Plain Meaning and Chapter 15

I’m on my way to the Choice of Law in Cross-Border Bankruptcy Cases symposium at Brooklyn Law School that Susan Block-Lieb mentioned in her post earlier this week, so I have Chapter 15 on the brain.

I posted earlier about a Second Circuit case that held that a debtor’s center of main interests is to be determined as of the time it files a Chapter 15 petition, instead of the time at which it sought bankruptcy relief abroad. That decision effectively opens the door for forum shopping in a way inconsistent with the Model Law.

Another recent Second Circuit decision applied a plain meaning analysis to reach a conclusion that is likewise out of sync with the purpose of Chapter 15, a decision that is likely of great interest to foreign representatives and their counsel.

In In re Barnet, an Australian liquidator filed a Chapter 15 petition for recognition of an Australian insolvency proceeding. The liquidator acknowledged that the debtor had no known assets in the United States but requested discovery relief from the bankruptcy court to pursue claims or possible causes of action against U.S. parties.

The Second Circuit held that Chapter 15 relief was unavailable because the foreign debtor was not an eligible debtor under Section 109(a), which states that “only a person that resides or has a domicile, a place of business, or property in the United States, or a municipality, may be a debtor under this title.”

I suspect this will be a result that, while initially surprising to lawyers and bankruptcy judges, will ultimately be for naught. If a foreign liquidator claims to have U.S. assets in the form of a retainer for local counsel, will a court likely ever find that the retainer was a bad faith manipulation of the Code’s eligibility requirements?

But does it reflect a broader concern about judicial interpretation of Chapter 15? Section 1501 declares the chapter's purpose, with subpart (1)(b)(1) saying “This chapter applies where . . . assistance is sought in the United States by a foreign court or a foreign representative in connection with a foreign proceeding” – exactly the scenario in Barnet.

If the plain meaning approach leads to a result that does not accord with the purpose of Chapter 15 and that does little more than increase the costs of access to Chapter 15, textualism seems like a ill-suited tool. Many people have questioned the “plain meaning” approach as a method of statutory analysis in general and as applied to the Bankruptcy Code more specifically, but it seems like it is particularly ill suited to interpret Chapter 15, given its Model Law roots and its statement of purpose in Section 1501.