Sauce for the Goose? Dual Standard Emerging in Cross Border Insolvencies: Domicile Not Enough to Recognize Foreign Proceeding
Recent cases interpreting Chapter 15 of the United States Bankruptcy Code (11 U.S.C. § 101, et seq., as amended) (the “Bankruptcy Code”) suggest that there are different standards for recognizing whether domestic entities and foreign entities have filed insolvency proceedings in the proper venue. This double standard arises not in the actual venue of the Chapter 15 case, but in the refusal of some courts to recognize a foreign proceeding despite the fact that the foreign entity properly filed an insolvency proceeding in its country of registration – what would be domicile and proper for venue for a domestic entity. These courts require a further showing that the foreign entity has an establishment in its country of registration. Thus, some United States courts have refused to recognize a foreign proceeding notwithstanding that the foreign proceeding is filed in a proper venue under that jurisdiction’s insolvency laws under the very standards applied to domestic entities in US bankruptcy cases.
The United States venue laws allow a debtor to commence a case in the district court for the district in which the debtor has its domicile, residence, principal place of business in the United States, or principal assets in the United States. A corporation’s domicile is its state of incorporation. Thus, in the corporate context, domicile is sufficient to establish proper venue. A domestic corporation can file a petition in its state of incorporation even if the debtor has no contact with the state outside of filing the papers and paying the fees associated with maintaining a corporate status. In such a case, although venue may be challenged as inconvenient, venue cannot be challenged as improper. The Delaware bankruptcy courts routinely handle cases where the debtor has absolutely no contact with or assets in Delaware other than its incorporation.
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Co-authored with Judith Elkin. Presented at the American Bankruptcy Institute 2009 Caribbean Insolvency Symposium on February 5-7, 2009. Will also be presented at the Practicing Law Institute's 32nd Annual Current Developments in Bankruptcy & Reorganization in New York City on April 19-20, 2010.