Upload
trinhnhi
View
215
Download
2
Embed Size (px)
Citation preview
- 1 - RLF1-2751803-1
ISSUES IN INTERNATIONAL BANKRUPTCY PROCEEDINGS: CONFLICT OF LAWS, COMITY ANTI-SUIT INJUNCTIONS
RUSSELL C. SILBERGLIED1
NORTH AMERICAN REGIONAL VICE CHAIR BANKRUPTCY & INTERNATIONAL INSOLVENCY GROUP
I. Conflict of Laws: The first section of this outline details how United States
bankruptcy courts generally resolve conflict of law problems in international
bankruptcy proceedings.
A. A conflict of law problem does not arise when a foreign country’s bankruptcy law
is similar to United States bankruptcy law.
1. When a foreign country’s bankruptcy law is similar to United States
bankruptcy law, the United States bankruptcy court will apply the foreign
country’s law.
a. In re Banco de Descuento, 78 B.R. 337 (Bankr. S.D. Fl. 1987).
(i) Banco de Descuento (the “Bank”), an Ecuadorian bank,
began liquidating its assets under the General Law of
Banks of the Republic of Ecuador (the “General Law”) in
Ecuador. Meanwhile, the Bank’s liquidator filed an
ancillary proceeding in the United States Bankruptcy Court
for the Southern District of Florida. A creditor from the
United States argued that United States liquidation law for
1 Mr. Silberglied is a Director of Richards, Layton & Finger, P.A. (“RL&F”), the Lex Mundi
member firm in Wilmington, Delaware (U.S.A.). Mr. Silberglied would like to thank Melissa Chiprich, a summer associate at RL&F, for her substantial contribution to this outline. The views expressed in this outline are Mr. Silberglied’s views and are not necessarily shared by, and should not be attributed to RL&F, its other Directors, or its clients.
- 2 - RLF1-2751803-1
banks rather than the General Law controlled because
United States liquidation law provided for more
economical and expeditious administration of the Bank’s
assets.
(ii) The United States Bankruptcy Court for the Southern
District of Florida found no conflict between United States
and Ecuadorian law since the two bodies of law are similar.
Like United States liquidation law, the General Law
provides for a stay of proceedings and a determination of
the priority of claims and prohibits preferences and
alienation or attachment of the assets of a bank liquidation.
(iii) The court added, “[Ecuadorian liquidation laws] as written
[are] clearly not repugnant to American laws and policies.”
Id. at 339.
2. Note, however, that a similarity in the overall scheme of two countries’
bankruptcy laws might not, in certain circumstances, be sufficient to find
that a specific issue in question will be treated similarly under either
country’s law.
a. In re Budget Rent-A-Car Corp. (“BRACC”).
(i) BRACC loaned $122 million to its wholly-owned
subsidiary, BRACII, which was based in England and
comprised BRACC's worldwide, non-United States
operations.
- 3 - RLF1-2751803-1
(ii) Under United States law, there was a substantial question
as to whether BRACC’s $122 million loan to BRACII,
advanced at a time when BRACII was financially troubled,
was debt or should be recharacterized as an equity advance.
(iii) British law is more restrictive than United States law on the
concept of recharacterizing debt as equity. Thus, the
choice of United States or British law likely would have
been outcome determinative on this $122 million issue.
(iv) Although United States and British insolvency and
bankruptcy law are generally very similar, they drastically
diverged on this key issue in the case.
(v) Because the parties settled (after extensive litigation), the
court was not called upon to conduct a conflict of law
analysis.
B. When United States bankruptcy law conflicts with a foreign country’s bankruptcy
law, United States courts have followed two different lines of authority in
determining which country’s law applies.
1. Most courts follow a conflict of law analysis which considers the
following factors: (1) was the transaction “foreign”; (2) if so, does the
United States Bankruptcy Code apply extraterritorially to the transaction;
and (3) if it applies extraterritorially, does comity bar the court from
applying the United States Bankruptcy Code.
- 4 - RLF1-2751803-1
a. First, the bankruptcy court determines whether the transactions
were “foreign.” If not, the bankruptcy court ends the analysis and
applies the United States Bankruptcy Code.
(i) Generally, a bankruptcy court applies a “center of gravity”
test, which is a fact- intensive, case-by-case inquiry. “[A]
transfer made in the U.S. by a foreign national to a foreign
national conceivably could be considered a domestic
transaction. So, too, a transfer made overseas to a U.S.
creditor of a U.S. debtor conceivably could be considered a
domestic transaction.” Maxwell Communication Corp. v.
Barclays Bank (In re Maxwell Communication Corp.), 170
B.R. 800, 809 (Bankr. S.D.N.Y. 1994). See also
Stonington Partners, Inc. v. Lernout & Hauspie Speech
Prods. N.V., 310 F.3d 118, 131 (3d Cir. 2002).
