are treated fairly; (ii) U.S. creditors are not prejudiced or inconvenienced by asserting their claims in the foreign proceeding; (iii) the debtor's assets are not preferentially or fraudulently transferred; (iv) proceeds of the debtor's assets are distributed substantially in accordance with the order prescribed by the Bankruptcy Code; and (v) if appropriate, an individual foreign debtor is given the opportunity for a fresh start. See 11 U.S.C. § 1507(b).
Section 1522(a) provides that the bankruptcy court may exercise its discretion to order the relief authorized by sections 1519 and 1521 upon the commencement of a case or recognition of a foreign proceeding "only if the interests of the creditors and other interested entities, including the debtor, are sufficiently protected."
Section 1506 sets forth a public policy exception to any of the relief otherwise authorized in chapter 15, providing that "[n]othing in this chapter prevents the court from refusing to take an action governed by this chapter if the action would be manifestly contrary to the public policy of the United States." However, section 1506 requires a "narrow reading" and "does not create an exception for any action under Chapter 15 that may conflict with public policy, but only an action that is 'manifestly contrary.'" In re Fairfield Sentry Ltd., 714 F.3d 127, 139 (2d Cir. 2013); accord In re ABC Learning Ctrs. Ltd., 728 F.3d 301, 309 (3d Cir. 2013) (the public policy exception should be invoked only under exceptional circumstances concerning matters of "fundamental importance" to the United States). The public policy exception is applicable "where the procedural fairness of the foreign proceeding is in doubt or cannot be cured by the adoption of additional protections" or where recognition or other chapter 15 relief "would impinge severely a U.S. constitutional or statutory right." In re Qimonda AG Bankr. Litig., 433 B.R. 547, 570 (E.D. Va. 2010).
Wayne Burt
Vertiv, Inc. and two affiliates (collectively, "Vertiv") are Delaware corporations headquartered in New Jersey. In January 2020, Vertiv sued Wayne Burt PTE Ltd. ("Burt"), a Singaporean corporation, and Cetex Petrochemicals LTD ("Cetex") in the U.S. District Court for the District of New Jersey (the "N.J. district court") seeking to collect on a defaulted loan secured by Burt's approximately 47% equity ownership interest in Cetex (the "Cetex Shares"). Shortly afterward, the N.J. district court signed a consent order awarding Vertiv nearly $30 million in damages and declaring that the Cetex Shares were now owned by Vertiv.
In September 2020, Vertiv filed a nearly identical action in the N.J. district court against Burt and a Burt affiliate, Wayne Burt Petro Chemical Private Ltd. ("Burt Petro"). The court entered a consent judgment against the defendants in that case in November 2020.
Burt's court-appointed liquidator, Farooq Ahmad Mann (the "Liquidator") moved to vacate both judgments in February 2021 claiming that: (i) a liquidation proceeding had been filed against Burt under the Singapore Companies Act in the Singapore High Court (the "Singapore Liquidation Proceeding") before Vertiv sued Burt and Burt Petro in the N.J. district court; (ii) the Burt officers who agreed to the consent judgments entered in the litigation lacked the authority to act on Burt's behalf because such authority was vested under Singapore law solely in the Liquidator; (iii) the loans upon which those judgments were based never existed; and (iv) the Liquidator had not intervened in the N.J. district court litigation sooner because he did not have notice of the proceedings.
The N.J. district court vacated both judgments in July 2021, finding substantial and compelling evidence that the loans were fraudulent. Two months afterward, Vertiv filed an amended complaint against Burt in the now consolidated actions seeking a judgment on the same claims as well as a breach-of-contract claim against one of Burt's directors who had allegedly guaranteed the loan and signed the vacated consent judgments.
Burt then sought dismissal of the N.J. district court litigation either on international comity grounds in deference to the Singapore Liquidation Proceeding or because the court lacked personal jurisdiction over Burt.
The N.J. district court ruled that dismissal of the litigation was warranted as an exercise of comity. See Vertiv, Inc. v. Wayne Burt Pte, Ltd., 2022 WL 17352457 (D.N.J. Nov. 30, 2022), vacated and remanded, 92 F.4th 169 (3d Cir. 2024). Although the parties disputed which test should apply, the court concluded that comity was appropriate under both the Philadelphia Gear test and the similar four-factor test applied in Austar Int'l Ltd. v. AustarPharma LLC, 425 F. Supp. 3d 336 (D.N.J. 2019), which considers whether: (i) a foreign country has jurisdiction over the action; (ii) the foreign and U.S. proceedings are "parallel" or "duplicative"; (iii) "extraordinary circumstances" exist justifying a stay or dismissal of the U.S. litigation; and (iv) U.S. public policy militates against a stay or dismissal of the U.S. litigation. Id. at 363. Vertiv appealed the ruling to the Third Circuit.
