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October ABI Journal Article: Challenges of International Companies Seeking Cross-Border Restructuring

Alexandria, Va. — The lack of uniform international insolvency laws and standards open the door for U.S.-domiciled creditors to resist application of a foreign debt restructuring in the U.S., according to an article in the September ABI Journal.

“The extent to which U.S. courts are willing to overlook differences with foreign substantive law seems dependent on their views of the procedural fairness of the proceedings,” Michael J. Venditto of Reed Smith LLP (New York) writes in “The ‘Border Wall’ in Chapter 15.”

Administration of cross-border cases in the U.S. is guided by chapter 15, according to Venditto, which is ancillary to an insolvency proceeding brought in another country, typically the debtor's home jurisdiction. “Foreign debtors are increasingly coming ashore in the U.S. because recognition under chapter 15 can be a useful mechanism for exporting a foreign debt adjustment in order to make it binding on domestic creditors,’” Venditto writes.

However, the shortcomings of the current international patchwork of insolvency laws were on display when Hanjin Shipping Co., the South Korean container ship line, applied for court receivership in Seoul last year. “While the Korean court decided whether Hanjin should continue to operate or be liquidated, ports around the world refused entry to allow Hanjin vessels to offload cargo,” Venditto writes. “The ships were stranded at sea, trying to avoid seizure by creditors, while customers frantically tried to locate their freights.”

Hanjin filed a chapter 15 petition in the U.S. (and similar petitions in other countries) seeking recognition of the Korean proceeding in order to establish a protocol for an orderly wind-down of Hanjin’s business, according to Venditto. “However, chapter 15 does not incorporate many of the bankruptcy provisions that protect business debtors [in the U.S.] in similar situations,” Venditto writes. “So, the bankruptcy judge in Hanjin’s case had to deal with issues on an ad hoc basis, granting provisional and ancillary relief to establish control.”

“This revealed the inherent limitations of trying to apply a foreign insolvency regime beyond the jurisdictional reach of its judicial system,” according to Venditto.

To read “The ‘Border Wall’ in Chapter 15” from the October edition of the ABI Journal, please click here. To arrange interviews with the article’s author, please contact ABI Public Affairs Manager John Hartgen at 703-894-5935 or jhartgen@abiworld.org.

The intersection of admiralty and insolvency law, cross-border avoidance transactions, inter-court communications and more will be addressed by experts at ABI's Cross-Border Insolvency Program in New York on Nov. 7. Members of the press who would like to attend should contact ABI Public Affairs Manager John Hartgen at jhartgen@abiworld.org.

All aspects of the UNCITRAL Model Law on Cross-Border Insolvency, as well as chapter 15 of the Bankruptcy Code, are covered in ABI’s Chapter 15 for Foreign Debtors.

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ABI is the largest multi-disciplinary, nonpartisan organization dedicated to research and education on matters related to insolvency. ABI was founded in 1982 to provide Congress and the public with unbiased analysis of bankruptcy issues. The ABI membership includes more than 12,000 attorneys, accountants, bankers, judges, professors, lenders, turnaround specialists and other bankruptcy professionals, providing a forum for the exchange of ideas and information. For additional information on ABI, visit www.abiworld.org. For additional conference information, visit http://www.abi.org/education-events.

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