(ii) Gushi Bros. Co. v. Bank of Guam, 28 F.3d 1535 (9th Cir.
1994).
(a) Gushi Brothers (“Gushi”) maintained a bank
account with the Bank of Guam (the “Bank”) in the
Marshall Islands. After learning that Gushi had
overdrawn on its account, the Bank’s president
traveled to the Marshall Islands and demanded that
Gushi’s owners execute a promissory note in the
amount of the overdraft. The Bank sent Gushi’s
- 5 - RLF1-2751803-1
owners a letter, rejecting the owners’ request to
renegotiate the promissory note and demanding that
the owners close an account recently opened at
another bank.
(b) The Bank was chartered and headquartered in
Guam, a United States territory, and belonged to the
United States Federal Reserve System.
(c) The Ninth Circuit Court of Appeals held that the
banking transactions were foreign because the
conduct complained of occurred in the Marshall
Islands. The court deemed all facts relating to
Guam and the Federal Reserve System
“inapposite.”
(iii) Interbulk, Ltd. v. Louis Dreyfus Corp. (In re Interbulk,
Ltd.), 240 B.R. 195 (Bankr. S.D.N.Y. 1999).
(a) Louis Dreyfus Corporation (“Dreyfus”), a United
States corporation, negotiated two contracts
between itself and debtor Interbulk, Incorporated
(“Interbulk”), a United States corporation, by
telephone in New York. Later, in trying to secure
payments to Dreyfus through accounts in New
York, Dreyfus obtained an order of attachment in
connection with the contracts in Paris, France.
- 6 - RLF1-2751803-1
Dreyfus sought to enforce the attachment in a
British court and filed a proof of claim against
Interbulk in the United States Bankruptcy Court for
the Southern District of New York. Interbulk
brought an adversary proceeding in the bankruptcy
court to declare the attachment a preference.
(b) The United States Bankruptcy Court for the
Southern District of New York held that the
attachment was a domestic transaction because the
negotiations occurred in New York, the attachment
was an effort to secure payment to Dreyfus through
accounts in New York, and Dreyfus submitted itself
to the bankruptcy court’s equitable jurisdiction by
filing a proof of claim.
b. If the transaction is considered “foreign,” the bankruptcy court then
determines whether the United States Bankruptcy Code applies
extraterritorially to the transaction.
(i) The United States’ Congress may legislate beyond the
United States’ borders. Whether Congress so legislated is a
matter of statutory interpretation. See Hong Kong and
Shanghai Banking Corp. Ltd. v. Simon (In re Simon), 153
F.3d 991, 995 (9th Cir. 1998).
- 7 - RLF1-2751803-1
(ii) Absent a clear congressional directive to the contrary,
courts presume that Congressional legislation applies only
within the United States’ jurisdiction. See Hong Kong and
Shanghai Banking Corp. Ltd. v. Simon (In re Simon), 153
F.3d 991, 995 (9th Cir. 1998).
(iii) This presumption applies even when the potential
international discord is remote or nonexistent. Sale v.
Haitian Centers Council, Inc., 509 U.S. 155, 175-77 (1993).
(iv) Nevertheless, in Hong Kong and Shanghai Banking Corp.
Ltd. v. Simon (In re Simon), 153 F.3d 991 (9th Cir. 1998),
the Ninth Circuit Court of Appeals held that Section 524 of
the United States Bankruptcy Code -- the discharge --
applied extraterritorially to enjoin a foreign creditor who
sought foreign collection of a debt discharged in a United
States bankruptcy proceeding in which the foreign creditor
participated. Interestingly, Section 524 does not expressly
provide for extraterritorial application.
c. Finally, if the United States Bankruptcy Code applies
extraterritorially to the foreign transaction, the bankruptcy court
determines whether international comity bars it from applying the
United States Bankruptcy Code.
(i) Comity is ‘the recognition which one nation allows within
its territory to the legislative, executive or judicial acts of
- 8 - RLF1-2751803-1
another nation, having due regard both to international duty
and convenience, and to the rights of its own citizens, or of
other persons who are under the protection of its laws.”
Hilton v. Guyot, 159 U.S. 113, 163-64 (1895).
(ii) “Comity” can take two forms: (1) the application of foreign
law by a United States court, or (2) deferring to a ruling
already rendered by a foreign court. The first of those
applications is discussed here as part of the typical three-
part choice of law analysis. Section II of this outline
considers the other notion of comity, i.e., whether United
States courts defer to rulings of foreign insolvency courts,
and under what circumstances.
(iii) The party moving for abstention based on comity must
prove that comity-based abstention is appropriate. United
Feature Syndicate, Inc. v. Miller Features Syndicate, Inc.,
216 F. Supp. 2d 198, 212 (S.D.N.Y. 2002).
(iv) A bankruptcy court “evaluate[s] all of the various contacts
each jurisdiction has with the controversy in terms of their
relative importance with respect to a particular issue and
make[s] a reasoned determination as to which jurisdiction's
laws and policies are implicated to the greatest extent.”