Before the Third Circuit ruled on the appeal, the Liquidator commenced an action in the Singapore High Court requesting an order requiring Vertiv to return the Cetex Shares to Burt (the "Singapore Cetex Litigation"). Vertiv did not participate in the Singapore Cetex Litigation, which resulted in the Singapore High Court issuing a default judgment against Vertiv (the "Cetex Judgment") directing Vertiv to "forthwith" surrender the Cetex Shares to the Liquidator. Vertiv disregarded the Cetex Judgment and continued to prosecute the Third Circuit appeal.
In February 2024, the Third Circuit vacated the N.J. district court's order dismissing Vertiv's amended complaint on appeal and remanded the case below for further proceedings. See Vertiv, Inc. v. Wayne Burt PTE, Ltd., 92 F.4th 169 (3d Cir. 2024). In doing so, the Third Circuit "updated" its nearly three-decades-long guidance regarding deference under principles of comity to a foreign bankruptcy proceeding and articulated a "refreshed" standard for adjudicatory comity.
The Third Circuit did not fault the district court's findings that Burt had made a prima facie showing that adjudicatory comity was appropriate under the Philadelphia Gear test because: (i) Singapore law shares the U.S. policy of equality of distribution of assets among similarly situated creditors; and (ii) Singapore law authorizes a stay or dismissal of the U.S. litigation and prohibits any action against a debtor in a liquidation proceeding without leave of the court, which was not obtained in this case.
However, the Third Circuit vacated the district court's ruling and remanded the case below because the district court failed to apply the remainder of the Philadelphia Gear test. A more detailed discussing of the Third Circuit's ruling is available in our article, "Third Circuit Updates Its Standard for Granting Comity to Foreign Bankruptcy Proceedings."
On remand, the Liquidator renewed his motion to dismiss the N.J. district court litigation, and the matter was referred to a magistrate judge after Vertiv made robust discovery demands regarding Singapore insolvency law. Subsequently, the Liquidator retained Jones Day to pursue chapter 15 relief. On October 8, 2024, the Liquidator, as Burt's foreign representative (the "FR"), filed a petition in the U.S. Bankruptcy Court for the District of New Jersey for chapter 15 recognition of the Singapore Liquidation Proceeding. The FR concurrently filed a motion for an order recognizing and enforcing the Cetex Judgment under sections 1521 and 1507 of the Bankruptcy Code.
On November 7, 2024, the U.S. bankruptcy court entered an order recognizing the Singapore Liquidation Proceeding under chapter 15 as a foreign main proceeding, which automatically stayed the N.J. district court litigation.
Vertiv opposed the motion seeking recognition and enforcement of the Cetex Judgment, arguing that the U.S. bankruptcy court—rather than the Singapore High Court—should determine whether the Cetex Shares should be surrendered to the FR.
The Bankruptcy Court's Ruling
On December 12, 2024, within 65 days of filing the chapter 15 petition, the U.S. bankruptcy court granted the FR's motion for an order recognizing and enforcing the Cetex Judgment under sections 1521(a) and 1507 of the U.S. Bankruptcy Code and as a matter of adjudicative comity.
U.S. Bankruptcy Judge Michael B. Kaplan wrote that "[t]here is no question that the steps taken by the [FR] to secured the availability of the Cetex stock certificates for anticipated disposition consistent with Singapore law serves the interests of all creditors in the Singapore Liquidation Proceeding," thereby satisfying the "sufficient protection" requirement of section 1522(a). Wayne Burt, 2024 WL 5003229, at *4.
The bankruptcy court explained that, as noted by the Third Circuit in Vertiv, there are "many similarities" between the U.S. bankruptcy process and the Singapore insolvency system, including:
- The "pari passu principle" is a "fundamental principle" of Singapore's insolvency law, whereby the property of a liquidating debtor must be applied pari passu in satisfaction of its debts, except as provided otherwise by the statutory priority scheme;
- Court-appointed liquidators are officers of, and accountable to, the Singapore court;
- Creditors have the right to submit proof of their claims with the liquidator and can seek relief from the Singapore court if dissatisfied with a liquidator's decision to allow or disallow claims;
- Liquidators are required to notify creditors of the liquidation proceeding so that they may file proof of their claims against the debtor;
- Foreign creditors have the same rights as domestic creditors under Singapore law to participate in liquidation proceedings;
- A liquidator has the power to take custody or control of the debtor's assets under the supervision of the Singapore court; and
- Once the Singapore court has entered a winding-up order, an automatic stay prevents creditor collection efforts, although the court may grant relief from the stay under appropriate circumstances.
