Claims

I. 101(5): claim means

a. right to payment, whether or not such right is reduced to judgment, liquidated,
unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal,
equitable, secured, or unsecured; or
b. right to an equitable remedy for breach of performance if such breach gives rise to a
right to payment, whether or not such right to an equitable remedy is reduced to
judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured, or
unsecured.
II. Claims, or rights of payment, are specific things. Not all obligations are claims under the
bankruptcy code.
III. 521: The debtor is required to file a list of creditors, and (in most cases) a schedule of assets,
liabilities, current income and expenditures.
IV. 501: Creditors may file proof of claims; equity security holder may file proof of interest. If
they do not do so in a timely manner, and entity liable to the creditor with the debtor may file
proof of the claim. The debtor may also file proof of such claim if the creditor does not
timely do so.
a. All claims need to be filed. Only claims receive payments and get discharged.
b. In Chapter 11, 1111(a) dictates that claims do not need to be filed if they are non
disputed, noncontingent, and liquidated, and the debtor has listed the claim accurately
under its 521 schedules.
c. Filing a false claim is a crime.
V. 502(a): A claim filed under 501 is deemed allowed unless a party in interest objects.

Property of the Estate

I. 541(a): Property of the Estate includes “all legal or equitable interests of the debtor in
property as of the commencement of the case.” This includes all real/personal,
tangible/intangible property held by the debtor or in which the debtor has an interest.
a. 541(b) and (c)(2): Certain property is excluded from the estate.
b. 541(a)(6): income from property (but not from services) after the commencement of the
case is property of the estate.
Discharge
I. 524(a),(e): A debtor who is eligible for discharge and receives one is relieved from any
further personal, legal liability on her dischargeable debts.
i. 1141(d) imposes a discharge for business entities who have a plan of
reorganization approved under Chapter 11. Actual completion of payments
under the plan is not required for the discharge.
o “relieved from any further personal, legal liability”: under 524(e) only personal
liability is discharged. The liability of any other parties or guarantors is not affected.
Does not protect third parties. But See § 105(a). Court may issue any order, process, or
judgment that is necessary or appropriate to carry out provisions of the title.
ii. All corporation debts are dischargeable once a plan is confirmed under
Chapter 11.
iii. Property rights are not discharged, so a secured debtor can still repossess
collateral.
II. The discharge is an injunction on future action (524(a)(2)), and violating the discharge places
the actor in contempt of court.

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Overview of the Chapter 11 Process
I. When the debtor files a petition, it has the option to remain in control as the “debtor-in-
possession.”
a. 1107: The debtor-in-possession has all the rights and powers of a bankruptcy trustee.
II. Vendors are not obliged to keep dealing with a Chapter 11 debtor. To the extent that they
supplied goods in the 20 days pre-filing, they have a priority claim (503(b)(9)). Some want
immediate payment, but courts typically won’t order that without a showing of net benefit to
the estate.
III. Administrative expenses have priority over all other expenses in Chapter 11, and 1129(a)(9)
(A) requires payment of them in full, in case, on confirmation.
a. If the filing is converted to Chapter 7, administrative expenses incurred under Chapter 7
get priority over those incurred under Chapter 11.
b. Administrative priority is usually enough to convince vendors to continue engaging with
a debtor. However, it may not be enough to convince new lenders.
i. 364(c): If a lender will not otherwise lend to a DIP, the DIP, after authorization
by the court, can offer priority over “any or all administrative expenses,” security
by a lien on property not encumbered by a lien, or a junior lien on previously
encumbered property.
1. Unencumbered property exists because:
2. 552(a): Property acquired by the estate after commencing the case is not
subject to any lien resulting from any agreement formed prior to
commencement. 552(b): a lien attached to the proceeds, products,
offspring, or profits of property that was agreed to pre-commencement
will still attach post-commencement.
ii. 364(d): If no other option works, the court, after notice and a hearing, may
authorize credit secured by offering a senior “later-in-time” lien on property
already subject to a lien. This MUST provide adequate protection for the pre-
petition lien holder (since there is no unencumbered property, this is usually
premised on the future profitability built on the back of the new financing).
Automatic Stay
I. 362: Commencing a case results in an automatic stay of actions against the debtor, her
property, and property of the estate.
a. The stay does not require court action to go into effect. It starts at filing.
b. The scope of the stay is well defined in 362(a). Essentially all civil actions involving the
debtor, debtor’s property, and property of the estate are stayed.
i. The stay only impacts the debtor, not any guarantors or other parties.
ii. 105: The court has the power to grant a stay protecting other parties if it is
necessary to carry out the provisions of the Bankruptcy Code.
II. 362(b): There are twenty-eight exceptions to the automatic stay.
a. (1): no stay on criminal actions against the debtor
b. (2): no stay on family/domestic proceedings
c. (4): no stay on government’s police or regulatory activities (exception: does not apply to
money judgments/actions which may be categorized as collection efforts)
III. Violations of the Stay
a. Any actions in violation of the stay are void/voidable.
b. 362(k)(1): individuals injured by actions in violation of the stay shall recover actual
damages, including costs and attorneys’ fees, and may recover punitive damages (unclear
how this impacts non-natural persons)
c. Violations can also be punished through contempt of court. In that case, sanctions
are at the discretion of the court, unlike in 362(k)(1).

