What Is Chapter 15?

Chapter 15 is a section in the U.S. Bankruptcy Code added to foster a cooperative environment in international insolvencies. The primary goal of Chapter 15 bankruptcy is to promote cooperation among U.S. courts, appointed representatives, and foreign courts and to make legal proceedings of international bankruptcies more predictable and fair for debtors and creditors.

As such, Chapter 15 focuses on jurisdiction. It also tries to protect the value of the debtor’s assets and, if possible, financially rescue an insolvent business.

Key Takeaways

  • Chapter 15 bankruptcy fosters cooperation among U.S. courts, appointed representatives, and foreign courts in international bankruptcies.
  • It is adapted from the United Nations Commission on International Trade Law’s “Model Law on International Commercial Arbitration" and acknowledged by more than 80 countries.
  • Chapter 15 is intended to reduce risk for creditors and stakeholders of international companies.

Understanding Chapter 15

Chapter 15 allows a representative in a corporate bankruptcy case that is going on outside the United States (also known as a “cross-border insolvency”) to obtain access to the U.S. court system. Its purpose is to provide an efficient and common-sense mechanism for addressing insolvencies that involve debtors, creditors, and assets associated with more than one country. The purpose of Chapter 15 is outlined in the following objectives as listed in Title 11, Chapter 15, Section 1501 of the U.S. Code:

  • Promoting cooperation among U.S. courts and parties of interest and the courts of other countries involved in cross-border insolvencies
  • Establishing a better legal foundation for cross-border investment and trade
  • Providing for better administration of cross-border insolvencies that protects the interests of all parties
  • Protecting the value of the debtor’s assets
  • Assisting financially troubled companies 

83

The number of countries that have adopted their own form of Chapter 15, based on the United Nations Commission on International Trade Law’s “Model Law on International Commercial Arbitration.”

Chapter 15 History

Chapter 15 was added to federal law as part of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. It was based on the United Nations Commission on International Trade Law’s “Model Law on International Commercial Arbitration.” Eighty-three U.N. countries, including Japan, Canada, China, Australia, the United Kingdom, Russia, Germany, Saudi Arabia, and Mexico, have adopted this law to reduce the risk for creditors and stakeholders of international companies. In the U.S. eight states—California, Connecticut, Florida, Georgia, Illinois, Louisiana, Oregon, and Texas—have also added it to state law regarding bankruptcy.

Formally referred to as “Chapter 15, Title 11 of the United States Code,” Chapter 15 has its origins in Section 304 of the U.S. Bankruptcy Code, which was enacted in 1978. Given the increasing frequency of bankruptcies involving more than one jurisdiction, Section 304 was repealed in 2005 and replaced with Chapter 15, which carries the title of “Ancillary and Other Cross Border Cases.” 

From 1978 to 1984 Chapter 15 had a different purpose as it relates to the 1978 Bankruptcy Code. During that time Chapter 15 related to the United States Trustee Program, a U.S. Department of Justice program that oversees the administration of bankruptcy cases and the private trustees that participate in them. Chapter 15 in this context worked as a trial in certain judicial districts to afford the trustees' powers once reserved to bankruptcy judges. The changes were adopted and folded into the Bankruptcy Code.