Here the Anthem Doth Commence Determination of Commencement of the Case in Cross-Border Insolvency

By: Deirdre E. Burke
St. John's Law Student
American Bankruptcy Institute Law Review Staff

Recently in O’Sullivan v. Loy (In re Loy),[1] a Virginia district court held that although a bankruptcy proceeding is ancillary to a foreign main proceeding, a chapter 15 “case” was commenced upon the filing of the petition for recognition in a United States bankruptcy court and not on the date of commencement of the foreign insolvency proceeding.[2] Certain chapter 15 provisions authorize relief after the “commencement of the case.”[3] Chapter 15, however, does not define the date commencement is considered to have occurred.  As a result, determining whether these statutes refer to the date the foreign proceeding commenced or the date of the foreign representative’s petition for recognition in U.S. bankruptcy courts can have significant ramifications.[4] In this case, an English Trustee was unable to avoid the debtor’s transfer of United States property as a post-petition transfer under sections 1520 and 549 of the Code, because the transfer took place before the English Trustee filed the petition for recognition in U.S. bankruptcy court.[5]

The court maintained that its decision was in line with congressional intent to balance the interests of foreign and domestic creditors.[6] According to the court, Congress limited pre-petition avoidance powers in order to protect “local creditors and purchasers, who may or may not be aware of the foreign insolvency proceeding and its ramifications.”[7] The court posited that, in order to promote an efficient and predictable global bankruptcy process, the commencement date and date of petition for recognition should be deemed the same.[8]

Prior to 2005, section 304 governed transnational insolvencies.[9] A petition under section 304 did not commence a full bankruptcy case, but a foreign representative could ask the court to “administer assets located in the country . . . or for other appropriate relief.”[10] Problems regarding choice of the applicable avoidance law decreased the predictability in distribution of assets under a section 304 petition.[11] Congress enacted chapter 15 to provide “a high degree of predictability . . . [enabling] U.S. creditors . . . to rely on the application of U.S. avoidance law,”[12] in instances of transfers made prior to petition for recognition in U.S. bankruptcy court. Recent decisions, such as In re Loy, empower both foreign representatives and domestic creditors with the knowledge of what can be expected in increasingly frequent global insolvency proceedings, and further illustrate that timing is everything. 

Had the English Trustee petitioned a few days earlier, he would have been able to avoid the deed of gift as a post-petition transfer under section 549(a).[13] While it is clear that petition for recognition grants foreign representatives a plethora of automatic and discretionary relief,[14] Congress was hesitant to allow the avoidance of pre-petition property transfers unless they are properly adjudicated in a chapter 7 or 11 proceeding. A foreign representative has standing to bring a pre-petition avoidance action under section 1523 of the Code only if there is another case pending under a different chapter.[15] As a result, the English Trustee can avoid the deed of gift only by surrendering to the “developed jurisprudence” of a full United States bankruptcy proceeding.[16]