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 IV. Termination of the Stay
a. 362(c)(1): The stay no longer applies to property of the estate when the property ceases
to be property of the estate.
b. 362(c)(2): The stay terminates when a case is closed, is dismissed, or when a discharge is
granted or denied.
c. Other grounds for termination are in 362(c)(3), 362(n), and 362(h)(1).
V. Relief from the Stay
a. 362(d): A party in interest may move, and after notice and a hearing the court shall grant
relief from the automatic stay
i. (1): for cause, including lack of adequate protection (lack of insurance,
depreciation in value)
ii. (2): when, regarding the stay against property, (A) the debtor does not have
equity in the property OR, (B) the property is not necessary for effective
reorganization.
b. 362(e): there are time limits (typically 30 days) on how long a court can wait before
holding a hearing on a request for relief from the stay
c. 362(f): to protect a party from irreparable damage to the interest in property (no hearing
necessary if the harm will manifest prior to a hearing)
d. 362(g): the burden is on the party requesting relief to show that relief is warranted/fits
the limits of the law.
e. Relief from the stay can take the form of annulment, modification, or limitations.
Adequate Protection
I. 361: Adequate Protection may be required under 362, 363, and 364 in order to protect the
property interest of a secured creditor. It can be provided by
a. (1): requiring the trustee to make cash payment/periodic cash payments to cover the
decrease in value of a secured claim holder’s interest in the property;
b. (2): providing an additional or replacement lien to cover a decrease in value of the
interest in property; OR
c. (3): other relief, other than compensation as an administrative expense, that will realize
the full value of the property.
Section 361 offers a nonexclusive list of the methods for providing adequate
protection of that interest, including periodic payments, additional collateral, or
such other relief as will provide the moving party with the “indubitable
equivalent” of its interest in the debtor’s property.

“interest in property” - does not include opportunity to reinvest the value of the
property or "lost opportunity cost" ; i.e., the time value of money. real economic
value
adequate protection focuses only on preservation of the value of the collateral
throughout the case (depreciation), not losses due to delay in payment.

Cash Collateral
I. 363(c)(2): Cash collateral cannot be used to operate the estate without consent of the creditor
or a court order.
II. Cash collateral is cash resulting from normal business activities, in which a creditor has a
security interest.
III. Creditors are usually amenable to an agreement on cash collateral, recognizing that it is
essential to the value of the business as a going concern. Sometimes conditions on the
bankruptcy filing are demanded.

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Unencumbered property exists because:

552(a): Property acquired by the estate after commencing the case is not subject to any lien resulting
from any agreement formed prior to commencement. 552(b): a lien attached to the proceeds,
products, offspring, or profits of property that was agreed to pre-commencement will still attach post-
commencement.

Under Section 552 (a), debtor can offer prepetition secured creditors a replacement lien in postpetition
inventory and accounts as “adequate protection”for debtor’s use of cash collateral. Cash collateral can
be used if creditor consents or court approves.