Maxwell Communication Corp. v. Barclays Bank (In re
- 9 - RLF1-2751803-1
Maxwell Communication Corp.), 170 B.R. 800, 816
(Bankr. S.D.N.Y. 1994).
(v) Maxwell Communication Corp. v. Barclays Bank (In re
Maxwell Communication Corp.), 170 B.R. 800 (Bankr.
S.D.N.Y. 1994), illustrates how a court evaluates the
various contacts and determines which jurisdiction’s laws
and policies are most implicated.
(a) Maxwell Communication Corporation (“MCC”)
was a publicly-owned holding company,
incorporated in England and operated by British
executives, who received instructions from a British
board of directors. Before filing its Chapter 11
petition in the United States, MCC transferred
money to defendant banks in England. The transfer
documents provided that British law governed
resolution of any subsequent disputes. MCC sought
to avoid the transfers under Section 547 of the
United States Bankruptcy Code. The defendant
banks argued that, based on principles of comity,
British law governed the foreign transfers.
(b) The United States Bankruptcy Court for the
Southern District of New York held that the British
- 10 - RLF1-2751803-1
choice of law provision governed the foreign
transactions.
(c) The court also stated that, under principles of
comity, British law would have governed the
avoidance issue even if the transfer documents had
lacked a choice of law provision. The court
reasoned that England had the most contact with the
issue: (1) MCC was a British company; (2) most of
MCC’s creditors were British; (3) MCC negotiated
the transfers in England; and (4) the challenged
transfers occurred in England. Furthermore, the
United States’ policy interests did not compel the
court to apply the United States Bankruptcy Code
since (1) England’s avoidance law is not repugnant
to Section 547, and (2) the defendant banks
probably assumed that British, not United States,
bankruptcy law would govern if MCC, a British
company, filed for bankruptcy.
(vi) In re French, 303 B.R. 774 (Bankr. D. Md. 2003).
(a) A Chapter 7 debtor allegedly transferred real
property located in the Bahamas for no
consideration within months of filing her
bankruptcy petition. The Chapter 7 trustee filed a
- 11 - RLF1-2751803-1
complaint in the United States Bankruptcy Court for
the District of Maryland, seeking to avoid the
allegedly fraudulent transfer under Section 548 of
the United States Bankruptcy Code. The debtor
moved to dismiss the complaint, arguing that the
court, under principles of comity, should not apply
Section 548 to property located in the Bahamas.
The debtor further argued that Bahamian law
governed because the debtor had an interest in
Bahamian property.
(b) The United States Bankruptcy Court for the District
of Maryland held that Section 548 of the United
States Bankruptcy Code rather than Bahamian law
governed the avoidance action because, under
Bahamian law, the debtor no longer had an interest
in Bahamian property, which she previously
conveyed.
2. A minority of courts follow a typical United States conflict of law analysis
rather than the three-part analysis described above. In essence, without
discussing whether the Bankruptcy Code purports to apply
extraterritorially or whether comity concerns warrant deference, these
courts treat the choice of applying United States or foreign law no
- 12 - RLF1-2751803-1
differently than they would approach a conflict between the laws of two
states within the United States.
a. These courts will first determine whether a choice-of- law clause
exists in a contract.
(i) United States bankruptcy courts and appellate courts on
review will usually enforce a foreign choice-of- law clause
in a contract.
(a) In re Harnischfeger Indus., Inc., 293 B.R. 650
(Bankr. D. Del. 2003).
1) The United States Bankruptcy Court for the
District of Delaware enforced a United States
choice-of- law clause in a purchase order that
spurred a dispute between an Austrian debtor
and the debtor’s receiver.
2) “Delaware law recognizes the validity of choice
of law clauses contained in purchase orders.”
Id.
(b) Assuranceforeningen Skuld, Den Danske Afdeling
v. Allfirst Bank (In re Millenium Seacarriers, Inc.),
96 Fed. Appx. 753 (2d Cir. 2004).
1) Millennium Seacarriers, Inc. (“Millennium”)
purchased insurance from Assuranceforeningen
Skuld, Den Danske Afdeling (“Skuld”). The
- 13 - RLF1-2751803-1
insurance policy contained a Norwegian choice-
of- law clause. Thereafter, Millennium filed for
bankruptcy in the United States and Skuld
sought to recover the value of unpaid insurance
premiums. Under Norwegian law, the unpaid
insurance premiums were not given the priority
of maritime liens. Since Norwegian law did not
provide a remedy, Skuld argued it could pursue
its claim under United States law.
2) The United States Bankruptcy Court for the
Southern District of New York enforced the
Norwegian choice-of-law clause in the
insurance contract.
