Page 8 - Corporate Restructuring & Bankruptcy

S8 | MONDAY, JUNE 13, 2016 | Corporate Restructuring & Bankruptcy
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Using the Bankruptcy Code For International Restructuring
U.S.C. §109(a). The property requirements under §109 are relatively easy to satisfy, which means that filing for bankruptcy protection in the United States—whether under Chapter 11 or Chapter 15—is a viable option for many businesses incorporated outside of the United States, even if such businesses engage in little or no business activities in the United States.
Property in the United States as a Basis for Being a Debtor. Property, even minimal or intangible property, that is located in the United States can serve as a foreign entity’s “passport” into bankruptcy under U.S. laws. The Bankruptcy Code does not specify a specific minimum amount or threshold of property that is required to be in the United States in order for an entity to be a debtor in a U.S. bankruptcy case. Courts, including in New York, have held that de minimis property in the United States satisfies the eligibility requirements for who can be a debtor under the Bankruptcy Code. For example, “a dollar, a dime or a peppercorn” has been found to be sufficient to satisfy the property require- ment of §109(a).5
Tangible Property. Bank accounts have historically been a common and simple way to satisfy the Bankruptcy Code’s property requirement under §109(a). Retainers paid to professionals (e.g., lawyers and financial advisors) have also been a typical basis for jurisdiction for a foreign debtor under the Bankruptcy Code.
Courts have held that bank accounts, even with small amounts in them, constitute prop- erty for purposes of §109(a). For example, in In re Global Ocean Carriers Ltd., the Delaware bankruptcy court held that a relatively small amount of funds (when compared to the debt- ors’ total debt) held in U.S. bank accounts was sufficient to satisfy §109(a) in a Chapter 11 filing for a Greek shipping company and its affiliates, stating “bank accounts constitute property in the United States for purposes of eligibility under section 109 of the Bank- ruptcy Code, regardless of how much money was actually in them on the petition date.”6 When faced with a challenge based on the fact that the bank accounts were only in the name of one of the debtors, the bankruptcy court determined the fact to be irrelevant due to the retainer paid by the debtors prefiling to their bankruptcy counsel, stating, “[t]he retainers were paid on behalf of all the Debtors and, therefore, all the Debtors have an interest in those funds. It is not relevant who paid the retainer, so long as the retainer is meant to cover the fees of the attorneys for all the Debtors, as it clearly was in these cases.”7 As such, the retainer (along with the bank accounts) was deemed sufficient to satisfy the eligibility requirements under §109(a) for all of the debtors.
Intangible Property. Intangible property has also been found to be a valid basis for juris- diction under §109(a). For example, claims and/or causes of action against U.S. entities or property have been held to be property of a foreign entity sufficient to satisfy §109(a).8 Highly speculative claims against U.S. entities or property may not, however, be a sufficient basis for §109(a).9
Further, in evaluating §109(a), the Southern District of New York has stated “[c]ontracts create property rights for the parties to the contract,”10 and held that such intangible
BY SHANA ELBERG
Distressed non-U.S. business enti- ties should consider Chapter 11 and
1
Chapter 15 bankruptcy as a potential
restructuring tool. Foreign entities with major creditors that are subject to U.S. jurisdic- tion can, and in many cases should, use the sophisticated and debtor-friendly U.S. reor- ganization laws to help resolve their business problems. While it may seem counterintui-
SHANA ELBERG is a partner in the New York office of Skadden, Arps, Slate, Meagher & Flom, where she concentrates her practice on business reorganiza- tions, insolvency and bankruptcy matters.
tive that a foreign entity could avail itself of the same restructuring rules under U.S. law afforded to U.S. companies, as detailed herein, a foreign entity only needs minimal ties to the United States to qualify for relief under U.S. bankruptcy laws. For example, a recent Southern District of New York bankruptcy case, In re Berau Capital Resources Pte Ltd.,2 held that even an indenture with New York as its governing law constituted property to qualify a foreign entity as a debtor under the Bankruptcy Code. That case highlights one of many avenues by which a foreign entity may utilize a U.S. bankruptcy case to financially restructure its business. This creates valuable options for foreign entities. The effectiveness, however, of using the Bankruptcy Code by a foreign entity will need to be measured by
looking at, among other things, whether its creditors will be bound by such laws.
This article will explore (1) who qualifies as a debtor under the Bankruptcy Code; (2) the level of connection to the United States that is required for a foreign entity to be a debtor under the Bankruptcy Code, specifically the amount and types of property (both tangible and intangible) that have been held to satisfy §109; and (3) uses of Chapter 11 and Chapter 15 by foreign debtors.
Who Can Be a Debtor Under the Bank- ruptcy Code? Section 109 of the Bankruptcy Code, entitled “Who may be a debtor,” pro- vides that “only a person3 that resides or has a domicile, a place of business, or property in the United States, or a municipality may be a debtor”4 under the Bankruptcy Code. 11
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