Debtors argument that unless it is permitted to use cash collateral, it will close and all of its employees
will lose their jobs, etc. Creditors generally agree to the debtor’s use of cash collateral in exchange for
some sort of replacement lien on postpetition inventory and receivables and administrative expense
priority.
DIP Financing
II. 364(a): A trustee/DIP can obtain unsecured credit and incur unsecured debt in the ordinary
course of business, which will be allowable under 503(b)(1) as an administrative expense.
III. 364(b): Allows a court to permit unsecured credit/incurring unsecured debt that does not fit
under 364(a) (not limited in “ordinary course”) after notice and a hearing, which will be
allowable under 503(b)(1) as an administrative expense.
IV. Administrative expenses have priority over all other expenses in Chapter 11, and 1129(a)(9)
(A) requires payment of them in full, in case, on confirmation.
a. If the filing is converted to Chapter 7, administrative expenses incurred under Chapter 7
get priority over those incurred under Chapter 11.
b. Administrative priority is usually enough to convince vendors to continue engaging with
a debtor. However, it may not be enough to convince new lenders.
i. 364(c): If a lender will not otherwise lend to a DIP, the DIP, after authorization
by the court, can offer superpriority- priority over “any or all administrative
expenses,” security by a lien on property not encumbered by a lien, or a junior
lien on previously encumbered property.
1. Unencumbered property exists because:
2. 552(a): Property acquired by the estate after commencing the case is not
subject to any lien resulting from any agreement formed prior to
commencement. 552(b): a lien attached to the proceeds, products,
offspring, or profits of property that was agreed to pre-commencement
will still attach post-commencement.
ii. 364(d): If no other option works, the court, after notice and a hearing, may
authorize credit secured by offering a senior “later-in-time” lien on property
already subject to a lien. This MUST provide adequate protection for the pre-
petition lien holder (since there is no unencumbered property, this is usually
premised on the future profitability built on the back of the new financing).

DIP Financing
364 (a) - debt in ordinary course will not require court approval; granted administrative expense priority
364 (b) – debt not in ordinary course but has court approval and granted administrative expense priority
364 (c) – debt not under (a) and (b) debtor can offer: (1) super priority; (2) lien in unsecured property
(post petition property 552 (a) except if pre-petition, they agree on lien on pre-petition property and

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post-petition proceeds on proceeds of property, lien extends to proceeds post-petition); (3) Junior lien
on property already subject to lien.

Medical Malpractice Ins. Ass’n v. Hirsch (In re Lavigne)

114 F.3d 379 (2d Cir. 1997)
Article 363- ordinary course of business
Authorization to Run Business. § 1108.
i. Does not need court approval if “in ordinary course of business. § 363(c).
ii. Horizontal: How all similar businesses operate
iii. Vertical: How this particular debtor operated
iv. Key is creditor expectations
v. If not ordinary, need course approval after notice and hearing. § 363(b)

Sale as a Going Concern

I. Rather than completely reorganizing, some debtors simply opt to sell the business. 363 is
now interpreted to permit sales of the whole business.
II. 363(b): sales outside the ordinary course of business require court approval (this includes
sales of the full business). Such approval is normally governed by the business judgment
rule.

Priorities
I. Priority only applies to unsecured claims, varying the typical pro-rata schemes. It is
important to remember that secured claims and liens still rank above prioritized claims in
bankruptcy, and are administered according to their priority outside of bankruptcy.
II. Administrative Priority
a. 507(a)(1)(A+B): Allowed unsecured claims for domestic support obligations, subject to
(C): administrative expenses of the trustee under 503(b)(1)(A), (2), and (6) are to be paid
prior to the claims in (A) and (B).
i. 503(b)(1)(A): actual, necessary costs and expenses of preserving the estate,
including wages, salaries, commissions for services rendered after the
commencement of this case.
ii. 503(b)(2): compensation and reimbursement awarded under 330(a)
b. 507(a)(2): Administrative expenses allowed under 503(b) and any fees and charges
assessed against the estate under chapter 123 of title 28.
i. 503(b)(9): “the value of any goods received by the debtor within 20 days before
the date of commencement of a case…in which the good have been sold to the
debtor in the ordinary course of such debtor’s business.” Note: This normally
would be a pre-petition claim, but the 2005 Amendments included it as an
administrative claim.
c. 507(a)(4): Wages earned in the 180 days prior to filing or cessation of business, only up
to $12,475 per employee.
d. 507(a)(5): Contributions to an employee benefit plan for services rendered in the 180
days prior…, but only to the extent of the unused portion of the allowance in 507(a)(4).
i. Howard Delivery Service v. Zurich American Insurance (2006)(CB 5-26):
Payments to a workers’ compensation carrier are not included in the
heading of “benefits.”
e. Administrative priority will be granted to those expenses that arose out of transactions
between a creditor and the trustee/debtor-in-possession. The service must have been
“induced” by the debtor-in-possession, not the pre-petition debtor.

