Bankruptcy Judge Timothy A. Barnes of Chicago used the insolvency of a foreign airline to write a treatise about the statutory basis in chapter 15 for granting permanent injunctive relief in the territorial U.S. to implement a German liquidating plan.
Professor Jay L. Westbrook told ABI that Judge Barnes “gave a clean holding of enforcement of a foreign plan with what amounts to a discharge injunction.” He also said that Judge Barnes “adopts the reasoning in Ad Hoc Group of Vitro Noteholders v. Vitro S.A.B. de C.V. (In re Vitro S.A.B. de C.V.), 701 F.3d 1031, 1054 (5th Cir. 2012), cert. dismissed, 133 S. Ct. 1862 (2013), about granting relief available under former Section 304 of the Bankruptcy Code.”
Prof. Westbrook is the country’s leading expert on chapter 15 and cross-border insolvency. He occupies the Benno C. Schmidt Chair of Business Law at the University of Texas School of Law.
The German Insolvency
A German airline began insolvency proceedings in the Insolvency Court in Frankfurt. Ten months later, the airline’s foreign representatives sought and obtained recognition of the German insolvency as the airline’s foreign main proceeding under chapter 15.
In his March 26 opinion, Judge Barnes explained that recognition automatically entailed continuation of the general stay under Section 362, which he had previously granted provisionally under Section 1519.
There were lawsuits pending against the airline in the U.S. They included a putative class action and a tort action that had been enjoined provisionally.
The German court confirmed the liquidators’ insolvency plan. The liquidators then sought parallel relief implementing the plan under chapter 15 within the territorial U.S. Appearing pro se, several creditors objected, wishing to proceed with suits in the U.S.
Judge Barnes overruled the objections, writing an opinion that identifies the statutory basis for granting the relief requested by the liquidators. The opinion is “must” reading for chapter 15 mavens.
Vitro Explains the Source of Power
Judge Barnes began with the nature of his jurisdiction and power. Did he have core jurisdiction allowing him to enter a final order?
Broadly surveying authorities on the subject, Judge Barnes held that he had “jurisdiction and constitutional authority to hear and determine this matter.”
Judge Barnes then turned to the question of his authority to grant broad, permanent injunctive relief to parallel the relief afforded by the German court. While a portion of the relief flows automatically under Section 1520, he said “there remain a variety of sources of authority for nonautomatic, discretionary relief,” plus “the potential for additional relief under the general provisions of the Bankruptcy Code,” like Section 105(a).
Although the court may grant “an appropriate relief” under Section 1521(a), relief is circumscribed by Section 1522, which requires “sufficient” protection for the interests of the debtor and creditors.
Judge Barnes said that Vitro “stepped in to fill the gap” by explaining the basis for discretionary relief. Although not “based in the language of the statute,” he said “it is the only cogent one available.”
If relief is not explicitly provided for in Section 1521(a) or (b), Judge Barnes quoted Vitro as saying the court could consider whether the requested relief would fall “under Section 1521’s grant of any appropriate relief.” Vitro then went on to say “appropriate relief” should be “relief previously available under Chapter 15’s predecessor, Section 304.” Vitro, id. at 1054.
If relief was not available under Section 304, Vitro said that the court “should . . . consider whether relief would be appropriate as ‘additional assistance’ under Section 1507.” Id.
‘Old’ Section 304 Would Provide Relief
Judge Barnes concluded that the relief sought by the German liquidators would have been available under former Section 304. To grant the relief, he then inquired as to whether the interests of creditors were “sufficiently protected” under Section 1522(a).
Turning to the creditors’ objections, Judge Barnes said they were complaining about the fairness of the recovery for all creditors, not the disproportionate treatment of U.S. creditors.
Judge Barnes said that the treatment was in accord with German law and that U.S. creditors were treated no differently.
Second, the objecting creditors complained about the notice they had received regarding the German proceedings. Although notice was not the same as it would have been in the U.S., Judge Barnes said it was in line with German law. He therefore concluded that U.S. creditors had been treated fairly by the German court.
Judge Barnes therefore permanently enjoined the prosecution of lawsuits in the U.S. Requiring the U.S. creditors to proceed in Germany, he said, would be “entirely within the spirit and express powers of chapter 15.”
Bankruptcy Judge Timothy A. Barnes of Chicago used the insolvency of a foreign airline to write a treatise about the statutory basis in chapter 15 for granting permanent injunctive relief in the territorial U.S. to implement a German liquidating plan.
Professor Jay L. Westbrook told ABI that Judge Barnes “gave a clean holding of enforcement of a foreign plan with what amounts to a discharge injunction.” He also said that Judge Barnes “adopts the reasoning in Ad Hoc Group of Vitro Noteholders v. Vitro S.A.B. de C.V. (In re Vitro S.A.B. de C.V.), 701 F.3d 1031, 1054 (5th Cir. 2012), cert. dismissed, 133 S. Ct. 1862 (2013), about granting relief available under former Section 304 of the Bankruptcy Code.”
Prof. Westbrook is the country’s leading expert on chapter 15 and cross-border insolvency. He occupies the Benno C. Schmidt Chair of Business Law at the University of Texas School of Law.