Barnet Clarified: NY-Law Governed Debt is Sufficient “Property” for Chapter 15 Eligibility
November 3, 2015
On October 28, 2015, Judge Martin Glenn of the United States Bankruptcy Court for the Southern District of New York (the “Court”) issued a Memorandum Opinion (the “Decision”) in the chapter 15 proceeding of Singaporean company Berau Capital Resources Pte. Ltd., providing an expansive reading of the manner in which foreign debtors may obtain a jurisdictional hook for commencing chapter 15 proceedings under the Bankruptcy Code. In re Berau Capital Res. Pte. Ltd., No. 15-11804(MG), 2015 WL 6507871 (Bankr. S.D.N.Y. Oct. 28, 2015). The Decision, which supplemented a prior Court ruling on chapter 15 eligibility, held that USD-denominated bonds issued under New York law constitute intangible “property in the United States” that may satisfy the criteria for chapter 15 eligibility enumerated in §109(a) of the Bankruptcy Code.
The Berau decision confirms an expansive reading of the nature of property that may satisfy the property requirements for eligibility for chapter 15 relief in courts in the Southern District of New York. Based on the Court’s reasoning, foreign debtors with debts issued under New York law will have greater latitude to avail themselves of U.S. courts’ protections under chapter 15 – which may prove to be particularly valuable where foreign companies do not have other sources of property in the United States, yet are subject to lawsuits related to their New York law-governed debt issuances that are interfering with their foreign restructuring efforts. The Court left for another day whether other contract rights, such as patent, trademark or other intellectual property contracts, also may suffice as property that would serve as a chapter 15 jurisdictional hook. However, the decision is encouraging to foreign companies that U.S. courts are open-minded to the use of chapter 15 proceedings in furtherance of foreign insolvency proceedings, even where a company only has limited property or property rights in the United States.