Is There a Common-Law Alternative to Chapter 15?

Earlier this year, ABI Editor-at-Large Bill Rochelle argued in Rochelle’s Daily Wire that the Third Circuit’s decision in Vertiv Inc. v. Wayne Burt PTE Ltd. renders “chapter 15 either optional or irrelevant.”  He cited Prof. Jay L. Westbrook of the University of Texas School of Law, who said that it “had an otherworldly feel” of an “alternative universe” where the court “crafted a  wholly common law alternative to chapter 15.”  We disagree and suggest that the Third Circuit’s clarified test for adjudicative comity has a place alongside chapter 15 in civil litigation.

Background

In Vertiv, a Singaporean liquidator moved to dismiss a civil case pending in a nonbankruptcy court. The Third Circuit focused on “adjudicatory comity” and its governing standard. The court referred to chapter 15 as favoring extending comity to foreign insolvency proceedings but did not analyze § 1509 or its impact on comity.

Instead, the court relied on U.S. Supreme Court and prior Third Circuit decisions that predate chapter 15, and clarified the test for whether to abstain from exercising jurisdiction in deference to a foreign bankruptcy. The Third Circuit remanded the case to the district court to apply that “refined” test.

The Right of “Direct Access” as Proposed in the Model Law

Chapter 15 adopted the UNCITRAL Model Law on Cross-Border Insolvency. UNCITRAL member states had discussed a foreign representative’s right of direct access, specifically whether a foreign representative would have to obtain recognition before asking a court for comity.

The main goal of Article 9 of the Model Law was to obviate such formal requirements as licenses or consular actions to obtain recognition.  Early discussions showed the delegates’ view that “the maximum possible degree of flexibility should be encouraged and the minimum degree of obstacles should be involved in the process.”

As the UNCITRAL member states debated direct access, a view emerged that a foreign representative’s right to intervene in local proceedings in the receiving state should only be available upon recognition. Others contended that this right should not be conditioned on recognition. At this stage, UNCITRAL suggested that it “might be necessary to include an option for enacting states, as some states might take a stricter view than others as to whether recognition should be a precondition to intervention by the foreign representative in various types of local proceedings.”

Given these differing views regarding direct access, the final version of the Model Law’s Article 9 was limited to enshrining the principle of direct access to courts of the enacting state without specifying what courts would have comity, and leaving it to the enacting states to determine the competent court to provide relief under the Model Law.