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 III. Priority only applies to unsecured claims, varying the typical pro-rata schemes. It is
important to remember that secured claims and liens still rank above prioritized claims in
bankruptcy, and are administered according to their priority outside of bankruptcy.
a. In Chapters 11, 12, and 13, priority claims must be paid in full, but sometimes payment
can be stretched over time.
IV. Creditor Requests for Conversion or Dismissal
a. 1112(b)(1): The case shall be converted and dismissed for cause.
b. 1112(b)(4): Sixteen incidences of cause. The list is not exhaustive.
i. Marshall v. Marshall (In re Marshall) (2013)(CB 10-12): Bad faith may be
“cause.” The most damning evidence against bad faith is a plan actually
qualifying for confirmation.
c. 1112(b)(2): If the court identifies “unusual circumstances specifically identified by the
court that establish that the requested conversion or dismissal is not in the best interest of
creditors and the estate” the requirement to convert or dismiss is not mandatory.
i. 1112(b)(2): Also requires that a debtor or another party in interest establish:
ii. (A): there is reasonable likelihood that a plan will be established in the
appropriate timeframes established in 1121(e) and 1129(e), or within a
reasonable period if those timeframes do not apply
iii. (B): The grounds for conversion or dismissal include a debtor’s act or omission
other than those in 1112(b)(4) for which there is a reasonable justification and
that will be cured in a reasonable time fixed by the court.

Leases and Executory Contracts

I. Executory Contract: A contract in which both sides have some obligations that are still due,
and which, if not fulfilled, are a material breach of the contract.
a. Examples: Leases, supply contracts, intellectual property licenses, etc.
II. 365: The trustee has one of three choices with regard to executory contracts:
a. (a): Rejection: This will be treated as a material breach of contract, and the non-debtor
party will have whatever remedies they would have had under non-bankruptcy law.
365(g) impacts rejection by categorizing the damages from the breach as having arisen at
the time of the order of relief (making them pre-petition claims).
b. (a): Assumption: The estate assumes the benefits and burdens of the contract.
c. (f): Assignment: Sale of an intangible right. Someone else will take over the benefits and
burdens of the contract. Unlike in non-bankruptcy law, assignment of the contract under
365(k) relieves the original party of all obligations.
d. There is no statutory right to modification of the terms of an unexpired lease or
executory contract. The debtor may, however, be able to convince the other party to
agree to modifications.
i. In fact, most motions to assume are actually motions to amend and assume.
Consequences
I. Assumption
a. In re Enderle (2006)(CB 12-3): Assuming an unexpired lease constitutes a post-
petition obligation, which means that default is entitled to administrative priority
under 503(b)(1)(a).
II. Rejection
a. In re Old Carco LLC F/K/A Chrysler LLC (2010)(CB 12-5): In case of a rejection, state
law will help determine the amount of the relevant claim, but it will not impact
priority. 365(g) clearly states that rejection creates a pre-petition claim.
III. Assignment

