By bankruptcy law

Imagine that an insolvent foreign company’s assets are fully encumbered (perhaps not so difficult to imagine). Also imagine that the foreign company is simultaneously subject to receivership at the behest of secured creditors and also liquidation. Then imagine that the foreign jurisdiction’s laws allow the company’s secured creditors, through the receiver, to retain possession of the company’s assets and to satisfy debts directly from those assets. This differs from the approach taken under United States law in two ways: (1) receivership proceedings (creatures of state law) and bankruptcy proceedings (creatures of federal law) are separate, normally exclusive proceedings; and (2) the Bankruptcy Code generally requires that a debtor’s assets be turned over to the debtor’s bankruptcy estate, which liquidates the assets and distributes the proceeds according to the established priority scheme. Does the different approach to the treatment … [Read more...] about Reconciling Foreign Bankruptcy Law With US Policy

One of the effects of commercial globalization is that the bankruptcy filing of a debtor with transnational business relationships will sometimes result in a clash between the substantive bankruptcy laws of different countries.  A frequent question is whether the bankruptcy laws of a foreign country should be brought to bear upon creditors located in the United States, even where foreign bankruptcy law is at odds with the laws of the United States. On December 3, 2013, the United States Court of Appeals for the Fourth Circuit, in an appeal stemming from the Chapter 15 bankruptcy case of Qimonda AG (“Qimonda”), issued a decision that allowed U.S. licensees to continue performing under patent license agreements, even though the German administrator for Qimonda sought to terminate or renegotiate those license agreements under German bankruptcy law.1  The Fourth Circuit embraced a Chapter 15 balancing test for relief under Chapter 15 similar to that of the … [Read more...] about Another U.S. Court of Appeals Decision Protects U.S. Creditors from the Effects of Foreign Bankruptcy Law

The new law extends the grounds for shareholders’ liability and invalidation of transactions.On 26 March 2014, the new Rehabilitation and Bankruptcy Law (the New Law) took effect in Kazakhstan. The New Law supersedes the Bankruptcy Law adopted in 1997 (the Old Law).The Old Law was criticized for its focus on bankruptcy, piecemeal regulation, and failure to meet international best practices. In this context, the name change from the Bankruptcy Law to the Rehabilitation and Bankruptcy Law emphasizes the legislators’ intent to promote rehabilitation as an effective tool for the financial recovery of insolvent companies.The New Law raises the following key issues:Expanded liability of the debtor’s management, e.g., a director may bear subsidiary liability for the insolvent company’s debts if a manager fails to initiate bankruptcy proceedings in a timely mannerExpanded grounds for invalidation of the debtor’s transactions concluded before insolvency … [Read more...] about Kazakhstan’s New Rehabilitation and Bankruptcy Law

It’s hard to think of a worse time to pop the bubble of U.S. global bankruptcy dominance than the 4th of July holiday weekend – our annual celebration of American exceptionalism. But that is precisely what happened in the latest Madoff opinion. In an opinion signed on Sunday, July 6th, Judge Rakoff applied the presumption against extraterritorial application to the Bankruptcy Code and held that section 550(a)(2), which imposes liability on subsequent recipients of avoided transfers, cannot be applied to transfers between two foreign entities. See SIPC v. Bernard L. Madoff Investment Securities LLC (In re Madoff Securities), No. 12-mc-115 (S.D.N.Y. July 7, 2014) (Rakoff, D.J.).While the facts involve a very foreign transaction, the reasoning is broadly stated and would limit all avoidance powers to only domestic transactions. Further, once the presumption is let out of its box, it is hard to articulate a limiting principle that prevents it from … [Read more...] about American Exceptionalism and Extraterritorial Application of Bankruptcy Law

A federal court of appeals has determined that money in inherited individual retirement accounts is not protected from creditors by federal exemption laws.Federal bankruptcy laws permit individuals to claim certain property as exempt from the reach of their creditors. Many types of retirement accounts and benefits are protected by these exemptions. “Inherited” Individual Retirement Accounts (IRAs) hold funds from persons who established IRAs for their own use and died before depleting the funds in those accounts. The Seventh Circuit Court of Appeals has concluded that funds in a non-spousal inherited individual retirement account are not exempt or protected from claims of the heir’s creditors. In re Heffron-Clark, 714 F.3d 559 (7th Cir. 2013).Judge Easterbrook’s opinion considered the exemptions under federal bankruptcy law, 11 U.S.C. §522(b)(3)(C) and (d)(12). Those provisions exempt from creditors’ claims any “retirement funds to the … [Read more...] about Inherited Individual Retirement Accounts (IRA) in Wisconsin Not Protected by Federal Bankruptcy Laws from Creditors