A US Court May Recognize a Foreign Proceeding of an Entity Who Would Not be Considered a Debtor in the U.S.

Kate Long

St. John’s University School of Law

American Bankruptcy Institute Law Review Staff


         In In re Barnet, the United States Court of Appeals for the Second Circuit held that a foreign debtor must satisfy traditional debtor eligibility requirements for a debtor’s foreign proceeding to be recognized under Chapter 15 of Title 11 of the United States Code (the “Bankruptcy Code”).[1] In In re Al Zawawi, a bankruptcy court in Florida held that a foreign debtor does not have to meet the US debtor-eligibility requirements for a foreign representative to obtain Chapter 15 recognition of a foreign proceeding.[2] There, a creditor commenced a UK proceeding by petitioning a UK court for a finding that the debtor was bankrupt, (the “UK Bankruptcy”).[3] On June 29, 2020, the UK court adjudicated the Foreign Debtor bankrupt and appointed the Foreign Representatives.[4] Thereafter, the Foreign Representatives filed a petition for recognition of the UK Bankruptcy under Chapter 15 with the Florida bankruptcy court.[5] The Foreign Debtor opposed the motion, arguing that the UK Proceeding could not be recognized under Chapter 15 because he was not an eligible debtor under section 109(a).[6]

         Under section 109(a) of the Bankruptcy Code, a person may be considered a debtor in a US bankruptcy case if they have a place of business, domicile, or property in the United States.[7] Section 1517 of the Bankruptcy Code sets forth the requirements that a Foreign Representative must demonstrate for a US court to recognize their foreign proceeding.[8] The parties did not dispute that the Foreign Representative met the section 1517 requirements.[9] Instead, the Foreign Debtor argued that section 109(a) applied to Chapter 15 cases, relying on the Second Circuit’s decision to use section 109(a) in In re Barnett.[10]  The Florida bankruptcy court disagreed, noting, among other things, that the United States Court of Appeals for the Eleventh Circuit, which has binding authority over the Florida Bankruptcy court, had already considered and rejected that proposition in a previous case under Chapter 15’s predecessor.[11] Moreover, the court rejected the Second Circuit’s analysis in Barnet, and found that imposing the section 109(a) debtor eligibility requirements would frustrate one of the purposes of Chapter 15, which is to provide international uniformity for cross-border insolvency issues.[12] Finally, even if section 109(a) applied, the Foreign Representatives would be able to satisfy that burden because the Foreign Debtor owned property in the United States in the form of equity interests in several US companies.[13]

         In finding section 109(a) inapplicable to cases under Chapter 15, the Florida bankruptcy court joins several other courts that have rejected Barnet, including the Delaware Bankruptcy Court, and followed the Eleventh Circuit’s precedent in a case under former section 304 of the Bankruptcy Code.[14] Thus, a court in Florida may recognize a foreign proceeding under Chapter 15 notwithstanding the foreign debtor’s ineligibility to be a debtor in the US.[15]

[1] In re Al Zawawi, No. 6:21-bk-01251-LVV, 2021 WL 3890597, at *3 (Bankr. M.D. Fla. Aug. 30, 2021) (citing In re Barnet, 737 F.3d 238, 241 (2d Cir. 2013)).

[2] Id. at *7.

[3] Id. at *2.

[4] Id.

[5] Id. at *1.

[6] Id.

[7] 11 U.S.C. § 109(a) (2018).

[8] In re Al Zawawi at *3–*4.

[9] Id. at *4.

[10] Id. at *3 (citing In re Barnet, 737 F.3d 238, 241 (2d Cir. 2013)).

[11] See id. at *6 (explaining how in In re Goerg, 844 F.2d 1562, 1563 (11th Cir. 1988) the court held that foreign insolvency proceedings could commence when the Foreign Debtor did not meet the requirements from other sections).

[12] See id. at *5–*6 (examining the original purpose of § 304 and noting that Chapter 15 has a similar purpose).

[13] See id. at *6–*7 (noting the Florida entities satisfy the ownership of property requirement under § 109(a)).

[14] See id. at *3 n.19.

[15] See id. at *7 (“A foreign representative is not required to demonstrate that a foreign debtor meets the eligibility requirements of 11 U.S.C. § 109 to obtain recognition of a foreign proceeding under 11 U.S.C. § 1517.”).