Most bankruptcy practitioners (me included) have no experience with Chapter 15 of the Bankruptcy Code, which deals with “Cross-Border Cases.” To say “Chapter 15” is, for many of us, like saying “Quantum Physics”: we know the general subject, but the details are a mystery.
But . . . here is an opinion that provides a window into, and instruction on, some basic Chapter 15 issues:
- In re Wayne Burt Pte. Ltd. (In Liquidation), Case No. 24-19956, New Jersey Bankruptcy Court (decided 12/6/2024; Doc. 42).
What follows is an attempt at summarizing this opinion.
Facts
Vertiv Entities are Delaware corporations, located in Princeton, New Jersey. Debtor, Wayne Burt Pte. Ltd., is a Singapore corporation and is located there.
Vertiv Entities loan Debtor $16 million at 15% interest. Debtor pledges its stock ownership interests in an India-based company as security for the loan and delivers possession of the stock certificates to Vertiv Entities. The parties agree that the stock pledge is “governed by, and construed in accordance with the laws of the State of New York or Singapore.”
Debtor defaults on the loan, and liquidation proceedings begin in a Singapore court.
The Singapore Liquidator demands that Vertiv Entities turn over the pledged stock certificates. The Veritiv Entities refuse, so the Liquidator sues Vertiv Entities in Singapore.
Vertiv Entities are served but refuse to participate in the Singapore lawsuit. So, a Singapore court enters a default judgment against Vertiv Entities, requiring turn over of the pledged stock certificates to the Singapore Liquidator.
Meanwhile, lots of litigation occurs in the United States over stock pledge issues, in such courts as the U.S. District Court for New Jersey and the U.S. Third Circuit Court of Appeals.
- Such litigation also includes Debtor’s Chapter 15 case, filed by the Singapore Liquidator in the New Jersey Bankruptcy Court.
The Singapore Liquidator files a Motion, in the New Jersey bankruptcy, for an order “recognizing and giving full force and effect” to the Singapore default judgment that requires turn over over of the stock certificates to the Singapore Liquidator (Doc. 3). Vertiv Entities oppose the Motion, arguing that only the New Jersey Bankruptcy Court—and not the Singapore court—can determine the turn over issue.
Issue and Ruling
The issue before the New Jersey Bankruptcy Court is this:
- Whether recognizing and enforcing the Singapore default judgment is appropriate under §§ 1521 or 1507 of the Bankruptcy Code or under the principles of international comity.
After an evidentiary hearing, the New Jersey Bankruptcy Court rules that:
- “recognition and enforcement” of the Singapore default judgment “is appropriate” on all three grounds — “under 11 U.S.C. §§ 1521 and 1507, and the principles of international comity”; and
- the Singapore Liquidator’s Motion “is GRANTED.”
A Chapter 15 Objective
Cooperation between courts of the United States and courts of foreign countries involved in cross-border insolvency cases is one of the principal objectives of Chapter 15.
A U.S. court is directed by § 1525(a), for example, to “cooperate to the maximum extent possible with a foreign court or a foreign representative.”
§ 1521
11 U.S.C. § 1521 authorizes a bankruptcy court to, upon “recognition of a foreign proceeding,” “grant appropriate relief” in cross-border proceedings to:
- “effectuate the purpose” of Chapter 15;
- “protect the assets of the debtor”; or
- protect “the interests of the creditors.”
Such “appropriate relief” language grants broad discretion to the bankruptcy court and may include:
- “entrusting the administration . . . of the debtor’s assets” located in the U.S. “to the foreign representative”; or
- “granting any additional relief that may be available to a trustee, except for relief available under sections 522, 544, 545, 547, 548, 550, and 724(a).”
In applying the § 1521 standards to the evidence at hand, the Bankruptcy Court finds:
- steps taken in Singapore to secure turn over of the stock certificates for disposition under Singapore law serve the interests of all creditors in the Singapore liquidation;
- all interested parties, including Vertive Entities, are sufficiently protected in the Singapore liquidation because:
- Singapore’s insolvency system bears many similarities to the United States bankruptcy process, including a shared policy of equal distribution of assets among similarly situated creditors; and
- Vertiv Entities received notice of the Singapore liquidation, were properly served before entry of the default judgment, could have filed a “proof of debt” and participated in the Singapore liquidation (but declined to do so), and could still seek to have the default judgment set aside in the Singapore court.
§ 1507
11 U.S.C. § 1507 authorizes a bankruptcy court to “provide additional assistance” to a foreign proceeding, “consistent with the principles of comity,” to “reasonably assure”:
- “just treatment of all holders of claims against or interests in the debtor’s property”; and
- “prevention of preferential or fraudulent dispositions of property of the debtor.”
In applying the § 1507 standards to the evidence at hand, the Bankruptcy Court finds:
- enforcing the turn over judgment “assures just treatment of all holders of claims against the debtor’s property” because:
- the Singapore liquidation is attempting to marshal assets of the debtor’s insolvent estate for the benefit of all debtor’s creditors;
- enforcement of the turn over judgment against Vertive Entities will allow for the equal treatment of all Debtor’s creditors, within the framework of Singapore law; and
- enforcing the turn over judgment will prevent the potential preferential or fraudulent disposition of Debtor’s property by entrusting the stock certificates in question to the supervision of the Singapore liquidation, until the issue of their ownership can be decided.
Comity
Comity applies only in “parallel” proceedings: i.e., when (i) the foreign bankruptcy proceeding is ongoing in a duly authorized tribunal, and (ii) a civil action is pending in the U.S. court, the outcome of which may affect the debtor’s estate.
When the proceedings are “parallel,” the party seeking the extension of comity must make a prima facie case by showing that:
- the foreign bankruptcy law shares our policy of equal distribution of assets; and
- the foreign law mandates the issuance or at least authorizes the request for the stay.
Once a prima facie case for comity is established, the U.S. court must make four additional inquiries on whether:
- the foreign bankruptcy proceeding is taking place in a duly authorized tribunal;
- the foreign bankruptcy court provides for equal treatment of creditors;
- extending comity would be “in some manner inimical to this country’s policy of equality”; and
- the party opposing comity would be prejudiced.
Further, the U.S. courts also apply the following eight “indicia of procedural fairness” in assessing a foreign proceeding’s procedural fairness:
- whether creditors of the same class are treated equally in the distribution of assets;
- whether the liquidators are considered fiduciaries and are held accountable to the court;
- whether creditors have the right to submit claims which, if denied, can be submitted to a bankruptcy court for adjudication;
- whether the liquidators are required to give notice to the debtors’ potential claimants;
- whether there are provisions for creditors’ meetings;
- whether a foreign country’s insolvency laws favor its own citizens;
- whether all assets are marshalled before one body for centralized distribution; and
- whether there are provisions for an automatic stay and for the lifting of such stays to facilitate the centralization of claims.
In applying the comity standards to the evidence at hand, the Bankruptcy Court finds:
- the proceeding that produced the default judgment is parallel to the Motion presented for this Court’s consideration; and
- Vertiv Entities pledged stock certificates to a Singaporean company, under the laws of either New York or Singapore—so that Vertiv Entities cannot now complain of prejudice from proceedings in Singapore, in which they have opportunities to participate.
Conclusion
Most of us bankruptcy professionals have little-to-no experience with Chapter 15 of the Bankruptcy Code, dealing with “Cross-Border Cases.”
And so it is interesting and instructive to get an inside look into some of the issues and analysis involved, which opinions like In re Wayne Burt Pte. Ltd. (In Liquidation) provide.
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