Id. at **4–5 (citing Vertiv, 92 F.4th at 183).
According to Judge Kaplan, there was no dispute that Vertiv received notice of both the Singapore Liquidation Proceeding and the Cetex Litigation. Moreover, although Vertiv had the right to submit proof of its debt in the Singapore Liquidation Proceeding, it did not do so. Nor had it chosen to participate in the Singapore Cetex Litigation. Finally, he noted, even though the Cetex Judgment was a default judgment, Vertiv could still ask the Singapore High Court to set the judgment aside. Accordingly, the bankruptcy court found that Vertiv's interests were sufficiently protected in both the Singapore Litigation Proceeding and the Singapore Cetex Litigation, "both in the substance of the law contained in the Singapore Companies Act and in its application." Id. at *5.
The bankruptcy court concluded that enforcing the Cetex Judgment was appropriate under section 1507 of the Bankruptcy Code because it "assures just treatment of all holders of claims against the debtor's property." The Cetex Litigation, Judge Kaplan explained, was an "effort to marshal an asset of the Wayne Burt insolvency estate for the benefit of all of Wayne Burt's creditors." Also, enforcement of the Cetex Judgment would "prevent the potential preferential or fraudulent disposition of [the] Wayne Burt insolvency estate by entrusting the Cetex shares to the supervision of the Singapore High Court, until such time as the issue of their ownership can be decided with finality." Id. at *6.
As a "matter of comity," the bankruptcy court found that enforcement of the Cetex Judgment was appropriate under the Philadelphia Gear test, as refreshed by the Third Circuit in Vertiv. According to Judge Kaplan: (i) the Singapore Liquidation Proceeding and the chapter 15 case were "parallel"; (ii) the second prong of the test did not apply because no plan of reorganization was involved; (iii) Singapore insolvency laws are "substantially similar" to the U.S. bankruptcy system; and (iv) Vertiv was not prejudiced by being required to participate in the Singapore Liquidation Proceeding—having chosen to contract with a Singaporean company, Vertiv should have foreseen that it might be required to participate in a Singapore liquidation of its counterparty, and had an opportunity to participate in the Singapore Liquidation.
Judge Kaplan concluded his opinion by stating that "principles of comity and the underlying objectives of Chapter 15" do not allow the Bankruptcy Court to "stand in appellate review of the rulings made by the Singapore High Court," especially where Vertiv "maintain[s] the capacity to pursue appeals and other necessary relief from the foreign court."
Outlook
Vertiv appealed the bankruptcy court's decision on December 17, 2024. It filed a motion for a stay pending appeal on December 18, 2024, with a hearing that has been adjourned to April 16, 2025.
Regardless of the outcome of the appeal, Wayne Burt and Vertiv highlight the application of adjudicative comity in chapter 15 cases and other federal litigation, as well as the strategic advantages of deploying chapter 15 when there is a history of prolonged litigation parallel to a pending foreign insolvency proceeding. In Wayne Burt, the Liquidator, by filing a chapter 15 case, obtained relief in 65 days (albeit subject to a pending appeal) that he was unable to obtain in more than four years of litigation before the N.J. district court and the Third Circuit. He was able to do so because comity is the bedrock of chapter 15, and its provisions were designed precisely so that U.S. bankruptcy courts can provide assistance to foreign bankruptcy courts and the court-appointed representatives of foreign debtors. Chapter 15 provides unique advantages and protections that otherwise may not be available in other cases involving adjudicative comity, such as an automatic stay of creditor collection efforts in the United States upon recognition of a foreign main proceeding and the bankruptcy court's power to grant other forms of assistance to a foreign bankruptcy court, such as the enforcement in the United States of the foreign court's orders.
