Similar to domestic bankruptcy cases, in chapter 15 cases the sale or disposition of property located in the U.S. may be accomplished pursuant to asset sales under § 363 of the Bankruptcy Code, Rule 9019 settlements, or a combination of the two.[1] In a chapter 15 proceeding, the foreign representative must provide notice to all creditors regarding settlements and asset sales and obtain timely approval from the U.S. bankruptcy court and the foreign court, if required by the law of the foreign main jurisdiction.[2]
This appears to cause two practical dilemmas: (1) determining the required standard for appropriate notice to foreign creditors; and (2) determining how to effectively seek approval from both bankruptcy courts nearly simultaneously and efficiently streamline any potential objections. Recently, in a chapter 15 case filed in the Southern District of Florida, In re Banco Santos S.A., involving a failed Brazilian financial institution stemming from a $1 billion fraud perpetrated by its CEO and others, Hon. Laurel M. Isicoff dealt with these issues.[3]
As to the notice issue, the first concern is providing proper notice to creditors. The relevant question is, What law should govern? For example, under Brazilian law, publication in the Official Gazette (Diário Oficial) is the proper channel for providing notice to creditors and other interested parties. However, under Rule 2002(a), notice to the creditor must be mailed — not provided via publication.[4] Under § 1514(b) of the Bankruptcy Code, “notification to creditors with foreign addresses … shall be given individually, unless the court considers that, under the circumstances, some other form of notification would be more appropriate.”[5]
The court in Banco Santos addressed these issues in two instances. The first arose in the context of a settlement approval pursuant to Rule 9019, which governed the sale of three works of art valued at over $1 million and requested a bar order in favor of certain settling parties.[6] Due to the nature and implications of the bar order request, the foreign representative requested, and the court ordered, direct mailing to each creditor in Brazil, which goes well above and beyond the Brazilian noticing requirements.[7] In the second instance, the Rule 9019 settlement led to the final disposition of a work of art for $210,000 and did not seek a bar order.[8] The foreign representative sought approval to use the legally sufficient notice under Brazilian law through publishing in the Official Gazette, which would save the estate approximately $10,000 in costs for international mailing to all Brazilian creditors.[9] The court granted this request as appropriate under the circumstances.[10] This demonstrates that somewhat similar circumstances in the same case may warrant different results regarding the “form of notification [that] would be more appropriate” depending on the facts of that settlement or asset sale.[11]
The second issue addressed how to seek near simultaneous approval of settlements regarding the disposition of assets in the U.S. from both the foreign and U.S. bankruptcy courts.[12] Since chapter 15 cases necessarily involve two insolvency proceedings (a foreign proceeding and the U.S. proceeding), approval of any sale or settlement would require the approval of both courts at essentially the same time. Additionally, the courts must determine the venue to finally resolve any potential objection to the settlement or asset sale.
In Banco Santos, the foreign representative requested that Judge Isicoff conditionally approve the two settlements, pending final approval by the Brazilian bankruptcy court, and if any opposition was posed to the settlement, then it would be heard and adjudicated by Judge Isicoff at the subsequent final hearing.[13] The court granted this three-step process for approval of the settlements governing the sale or disposition of artwork in the U.S.[14] This process seems to resolve any practical problem associated with needing simultaneous approval by two courts while streamlining the objection process through both courts ordering any opposition to be lodged and adjudicated in one forum.
In sum, when conducting an asset sale or seeking approval of a settlement related to property located in the U.S., there may be many methods for providing appropriate notice to foreign creditors that are sufficient under U.S. and foreign law. If approval is required from both the foreign and U.S. bankruptcy courts, then the foreign representative may employ the three-step approval process to seek simultaneous approval and simplify the objection process by requesting that both courts require any opposition be filed in one forum.
[1] See 11 U.S.C. § 1520(a)(2); see also Fed. R. Bankr. P. 9019; 11 U.S.C. § 363.
[2] The requirement for approval by the foreign court may not be mandated in all foreign jurisdictions in relation to the sale or disposition of assets located in the U.S. It is dependent on the law of the jurisdiction of the foreign main proceeding.
[3] In re Banco Santos S.A., Case No. 10-47543-BKC-LMI [D.E. 170, 185].
[4] See Fed. R. Bankr. P. 2002(a)(2) and (3).
[5] 11 U.S.C. § 1514(b).
[6] Banco Santos, Case No. 10-47543-BKC-LMI [D.E. 166, 170].
[7] Id.
[8] Id. at [D.E. 184].
[9] Id. at [D.E. 185].
[10] Id.
[11] 11 U.S.C. § 1514(b).
[12] Again, the law of the jurisdiction of the main proceeding governs whether approval by the foreign court is required, in addition to the approval by the U.S. bankruptcy court.
[13] Id. at [D.E. 170, 185].
[14] Id.