3) The Second Circuit Court of Appeals affirmed
the bankruptcy court’s decision. “In
transactions of an international character, freely
negotiated...choice-of- law clauses are binding
unless a court finds ‘that it would be unfair,
unjust, or unreasonable to hold [a] party to his
bargain.’” Id. at 754-755 (internal citation
omitted). The court found that no injustice
would result by enforcing the Norwegian
choice-of- law clause.
- 14 - RLF1-2751803-1
(ii) Other courts in the United States have not enforced foreign
choice-of- law clauses for the following reasons.
(a) The contract provided that the choice-of-law clause
would govern only certain controversies. E.g.,
Liverpool & London Steamship Protection &
Indemnity Assoc. Ltd. v. Queen of Leman MV, 296
F.3d 350, 353-54 (5th Cir. 2002) (holding that
United States law determined whether a maritime
lien existed because the foreign choice-of-law
clause was not written to govern all possible in rem
actions).
(b) The parties who agreed to the choice-of- law clause
had unequal bargaining power. See Indussa Corp.
v. S.S. Ranborg, 377 F.2d 200, 201 (2d. Cir. 1967)
(refusing to enforce a foreign choice-of- law clause
in a bill of lading that was a contract of adhesion).
(c) Principles of comity may trump a choice-of-law
clause. See JP Morgan Chase Bank v. Altos Hornos
de Mexico S.A. DE C.V., No. 03 Civ. 1900 (HB),
2004 WL 42268 (S.D.N.Y. Jan. 8, 2004). In JP
Morgan, various promissory notes contained a
choice-of- law clause which provided that New York
or Mexican law would apply if the debtor or
- 15 - RLF1-2751803-1
creditor filed an adversary proceeding in New York
or Mexico respectively. After the debtor filed for
bankruptcy in Mexico, the creditor filed an
adversary proceeding in New York. The United
States District Court for the Southern District of
New York held that, despite the choice-of-law
clause, principles of comity empowered the
Mexican court to hear the adversary proceeding and
to decide the proceeding under Mexican law, which
the Mexican court better understood.
(d) The chosen law has no substantial relationship to
the parties or transaction, and no reasonable basis
for the parties’ choice exists. See In re Kellas, 113
B.R. 673, 679 (D. Or. 1990).
(e) The chosen law is contrary to a fundamental policy
of the forum state. In re Kellas, 113 B.R. 673, 679
(D. Or. 1990). For example, while there are no
reported decisions on point, a United States
bankruptcy court would probably not apply foreign
law, even if the contract has a foreign choice-of-law
clause, to uphold a contractual clause stating that
the contract terminates or a party is in default upon
the party’s insolvency or filing for bankruptcy.
- 16 - RLF1-2751803-1
This type of contractual provision, known as an ipso
facto clause, is void as against United States public
policy and the United States Bankruptcy Code. See
11 U.S.C. § 365(e)(1)(B); 11 U.S.C. § 363(l).
b. If the issue concerns a matter of internal corporate governance,
courts applying the traditional United States conflict of law
analysis will apply the internal affairs doctrine.
(i) The internal affairs doctrine is a conflict of law principle
that requires the law of the state of incorporation to govern
issues relating to, inter alia, transactions and relationships
between a corporation and its officers, directors, and
shareholders. Edgar v. MITE Corp., 457 U.S. 624, 645
(1982).
(ii) In re Harnischfeger Indus., Inc., 293 B.R. 650 (Bankr. D.
Del. 2003).
(a) Beloit Austria, an Austrian corporation, was a
wholly-owned subsidiary of Beloit Corporation
(“Beloit”), a United States corporation. In spring
1999, Beloit paid Beloit Austria ’s vendors and
deposited money in Beloit Austria’s bank accounts.
In June 1999, Beloit filed its Chapter 11 petition in
the United States Bankruptcy Cour t for the District
of Delaware; however, Beloit kept depositing
- 17 - RLF1-2751803-1
money in Beloit Austria ’s bank account. Beloit
then asserted that Beloit Austria owed it $7 million.
In November 1999, Beloit Austria filed for
insolvency proceedings in Austria.
(b) The United States Bankruptcy Court for the District
of Delaware was called upon to determine whether
Beloit’s monetary advances constituted a loan or an
equity investment. Beloit argued that United States
law governed the issue. Beloit Austria’s Receiver
argued that Austrian law governed based on the
internal corporate affairs doctrine.
(c) The United States Bankruptcy Court for the District
of Delaware held that the internal corporate affairs
doctrine applied because the issue involved
transactions between a corporation and its
shareholders. Therefore, the court applied Austrian
law.
C. Conclusion:
1. If United States bankruptcy law conflicts with a foreign country’s
bankruptcy law, the bankruptcy court will follow one of two lines of
authority: the majority three-part conflict of law analysis focusing on
comity concerns or the minority, traditional United States conflict of law
analysis.
