Aisha Sabar

St. John’s University School of Law

American Bankruptcy Institute Law Review Staff

In 2015, Omani citizen Talal Qais Abdulmunem Al Zawawi (“Al Zawawi”) moved to the United Kingdom (“U.K.”) with his wife, Leila Hammoud (“Hammoud”) and their children.^[5] In 2017, Hammoud began divorce proceedings in the UK, in which Al Zawawi filed a statement of net worth indicating that he held assets in the United States.^[6] In 2019, the U.K. Court granted Hammoud a divorce decree and a judgment against Al Zawawi in the amount of £24,075,000.^[7] The court then issued a world-wide order freezing Al Zawawi’s assets pending payment on the judgment.^[8] After Al Zawawi allegedly failed to make the payment, Hammoud filed a petition to place Al Zawawi in involuntary bankruptcy, and Al Zawawi was adjudged bankrupt.^[9]Thereafter, the U.K. court appointed trustees for Al Zawawi and the trustees filed a chapter 15 petition seeking recognition of the U.K. liquidation with the U.S. Bankruptcy Court for the Middle District of Florida.^[10]

Sections 1515 and 1517 of the Bankruptcy Code set forth certain requirements for granting recognition of a foreign proceeding under chapter 15.^[11] Those requirements do not expressly include section 109(a) of the Bankruptcy Code.^[12] Nevertheless, Al Zawawi, who did not contest that the foreign representative had satisfied the section 1515 and 1517 requirements,^[13] argued that the chapter 15 case should be dismissed because he was not eligible to be a debtor under section 109(a).^[14] In particular, as of the date of the petition, he was not a resident or domiciliary of the United States, and, he did not have a place of business or property in the United States.^[15] The lower courts overruled his objection, and granted recognition, holding that section 109(a) does not apply to chapter 15 cases.^[16] On appeal from the district court’s decision affirming the bankruptcy court, the Court of Appeals for the Eleventh Circuit  noted that it had previously addressed section 109(a)’s applicability to cases filed under former section 304, the predecessor of chapter 15, in In re Goerg.^[17]There, the Eleventh Circuit Court held that debtor eligibility under the Bankruptcy Code was not a prerequisite to the recognition of foreign bankruptcy proceedings.^[18]  

The Al Zawawi Court noted that the current definitions of “debtor” and “foreign proceeding” were essentially the same as those in Goerg, and that the purpose of the old section 304 and the current chapter 15 were sufficiently similar for the Goerg analysis to be controlling.^[19] Accordingly, the Court held that based on the Goerg precedent to which it was bound unless a full panel of the 11^th Circuit disagreed, section 109(a)’s criteria for debtor eligibility does not serve as a prerequisite to the recognition of a foreign proceeding.^[20] Thus the Court affirmed the order granting recognition of the UK proceeding despite Al Zawawi not being eligible to be a debtor under section 109(a).^[21]

In reaching its conclusion, the Al Zawawi Court cited a Second Circuit decision finding that based on a straightforward interpretation of the statute, section 109(a) does apply to chapter 15 cases.^[22] Although here, Al Zawawi was decided in accordance with precedent, the Court expressed a clear appreciation for the plain reading approach advanced by the Second Circuit.^[23]

The courts are split on the applicability of section 109 to chapter 15 cases. The Court of Appeals for the Second Circuit, which includes New York, has held it does apply.^[24] Thus, chapter 15 relief is only available to foreign debtors that are eligible to be debtors in a United States bankruptcy case.  The Court of Appeals for the Eleventh Circuit, which includes Florida, has held it does not apply.^[25]