In February, the Third Circuit crafted a wholly common law alternative to chapter 15 based on comity.

When a foreign liquidator has not filed a petition for recognition of a foreign bankruptcy proceeding under chapter 15, the Third Circuit laid down complex rules explaining when common law notions of comity, alone, will permit a U.S. court to enjoin or dismiss a case in the U.S. involving a defendant in bankruptcy proceedings abroad.

The opinion made chapter 15 either optional or irrelevant. Vertiv Inc. v. Wayne Burt PTE Ltd., 92 F.4th 169 (3d Cir. Feb. 1, 2024). Click here to read ABI’s report, including commentary by Prof. Jay L. Westbrook, who was critical of the Third Circuit opinion.

As it turns out, the foreign liquidator evidently realized that he should have filed a chapter 15 petition in the first place. After remand from the Third Circuit, the liquidator filed a chapter 15 petition in the bankruptcy court in New Jersey and in short order obtained the relief he was unable to procure in federal district court and in the Third Circuit.

Here’s the story.

Litigation on Two Continents

As plaintiff in a lawsuit in federal district court in New Jersey, a Delaware corporation had sued a Singaporean corporation whose primary place of business was in Singapore. The defendant’s directors had agreed to entry of a consent judgment for $29 million against the defendant corporation. However, the Singaporean defendant was in liquidation proceedings at the time in Singapore.

That wasn’t the only dispute. Before bankruptcy, the Singaporean company had pledged stock of an unrelated company to the plaintiff-creditor to secure a $16 million loan. The plaintiff-creditor was in possession of the stock certificates.

In the liquidation proceedings in Singapore, the creditor defaulted when the liquidator filed proceedings calling on the creditor to turn over the stock, the ownership of which evidently was in dispute. Following default, the court in Singapore filed the equivalent of a turnover order.

The creditor apparently did not wish to submit to jurisdiction in Singapore, because the creditor likewise filed no claim in the Singaporean liquidation.

Back in the New Jersey district court, the liquidator for the Singapore corporate defendant moved to vacate the judgment under Rule 60(b), asserting that the corporation had been in liquidation in Singapore before the suit was filed in New Jersey. That is to say, the directors had no authority to act when they consented to the entry of judgment.

The liquidator asserted that he could not have intervened because he had no notice of the suit in New Jersey. The district court vacated the judgment under Rule 60(b)(3) based on evidence of “misconduct.” Later, the liquidator moved to dismiss the creditor’s suit under Rule 12(b)(2) and (b)(6) on grounds of “international comity.”

Based on comity, the district court dismissed the suit. The plaintiff appealed to the Third Circuit.

In brief, the Third Circuit relied on authorities from before the adoption of chapter 15 to remand the case for the district court to make findings called for in the Third Circuit’s new test for comity.

The Liquidator’s Change of Heart

Back in district court after remand from the Third Circuit, the liquidator filed another motion to dismiss. Initially, the Singaporean liquidator must have believed that a simple motion to dismiss in district court based on comity would avoid the time, trouble and expense associated with chapter 15. But before the new dismissal motion could come on for hearing, it appears as though the case became bogged down in discovery.

Along the way, the Singaporean liquidator retained new counsel, who filed a chapter 15 petition in bankruptcy court in New Jersey. After the chapter 15 filing, the district court put the dismissal proceedings on ice to abide the outcome of the chapter 15 case.

One month after the chapter 15 filing, Bankruptcy Judge Michael J. Kaplan of Trenton, N.J., granted foreign main recognition to the liquidator under Section 1517(b)(1). Foreign main recognition automatically imposed the Section 362 automatic stay on the New Jersey district court suit under Section 1520(a)(1).

The liquidator wanted more than a stay. The liquidator wanted the chapter 15 court to enforce the order from Singapore requiring the creditor to turn over the stock certificates. To that end, the foreign liquidator at the commencement of the chapter 15 case had also filed a motion to compel turnover of the stock under Sections 1507(a) and 1521.

Judge Kaplan granted the turnover motion in his opinion on December 6.

Chapter 15 Works Quickly

Judge Kaplan stated the question as “whether recognizing and enforcing the Singapore [turnover order] is appropriate under §§ 1521 or 1507 of the Bankruptcy Code or the principles of international comity.” Were it not for the Third Circuit’s decision, Judge Kaplan only would have addressed Sections 1521 and 1507, but the appeals court’s decision could be read to add an additional layer of comity requirements on top of chapter 15.

Beginning his discussion of the merits, Judge Kaplan quoted Section 1525(a), which says, “Consistent with section 1501, the court shall cooperate to the maximum extent possible with a foreign court or a foreign representative . . . .”

Next, Judge Kaplan addressed Section 1521, which provides, “Upon recognition of a foreign proceeding, whether main or nonmain, . . . the court may, at the request of the foreign representative, grant any appropriate relief.” Immediately, he saw “no question that steps taken by the Foreign Representative to secure the availability of the . . . stock certificates for anticipated disposition consistent with Singapore law serves the interests of all creditors in the Singapore Liquidation Proceeding.”

With little delay, Judge Kaplan also found “that all interested parties are sufficiently protected in the Singapore Liquidation Proceeding,” because the “Singapore insolvency system bears many similarities to the United States bankruptcy process.” Likewise, he found that the Delaware plaintiff’s interests were protected because the plaintiff admitted that it had been served with process from the court in Singapore regarding both the liquidation proceedings and the turnover motion.

Judge Kaplan likewise found that enforcement of the Singaporean turnover order was an appropriate grant of additional assistance under Section 1507, because it “assures just treatment of all holders of claims against the debtor's property.” Similarly, Judge Kaplan found that enforcing the foreign turnover order satisfied the Third Circuit’s standards for granting comity.

Judge Kaplan’s Conclusions

Judge Kaplan ended his opinion by saying that the creditor’s objection to enforcement of the Singaporean order was “an unacceptable premise that this Court should, in effect, stand in appellate review of the rulings made by the Singapore High Court. Such a position patently conflicts with principles of comity and the underlying objectives of Chapter 15.”

“This is especially true where,” Judge Kaplan said, “the contesting party maintains the capacity to pursue appeals and other necessary relief from the foreign court.”

“[P]ursuant to §§ 1521 and 1507 and the principles of international comity, as applied under the analysis developed by the Third Circuit,” Judge Kaplan found “that recognition and enforcement of the Singapore [turnover over] is appropriate in this instance.” He granted the motion and directed counsel for the trustee to submit an appropriate order.