It should be noted that courts disagree as to whether, once enacted in 2005, chapter 15 recognition of a foreign bankruptcy proceeding became the exclusive mechanism for a U.S. court under principles of comity to recognize the foreign proceeding and to enforce a foreign court's orders or the terms of a restructuring plan. Compare Moyal v. Munsterland Gruppe GmbH & Co., 539 F. Supp. 3d 305, 309 n.1 (S.D.N.Y. 2021) (dismissing litigation against a German company, and ruling that, under principles of comity, U.S. litigation against a German company was stayed by operation of German law when the company filed for bankruptcy in Germany, and deeming "absurd" the notion that Chapter 15 recognition should be a prerequisite to seeking relief as it would "fly in the face of comity principles"); and EMA Garp Fund v. Banro Corp., 2019 WL 773988, at *5 (S.D.N.Y. Feb. 21, 2019) (dismissing litigation against a Canadian company and its former CEO, finding that, under principles of comity, the lawsuit was barred by Canadian court orders approving the company's Canadian bankruptcy proceeding and releasing all claims against the defendants, and stating that "the fact that Defendants did not file a recognition proceeding in [a] U.S. court" was "irrelevant" to its comity determination"), with Halo Creative & Design Ltd. v. Comptoir Des Indes Inc., 2018 WL 4742066 (N.D. Ill. Oct. 2, 2018) (denying a motion for a stay of U.S. litigation in light of the pendency of the defendant's Canadian bankruptcy proceeding because a U.S. bankruptcy court had not recognized the Canadian bankruptcy under chapter 15); see also In re Silicon Valley Bank (Cayman Islands Branch), 658 B.R. 75, at 90 n.7 (Bankr. S.D.N.Y. 2024) ("While section 1509(f) permits a foreign debtor to sue in a U.S. court to collect or recover on a claim involving property of the debtor even in the absence of recognition, a broader question exists whether comity applies to allow courts to recognize foreign judgments in insolvency cases absent Chapter 15 recognition. It remains an unsettled question …"). In Vertiv, the Third Circuit did not address the issue, despite the pendency of the Singapore Liquidation Proceeding.
Courts subscribing to the approach that chapter 15 recognition is the exclusive mechanism for granting comity to foreign bankruptcy proceedings sometimes rely on section 1509 of the Bankruptcy Code. Section 1509(b) provides that, if the U.S. bankruptcy court recognizes a foreign proceeding, the foreign representative may apply directly to another U.S. court for appropriate relief, and a U.S. court "shall grant comity or cooperation to the foreign representative." Section 1509(c) accordingly specifies that a request for comity or cooperation from another U.S. court "shall be accompanied by a certified copy of an order granting recognition" under chapter 15. If a U.S. bankruptcy court denies a petition for recognition of a foreign proceeding, section 1509(d) authorizes the court to "issue any appropriate order necessary to prevent the foreign representative from obtaining comity or cooperation" from U.S. courts. Finally, section 1509(f) provides that the failure of a foreign representative to obtain chapter 15 recognition does not preclude the representative from suing in a U.S. court to collect or recover on a claim owned by the foreign debtor.
Section 1509 and its legislative history have been interpreted to reflect lawmakers' intention that chapter 15 be the "exclusive door to ancillary assistance to foreign proceedings," with the goal of controlling such cases in a single court. Collier at ¶ 1509.03 (quoting H.R. Rep. No. 109-31(I), 110 (2005) ("Parties would be free to avoid the requirements of [chapter 15] and the expert scrutiny of the bankruptcy court by applying directly to a state or Federal court unfamiliar with the statutory requirements …. This section concentrates the recognition and deference process in one United States court, ensures against abuse, and empowers a court that will be fully informed of the current status of all foreign proceedings involving the debtor.")).
Even so, despite the enactment of chapter 15, U.S. courts continue to grant recognition to foreign bankruptcy court orders, particularly if the party seeking recognition is not a "foreign representative," in which case chapter 15 recognition is not necessary. See generally Collier at ¶ 1509.02 (noting that "courts regularly rule that chapter 15 recognition is not a prerequisite to grant comity to foreign proceedings on the request of a party other than a foreign representative"); see, e.g., Trikona Advisers Ltd. v. Chugh, 846 F.3d 22 (2d Cir. 2017) (affirming a district court ruling giving collateral estoppel effect to the findings of a foreign insolvency court, even though no chapter 15 petition had been filed on behalf of the foreign debtor seeking recognition of its Cayman Islands winding-up proceeding, and noting that, because the party seeking such relief was not a "foreign representative" under chapter 15, the provisions of chapter 15 simply did not apply); Barclays Bank PLC v. Kemsley, 44 Misc. 3d 773 (N.Y. Sup. 2014) (chapter 15 recognition was not necessary to enforce, at the request of an individual debtor, a discharge order in a UK bankruptcy proceeding, even though a U.S. bankruptcy court previously denied the UK bankruptcy trustee's petition for chapter 15 recognition of the bankruptcy, because chapter 15's plain language applies only to a "foreign representative" such as a trustee).