- 18 - RLF1-2751803-1
2. It is worth observing that courts applying the minority approach generally
have applied foreign law rather than the United States law. Thus, it is
conceivable that these seemingly divergent lines of authority really are not
fundamentally different; rather, it is possible that the courts tha t decided
Harnischfeger and Millennium Seacarriers did not perform a comity
analysis because they had already determined, for other reasons, to apply
foreign law.
II. Comity and Rulings of Foreign Insolvency Tribunals: This section of the outline
explores whether courts in the United States will honor a ruling in a foreign
bankruptcy proceeding.
A. What is “comity”?
1. Comity is “the recognition which one nation allows within its territory to
the legislative, executive, or judicial acts of another nation, having due
regard both to international duty and convenience, and to the rights of its
own citizens, or of other persons who are under the protection of its laws.”
Hilton v. Guyot, 159 U.S. 113, 163-64 (1895) (emphasis added).
B. Comity requires a United States court to honor a ruling in a foreign bankruptcy
proceeding in most circumstances.
1. As applied to a bankruptcy proceeding, the extension of comity “enables
the assets of a debtor to be dispersed in an equitable, orderly, and
systematic manner, rather than in a haphazard, erratic or piecemeal
fashion.” Cunard S.S. Co. Ltd. v. Salen Reefer Serv. AB, 773 F.2d 452,
458 (2d Cir. 1985).
- 19 - RLF1-2751803-1
C. Yet, despite principles of comity, a United States court will not honor a ruling in a
foreign bankruptcy proceeding that lacked notions of procedural fairness.
1. “Under the law of the United States, a foreign judgment cannot be
enforced in a U.S. court unless it was obtained under a system with
procedures compatible with the requirements of due process of law.” For
instance, “[n]otice is an element of…due process and the United States
will not enforce a judgment obtained without the bare minimum
requirements of notice.” Int’l Trans., Ltd. v. Embotelladora Agral
Regiomontana, SA DE CV, 347 F.3d 589, 594 (5th Cir. 2003).
2. “To determine whe ther a foreign bankruptcy proceeding ‘abide[s] by
fundamental standards of procedural fairness,’ [a court] focuse[s] on
several factors [such] as ‘indicia of procedural fairness,’ including: (1)
whether creditors of the same class are treated equally in the distribution
of assets; (2) whether the liquidators are considered fiduciaries and are
held accountable to the court; (3) whether creditors have the right to
submit claims which, if denied [by the debtor], can be submitted to a
bankruptcy court for adjud ication; (4) whether the liquidators are required
to give notice to the debtors potential claimants; (5) whether there are
provisions for creditors meetings; (6) whether a foreign countrys
insolvency laws favor its own citizens; (7) whether all assets are
marshalled before one body for centralized distribution; and (8) whether
there are provisions for an automatic stay and for the lifting of such stays
to facilitate the centralization of claims.” Finanz AG Zurich v. Banco
- 20 - RLF1-2751803-1
Economico S.A., 192 F.3d 240, 246, 249 (2d. Cir. 1999) (internal citation
omitted).
D. At least two United States courts have refused to honor orders issued in foreign
bankruptcy proceedings due to the lack of requisite notice.
1. Int’l Trans., Ltd. v. Embotelladora Agral Regiomontana, SA DE CV 347
F.3d 589 (5th Cir. 2003).
a. The Agral Companies (“Agral”), Mexican companies, filed for
bankruptcy in Mexico under Mexican law. International
Transactions, Ltd. (“ITL”) obtained an arbitration award against
Agral in Dallas, Texas. Sharp Capital, Inc. (“Sharp”) acted as
ITL’s undisclosed agent and the provisional intervener for Agral’s
creditors. At ITL’s instruction, Sharp filed a claim in the Mexican
bankruptcy court for confirmation and recognition of the award.
Then, without ITL’s authorization, Sharp assigned the award to a
third party. Subsequently, ITL filed suit against Sharp in the
United States District Court for the Northern District of Texas.
Two years later, the Mexican bankruptcy court determined that
Sharp was no longer Agral’s creditor and dismissed Sharp as the
provisional intervener. Although Mexican bankruptcy law
typically affords notice to all creditors, ITL never received notice
of that bankruptcy proceeding. Moreover, ITL did not appear in
the Mexican bankruptcy court.
- 21 - RLF1-2751803-1
b. ITL urged the United States District Court for the Northern District
of Texas to enforce the arbitration award and to find Sharp’s
assignment invalid. The district court honored the Mexican
bankruptcy court’s determination.
c. The issue on appeal was whether ITL had notice and an
opportunity to be heard in the Mexican bankruptcy court on its
claim to the arbitration award.
d. The Fifth Circuit Court of Appeals held that ITL was not afforded
notice and an opportunity to be heard. Thus, it reversed, holding
that the district court erred in honoring the Mexican bankruptcy
court’s determination based on principles of comity.
