Apologies in advance for this post. When my co-bloggers and I brainstormed this site, we talked about trying to merge scholarly issues with accessibility. This post woefully shortchanges the latter. But I can't help myself -- I'm just too excited about the recent High-Grade opinion out of Judge Lifland's chambers.
One of the quiet successes of BAPCPA was finally getting Chapter 15 passed into law, which pertains to cross-border insolvency proceedings, an area that I write about a bit. Yet there have been fits and starts in some early opinions by courts who, how shall I put this in a politic manner -- seem to be struggling.
One of the big deals from the theoretical side is Chapter 15's embrace of an idea that goes by the label "universalism," which basically means we would be better off with a coordinated system of choice of law in cross-border proceedings following some jurisdiction-selecting rule, as opposed to reverting to the choice of law "state of nature" of territorial sovereignty. (Our European cousins are off and running with the centre of main interests test ("COMI") under their Regulation.) One of the necessary foundations of a universalist approach to regulating transnational bankruptcies is what I dub "jurisdictional hierarchy," recognizing that some jurisdictions are going to have to bite the bullet and bow to the laws of other jurisdictions in any given case.
Chapter 15 imposes such a jurisdictional hierarchy by requiring U.S. courts to distinguish between a "main" and "non-main" foreign bankruptcy proceeding when a U.S. Chapter 15 proceeding is opened. (A Chapter 15 is opened by a foreign representative, like a trustee, in a bankruptcy proceeding taking place abroad.) And yes, the COMI test is used: if the foreign proceeding is being conducted in the country that houses the debtor's COMI, then it is a foreign "main" proceeding. One reason it is important to get this distinction (i.e., is it a request from a main or a non-main (or possibly neither!) proceeding?) is because it signals the jurisdictional hierarchy. If the proceeding is recognized as a foreign main proceeding, that means the U.S. court will be mindful of its necessarily inferior legitimacy to legislative (and maybe adjudicative) jurisdiction over the dispute. If the proceeding is recognized as a non-main proceeding, the assistance offered to the foreign representative is curtailed, on the theory that he's not really the person who should be travelling abroad asking for help.
An ominous early case, SPhinX, tried to pooh-pooh the relevance of main vs. non-main, cavalierly implying it doesn't really matter because U.S. bankruptcy judges have such wide discretion they can shape and fashion almost any sort of remedy (and so get a non-main proceeding representative the sort of relief generally intended for a main proceeding representative). In addition to stumbling a bit doctrinally, the SPhinX case was worrisome for trying to scuttle the very foundation of jurisdictional hierarchy so central to universalism -- and so importantly advanced, albeit gingerly, in Chapter 15.
Enter High-Grade. In that case, the actual holding denied the (Cayman) foreign representative's request for assistance because it was found not only was the Cayman proceeding not a main proceeding (COMI of Bear Stearn's investment fund was, unsurprisingly, in New York), it wasn't even a non-main proceeding, because the connection to the Cayman Islands was purely a legal formalism devoid of economic substance (incorporating offshore for tax advantage). Yet what is so important about the case is that (arguably in obiter dicta) it goes through a thoughtful and careful analysis of the centrality of the distinction between foreign main and non-main proceedings and hence of the importance of jurisdictional hierarchy in a Chapter 15 world.
SPhinX's retirement will be welcome; I predict it is High-Grade that will get the cites. I just couldn't help but give it a "shout out" as it rolled hot off the presses.
Apologies again for readers who are now utterly bored. You were warned.