Foreign Representatives May Bypass The Recognition Process To Recover Debtor’s Property
By: Parm Partik Singh
St. John’s Law Student
American Bankruptcy Institute Law Review Staff
A “foreign representative” must obtain recognition of a foreign proceeding pursuant to 11 U.S.C. § 1517 prior to “apply[ing] directly to a court in the United States.” However, under § 1509(f), a foreign representative may sue in a United States court “to collect or recover a claim which is the property of the debtor” without first obtaining recognition. The scope of this exception, however, is unclear.
In Petersen Energia Inversora, S.A.U. v. Argentine Republic, the Southern District of New York declined to dismiss a claim based on lack of standing by highlighting the exception afforded by § 1509(f). Plaintiffs, Spanish limited-liability companies, owned shares of Defendant YPF S.A., an Argentinian publicly-held limited liability stock company, amounting to just over 25% of the company. In 2012, the Republic of Argentina expropriated 51% of YPF's shares by declaring public need, leading to a substantial decrease in the value of YPF’s shares. Consequently, YPF did not make an expected dividend distribution to shareholders, forcing the Plaintiffs to default and enter into insolvency proceedings in Spain. After Plaintiffs received approval of a liquidation plan, Plaintiffs’ receiver brought this action alleging that Defendants breached obligations arising out of YPF's bylaws upon Argentina's expropriation of YPF shares. Defendant moved to dismiss on various grounds including lack of standing arguing that the receiver did not first obtain recognition for the foreign insolvency proceedings. The court denied the motion to dismiss, reasoning that the Plaintiffs were not requesting comity or cooperation from the court with respect to their foreign insolvency proceedings, but were seeking to recover an independent claim that was the property of their receivership, rendering the prior recognition unnecessary to confer standing.
The court emphasized the possible avenue for foreign representatives to sue to collect or recover a debtor’s property if the underlying claim existed prior to the bankruptcy or is independent of the bankruptcy. It follows that chapter 15 does not constrain a foreign representative from acts that do not require judicial assistance. Therefore, § 1509(f) preserves foreign representatives’ access to U.S. courts by allowing them to bypass the recognition process when they do not require comity. However, given the adverse scenario of a § 1509(d) order, state courts may not be receptive enough to open their doors to an unrecognized foreign representative with no right of direct access. The extent of this exception, therefore, remains unclear because the need for comity in certain instances may be ambiguous. Regardless, § 1509(f) seems to offer a judicially efficient alternative for foreign representatives to their day in court in cases where the recognition requirement might actually be superfluous.
 See Reserve Int'l Liquidity Fund, Ltd. v. Caxton Int'l Ltd., No. 09 CIV. 9021 (PGG), 2010 WL 1779282, at *4 (S.D.N.Y. Apr. 29, 2010) (quoting 11 U.S.C. § 1509(a), (b)(2), (b)(3)).
 11 U.S.C. § 1509(f).
 Petersen Energia Inversora, S.A.U. v. Argentine Republic, 15-CV-2739 (LAP), 2016 WL 4735367, at *10 (S.D.N.Y. Sept. 9, 2016).
 Id. at *1.
 Id. at *3.
 Id. at *1.
 See In re Fairfield Sentry Ltd. Litig., 458 B.R. 665, 684 (S.D.N.Y. 2011) (where a claim is “independent” of the bankruptcy because the redemptions at issue preceded it, “[h]ad the foreign representatives declined to file a Chapter 15 case, that choice also would not have limited the foreign representatives' ability to pursue their claims in the United States” under § 1509(f)); See Varga v. McGraw Hill Financial Inc., No. 652410/2013, 2015 WL 4627748, at *13 (N.Y. Sup. Ct. July 31, 2015) (lack of Chapter 15 recognition did not affect standing in a fraud case because “Plaintiffs ... did not bring this case with the express purpose of assisting or facilitating their insolvency proceedings....”).
 In re Iida, 377 B.R. 243, 258 (B.A.P. 9th Cir 2007).
 11 U.S.C. § 1509(d) (If the court denies recognition under this chapter, the court may issue any appropriate order necessary to prevent the foreign representative from obtaining comity or cooperation from courts in the United States).