2. Interpool, Ltd. v. Certain Freights of the M/V Venture Star, 102 B.R. 373
(D.N.J. 1988).
a. Wah Kwong filed an involuntary liquidation proceeding against
Karlander Kangaroo Lines (“KKL”), an Australian corporation, in
Australia. The Australian court ordered KKL to liquidate its assets.
Mr. Dunn, KKL’s liquidator (the “Liquidator”), entered into
various agreements with Wah Kwong, which the Australian court
approved. The Liquidator also filed a petition in the United States
Bankruptcy Court for the District of New Jersey for relief under
Section 304 of the United States Bankruptcy Code. Section 304
provides for a United States insolvency case ancillary to foreign
insolvency proceedings. Under Section 304, the Liquidator sought
- 22 - RLF1-2751803-1
to administer assets located in the United States pursuant to
Australian bankruptcy law and the Wah Kwong agreements.
Subsequently, various KKL creditors in the United States filed an
involuntary Chapter 7 petition against KKL.
b. The issue before the United States District Court was whether it
should, under principles of comity, honor the Australian court’s
approval of the Wah Kwong agreements even though Australian
law does not require a liquidator to give notice to creditors from the
United States.
c. Despite principles of comity, the District Court for the District of
New Jersey did not honor the Australian court approval of the
agreements because the United States creditors were not notified
before the Australian court ratified the agreement s between the
Liquidator and Wah Kwong. Therefore, the Australian
proceedings lacked notions of due process.
E. One United States court addressed the procedural fairness of a liquidation
proceeding in Ecuador.
1. In re Banco de Descuento, 78 B.R. 337 (Bankr. S.D. Fl. 1987).
a. Banco de Descuento (the “Bank”) was an Ecuadorian bank located
in Ecuador. An Ecuadorian court ordered the Superintendent of
Banks of the Republic of Ecuador (the “Liquidator”) to liquidate
the Bank’s assets. At the same time, the Liquidator filed a petition
under Section 304 of the United States Bankruptcy Code. The
- 23 - RLF1-2751803-1
Liquidator requested an injunction, staying actions by American
creditors pending the Bank’s liquidation in Ecuador. First
National Bank of Palm Beach (“First Palm Beach”), an United
States creditor which questioned the timing and cause of the
Bank’s liquidation, opposed the petition and urged the bankruptcy
court not to honor the Ecuadorian liquidation proceeding.
b. One of the issues before the United States Bankruptcy Court for
the Southern District of Florida was whether the Ecuadorian
liquidation proceedings comported with United States notions of
fairness and due process so that it could extend comity to the
Ecuadorian proceeding.
c. In addressing the issue, the bankruptcy court found Ecuadorian and
United States liquidation laws for banks similar. Like United
States law, the General Law of Banks of the Republic of Ecuador
provides for a stay of proceedings and a determination of the
priority of claims and prohibits preferences and alienation or
attachment of the assets of a bank liquidation.
d. This similarity suggests that the Ecuadorian liquidation proceeding
comported with United States notions of fairness and due process.
e. Nevertheless, the United States Bankruptcy Court for the Southern
District of Florida refrained from answering the issue: “As the
proceedings in Ecuador progress, the Court will be able to assess
whether the [Ecuadorian liquidation laws], as applied, provides
- 24 - RLF1-2751803-1
fair treatment to United States creditors.” Id. at 340. The court
stayed the United States proceeding.
F. Most United States courts have honored a ruling in foreign bankruptcy
proceedings under principles of comity.
a. Comity Based On Notice:
(i) Ecoban Fin. Ltd. v. Grupo Acerero del Norte SA DE CV,
108 F. Supp. 2d 349 (S.D.N.Y. 2000).
(a) Grupo Acerero del Norte (“Acerero”), a Mexican
conglomerate, filed a Suspension of Payments
(“SOP”) petition (similar to a United States Chapter
11 petition) in Mexico. The Mexican court granted
Acerero’s petition. Subsequently, Ecoban Finance
Limited, a New York corporation, filed a lawsuit in
the United States District Court for the Southern
District of New York to collect on a series of past-
due promissory notes that Acerero had issued in
Mexico. Acerero moved to dismiss the New York
suit, asking the district court, for reasons of comity,
to defer to the Mexican SOP proceeding.
(b) In considering the motion to dismiss, the United
States District Court for the Southern District of
New York focused on whether the SOP proceeding
comported with United States notions of
- 25 - RLF1-2751803-1
fundamental procedural fairness. If so, principles of
comity dictated dismissal.
(c) The district court held that the SOP proceeding did
not violate United States notions of procedural
fairness and that comity deference was appropriate
under the circumstances.
