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Welcome to New York; the Bankruptcy Court is Below the Museum

posted by Stephen Lubben

While most of the recent focus in the reorganization area has been on a handful of “mega” cases that played key and controversial roles in the financial crisis, the bankruptcy court in Manhattan has quietly become the international center for corporate reorganization. And I’m not just talking about chapter 15 cases, like those recently filed by Mexicana Airlines, and a boatload of English reinsurance companies, that simply ask the US court to help enforce a foreign bankruptcy proceeding.

As far back as 2003, Avianca, a Columbian airline, reorganized in New York using Chapter 11, without ever filing in Colombia. More recently, in 2008, Tricom, S.A., a telecommunications provider in the Dominican Republic, filed for chapter 11 protection in New York. It was joined by Landsbanki, the now infamous Icelandic bank. In 2009, deCODE genetics, also from Iceland, and LyondellBasell, a Dutch chemical company, albeit one with a significant U.S. subsidiary, filed. Notably, LyondellBasell never filed for bankruptcy in the Netherlands. 2010 has already seen the cases of Almatis B.V., a German aluminum company, and Bozel S.A., a mining company based in Luxembourg. And these are just the very biggest companies.

How is the possible? The current Bankruptcy Code extends to all of the debtor’s property, “wherever located and by whomever held.” In theory, property on the Moon is covered. And a debtor need only have some of that property in the United States to commence a case. Creditors, on the other hand, will have to abide by the bankruptcy court’s rulings and the “automatic stay” in the Bankruptcy Code if they want to do business in the United States. In short, so long as the debtor does not care about restructuring debts owed to purely local creditors, New York is a great place to file.


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