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Weeks before Hanjin Shipping sought protection from its creditors in Korea, I got an unexpected call: “Tally, I think one of the world’s largest shipping companies is going to file for bankruptcy in Korea and seek chapter 15 protection in New York, are you up for being my local counsel?” This was in early August 2016, and my life has not been the same since.

This article addresses foreign discovery pursuant to Rule 2004 of the Federal Rules of Bankruptcy Procedure (the “Bankruptcy Rules”) and the application of the Hague Convention on the Taking of Evidence Abroad in Civil or Commercial Matters (the “Hague Convention” or the “Convention”) to such discovery. It concludes that discovery under the Hague Convention, including Bankruptcy Rule 2004 discovery, may end up being a drawn-out and difficult process.

Bankruptcy Rule 2004

Since the seminal decision of the Ontario Court of Appeal in Metcalfe & Mansfield Alternative Investment II Corp. (“Metcalfe”) in 2008, third party releases have been part of the restructuring landscape. Metcalfe involved the asset back commercial paper crisis that resulted from the financial crisis of 2007-2009. A plan of compromise or arrangement under the Companies’ Creditors Arrangement Act (“CCAA”) was put to creditors that involved a release of creditor claims against the debtors and also against certain non-filing third parties.

More than a decade after chapter 15 was added to the Bankruptcy Code,[1] there has been an influx of large, complex cases brought by foreign representatives in the U.S. Bankruptcy Court. The number of chapter 15 cases initiated in 2016 rivals the number of cases commenced as a result of the economic crisis in 2009, and many of the current cases are some of the largest and most complex chapter 15 cases filed to date.[2]

Although 2016 has lacked the massive, transnational bankruptcies that the Great Recession gave us, it has provided its own poignant reminders of how interconnected countries and economies can be. The outcome of the Brexit vote caused waves as companies tried to figure out how, or if, they could invest in the EU and the U.K. in the future. The outcome of the U.S. presidential election similarly shook companies as they tried to figure out what would become of existing and pending trade deals, and whether walls are going up (literally or metaphorically). Finally, the carnage in the U.S.

[1]Under chapter 15 of the Bankruptcy Code, recognition of a foreign proceeding is required to obtain a stay of proceeding against the property of the foreign debtor located in the United States, to entrust such property to the representative of the foreign debtor, and to receive other important protections and rights. Recognition is often the most important relief obtained in a chapter 15 case, but when does a foreign insolvency action constitute a foreign proceeding under chapter 15 of the Bankruptcy Code?

n what is often viewed a rudimentary inquiry, recognition of foreign insolvency proceedings under chapter 15 can be a closely scrutinized affair. In In re Creative Finance Ltd. (In Liquidation), 543 B.R. 498 (Bankr. S.D.N.Y. 2016), Judge Robert E. Gerber of the United States Bankruptcy Court for the Southern District of New York dismissed a chapter 15 case after concluding that the debtors’ “Center of Main Interests” (“COMI”) did not change to the British Virgin Islands (“BVI”) — the debtors’ letterbox jurisdiction and where the initial liquidation was filed.

This article outlines the legislative framework behind and briefly describes the process of a bankruptcy proceeding,[1] the Canadian equivalent of a chapter 7 filing in the U.S. Proposals under the BIA and the Companies’ Creditors Arrangement Act, the Canadian equivalents to a chapter 11 filing in the U.S., will be dealt with in a subsequent article.