(d) The district court reasoned that Acerero’s creditors
were given legitimate opportunity to make their
claims and to address any grievances within the
SOP proceeding.
(e) Moreover, the district court did not find the SOP
process unfair just because it could last ten years.
(ii) Finanz AG Zurich v. Banco Economico S.A., 192 F.3d 240
(2d Cir. 1999).
(a) Banco Central de Brazil (“Central Bank”) placed
Banco Economico S.A. (“BESA”) in a Brazilian
extrajudicial liquidation, which is functionally
similar to a United States bankruptcy proceeding.
Yet, unlike a United States bankruptcy proceeding
in which a creditor receives individualized notice,
creditors in a Brazilian extrajudicial proceeding
receive only published notice of the liquidation.
- 26 - RLF1-2751803-1
(b) Subsequently, Finanz AG Zurich (“Finanz”) filed
suit in the United States District Court for the
Southern District of New York to recover the value
of various promissory notes in the Brazilian
liquidation. BESA moved to dismiss the New York
action in deference to the Brazilian liquidation
proceeding under principles of comity. Finanz
maintained that the Brazilian proceeding violated
United States standards of due process and
fundamental fairness because creditors were not
individually notified.
(c) The United States District Court for the Southern
District of New York extended comity to the
Brazilian liquidation proceeding under principles of
comity and dismissed Finanz’s suit.
(d) The Second Circuit Court of Appeals affirmed the
district court’s grant of comity to the Brazilian
liquidation proceeding. The appeals court held that
the Brazilian liquidation proceeding did not violate
due process because, even though Finanz did not
receive individualized notice, it had actual notice of
the proceeding.
- 27 - RLF1-2751803-1
(e) Although the appeals court did not ultimately
decide whether Brazil’s policy of published notice
violates United States standards of due process and
fundamental fairness, the tone of the opinion
suggests that published notice does not provide
sufficient notice and that, but for the creditor having
actually read the published notice, the case could
have been decided differently.
(f) In United States domestic bankruptcy cases, if the
debtor is unaware of the creditor’s claim or identity,
United States courts recognize that published notice
satisfies the due process requirements if the
published notice is reasonably calculated to apprise
the unknown creditors of the pending bankruptcy.
See Mullane v. Cent. Hanover Bank & Trust Co.,
339 U.S. 306, 317 (1950).
(g) On the other hand, published notice does not satisfy
due process when the creditor is known to the
debtors. Known creditors must be given actual
notice of the case. Jones v. Chemetron Corp., 212
F.3d 199, 205 (3d. Cir. 2000).
(iii) Pravin Banker Assoc., Ltd. v. Banco Popular del Peru, 165
B.R. 379 (S.D.N.Y. 1994).
- 28 - RLF1-2751803-1
(iv) Banco Popular del Peru (the “Bank”) was a bank
incorporated in Peru. The Superintendent of Banks in Peru
ordered the Bank to dissolve and liquidate its assets. The
Bank’s liquidation committee publicly announced all
decisions about the Bank’s claims. As required by
Peruvian liquidation law, the Special Representative
(similar to a bankruptcy trustee) created three lists of
claims and creditors: (1) a preliminary list of creditors, (2)
a creditor list that included non-declared creditors, and (3) a
list indicating all approved and rejected claims. The
Special Representative published the third list in an official
Peruvian newspaper and sent actual notice to all foreign
creditors. Pravin Banker Associates (“Pravin”), the Bank’s
creditor, learned about the dissolution and liquidation but
never participated in the liquidation process. Subsequently,
Pravin filed suit in the United States District Court for the
Southern District of New York to collect a debt that the
Bank owed it. The Bank moved to dismiss the New York
suit based on principles of comity.
(v) The United States District Court for the Southern District
of New York extended comity to the Peruvian dissolution
and liquidation proceedings, finding that the Peruvian
proceedings comported with United States notions of due
- 29 - RLF1-2751803-1
process and fairness. The court reasoned that Pravin
received actual notice.
(vi) Cunard S.S. Co. Ltd. v. Salen Reefer Serv. AB, 773 F.2d
452 (2d Cir. 1985).
(a) The United States District Court for the Southern
District of New York was called upon to decide
whether it should extend comity to a Swedish
bankruptcy proceeding.
(b) The court extended comity, reasoning that the
Swedish bankruptcy administrator and trustee
notified all of the debtor’s creditors. The Swedish
bankruptcy court abided by fundamental standards
of procedural fairness.
b. Comity Based On Similarity of Substantive Law:
(i) Kenner Prod. Co. v. Societe Fonciere et Fianciere Agache-
Willot, 532 F. Supp. 478 (S.D.N.Y. 1982).
(a) The United States District Court for the Southern
District of New York extended comity to a French
bankruptcy proceeding.
(b) The court did not discuss procedural due process.
Rather, the court discussed the similarities between
French and United States bankruptcy law governing
- 30 - RLF1-2751803-1
distribution of assets. Because they were similar,
the court extended comity.
c. Lindner Fund, Inc. v. Polly Peck Int’l PLC, 143 B.R. 807
(S.D.N.Y. 1992).
(i) Polly Peck International (“Polly Peck”) was a publicly-held
conglomerate organized under the laws of the United
Kingdom. The Companies Court of England and Wales in
the Chancery Division of the High Court of Justice granted
an Administration Order that allowed Polly Peck to
reorganize. An Administration Order is substantively
similar to a United States Chapter 11 petition. The
Administration triggered a stay against all other
proceedings regarding Polly Peck. Subsequently, Lidner
Fund, Incorporated filed a lawsuit in the United States
District Court for the Southern District of New York
against Polly Peck. Polly Peck moved to dismiss the New
York lawsuit on grounds of comity.
(ii) The United States District Court for the Southern District
of New York extended comity to the British reorganization
proceeding.
(iii) The court did not discuss procedural due process. Rather,
the court extended comity because the bankruptcy
proceeding was filed in a sister common law jurisdiction.
- 31 - RLF1-2751803-1
United States courts presume that such common law courts
comport with United States notions of due process.
d. In re Schimmelpenninck, 183 F.3d 347 (5th Cir. 1999).
(i) A Dutch bankruptcy court ordered Schimmelpenninck to
liquidate its assets. Thereafter, a creditor from the United
States filed suit in the United States Bankruptcy Court for
the Northern District of Texas.
(ii) The United States Bankruptcy Court for the Northern
District of Texas extended comity to the Dutch bankruptcy
proceeding, reasoning that the Netherlands is a sister
common law jurisdiction.
G. Conclusion: United States courts will extend comity to a ruling in a foreign
bankruptcy proceeding as long as due process was afforded, such as actual notice
or similarity with United States substantive law.
III. International Anti-suit Injunctions : The last section of this outline briefly examines
international anti-suit injunctions, an issue that may arise in international
bankruptcy proceedings.
A. An international anti-suit injunction issued by a United States bankruptcy court
enjoins a creditor, who is subject to the United States bankruptcy court’s
jurisdiction, from pursuing litigation before foreign courts. Quaak v. Klynveld
Peat Marwick Goerdeler Bedrijfsrevisoren, 361 F.3d 11, 17 (1st Cir. 2004).
B. In deciding whether to issue an international anti-suit injunction, a United States
bankruptcy court considers principles of international comity and the facts of the
- 32 - RLF1-2751803-1
case. Those considerations ordinarily establish a rebuttable presumption against
issuing an injunction that halts foreign proceedings. This is known as the anti-suit
injunction doctrine. Quaak v. Klynveld Peat Marwick Goerdeler
Bedrijfsrevisoren, 361 F.3d 11, 17 (1st Cir. 2004).
C. Notwithstanding this presumption against foreign anti-suit injunctions, a
bankruptcy court may issue an injunction if the foreign proceeding will
undermine the bankruptcy court’s ability to reach a just and speedy result. Quaak
v. Klynveld Peat Marwick Goerdeler Bedrijfsrevisoren, 361 F.3d 11, 19 (1st Cir.
2004).
D. In re Rare, LLC, 298 B.R. 762 (Bankr. D. Colo. 2003).
1. Rare, LLC (“Rare”) was a fine wine supplier in the United States. The
Marcianos, United States creditors, ordered and paid for wine futures from
Rare, but Rare never delivered the wine. Accordingly, the Marcianos sued
Rare in a French court to obtain the wine in which the Marcianos claimed
an interest. Subsequently, Rare filed its Chapter 11 petition in the United
States Bankruptcy Court for the District of Colorado. Instead of causing
the ongoing suit in France to be stayed, the Marcianos pursued the French
suit. The French court ordered the post-petition seizure of the wine.
2. Rare moved the United States Bankruptcy Court for the District of
Colorado to issue an international anti-suit injunction, enjoining the
Marcianos from pursuing the French suit any further.
3. Despite the anti-suit injunction doctrine, the United States Bankruptcy
Court for the District of Colorado granted Rare’s motion. The court
- 33 - RLF1-2751803-1
reasoned that Rare’s Chapter 11 petition triggered an automatic stay. If
the court refrained from enforcing the automatic stay, Rare’s rights to
reorganize would be effectively eviscerated.
4. The court further reasoned that any interests in comity did not overcome
the court’s interest in controlling Rare’s property. “The interest of the
French courts in adjudicating a matter that, at its core, is a dispute between
American citizens is minor compared to the interest of this Court in
determining the applicability of the automatic stay which is the very
cornerstone of this Court’s jurisdiction.” Id. at 769.