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 a. In re DH4, Inc. (2007)(CB 12-9): Once there has been adequate assurance of future
performance by the assignee, 365(f)(2)(B), and the court has approved the
assignment, 365(k) relieves the debtor of any responsibility for an assigned contract.
State law cannot change this; neither can the terms of a lease.
Time to “Choose”
I. 365(d)(4): With regard to nonresidential real property, the trustee must assume or reject the
unexpired lease within 120 days of the order for relief (or before a plan is confirmed). One
90 day extension is permitted for cause. Any extension beyond this must be approved by the
lessor and the court.
a. If a decision is not made within that time period, the contract is deemed rejected.
II. 365(a): The trustee makes the decision to accept or reject, subject to the approval of the
court. The court typically uses a business judgment rule when considering approval.
Requirements for Assuming a Lease
I. 365(b)(1): If there has been a default in an executory contract or unexpired lease, the trustee
may not assume unless at the time of assumption the trustee
a. (A): cures, or provides adequate assurance that the trustee will promptly cure, such
default other than a default which is a breach of a provision relating to the satisfaction of
any provision relating to a default arising from any failure to perform nonmonetary
obligations under an unexpired lease of real property, if it is impossible to cure such
default by performing the acts at the time of assumption, except if the default arises from
a failure to operate in accordance with a nonresidential real property lease (that shall be
cured by performance at and after the assumption in accordance with the lease).
Pecuniary losses will be compensated in accordance with the provisions of 365(b).
i. Adequate assurance can take a number of forms, including additional security
deposits.
b. (B): compensates a party other than the debtor for any actual pecuniary loss to such party
resulting from the default.
c. (C): Provides adequate assurance of future performance.
II. 365(b)(2): Paragraph 1 does not apply to defaults that are a breach of a provision relating to
insolvency or financial condition of the debtor at any time before the close of the case, the
commencement of a bankruptcy case, the appointment of a trustee in a bankruptcy case, the
satisfaction of any penalty rate/provision relating to a default arising from any failure by the
debtor to perform nonmonetary obligations under the contract/lease.
III. In re M. Fine Lumber Co. (2008)(CB 12-17): If the contract provides for attorney’s fees in
the case of breach, then attorney’s fees can be required to cure the default.
Pre-Bankruptcy Provisions and the Impact on Choice in Bankruptcy
I. 365(e): Any sort of ipso facto clause (bankruptcy or related events = default) in a contract
CANNOT be enforced in bankruptcy. The estate has full control of what it accepts or rejects,
and will get the full benefit of those decisions.
II. 365(f)(1): Notwithstanding any provision in the contract or in applicable law that prohibits,
restricts, or conditions the assignment of such contract or lease, the trustee may assign such
contract of lease under 365(f)(2) (subject to the trustee first assuming the contract and then
providing for adequate assurance of future performance by the assignee
a. 365(f)(3): Pre-bankruptcy provisions cannot terminate or modify the contract on the basis
of in-bankruptcy assumption or assignment.
Debtor as Landlord
I. 365(h)(1)(A): If the trustee rejects an unexpired lease where the debtor is lessor and (i) the
rejection amounts to such breach as would entitle the lessee to treat the lease as terminated by
the terms OR applicable nonbankruptcy law OR any agreement made by the lessee, the lessee
may treat such lease as terminated by the rejection OR (ii) if the lease has commenced, the

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 lessee may retain its rights under the lease (including requirements to pay rent), including all
rights in or appurtenant to the real property for the balance of the lease and for such
extensions as nonbankruptcy law permits.
II. 365(h)(1)(B): If the lessee exercises rights under 365(h)(1)(A)(ii), then the lessee may offset
from rent any damages the lessor’s failure to perform after rejection causes. There is no other
right of claim against the estate or debtor for such damage.
Plan Confirmation
I. Whatever the plan provides (allowing for adequate protection, etc.), is what gets dispersed.
II. Chapter 11 Distribution
a. Cash
b. Notes
c. Equity Securities
III. Chapter 11 Classes
a. 1123(a)The plan shall distinguish creditors into classes. The three major classes are
secured creditors, unsecured creditors, and equity holders. In some cases, each
secured claims holder is given their own class.
i. 1122(a): Members of a class must be substantially similar to other members of
the class.
ii. 1123(a)(4): All claims in a class must be treated in the same manner.
iii. The code does not define “class” or “class of claims.”
iv. In re Keck, Mahin & Cate (1999)(CB 10-43): Secured claims are usually put in
their own classes since they are typically different than other secured claims
(security in different property, different priority levels in the same property, etc).
When secured claimholders share a pro-rata interest in the same security,
they can be placed in the same class.
v. In re Dow Corning Corp. (2002)(CB 10-45): When there are economic reasons
for different classifications of claimants, the classification will be
permissible.
1. Dow separately classified foreign tort claimants based on the fact that
foreign torts payouts were often substantially lower than domestic.
b. All classes must approve of the plan. Individual creditors can be outvoted within their
class.
i. 1126(c)/(d): A class of claims/interest is deemed to have accepted the plan if
such plan has been accepted by creditors representing two-thirds in amount and
one-half in number of the allowed claims of such class.
c. 1129(a)(8)(B): Unimpaired classes are deemed to approve of the plan.
d. 1123: Sets the limits on what the plan must include.
i. 1126/1129: Sets the real limits on what the plan will include (creditor/court
approval)
e. 1123: Sets the limits on what the plan must include.
i. 1126/1129: Sets the real limits on what the plan will include (creditor/court
approval)
IV. Submission and Approval Timeline
a. 1121(b): The debtor has exclusive right to submit a plan for the first 120 days. 1121(c)
(3): The debtor then has 60 days after that 120 day deadline to have the plan approved by
all impaired class.
b. 1121(c): If a trustee has been appointed, the debtor has not filed a plan within the first
120 days, or a plan the debtor submitted has not been approved within the first 180 days,
any party in interest can then submit a plan.
c. 1121(d)(1): The timelines above may be reduced or extended for cause.

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 i. (A): The extension of debtor exclusivity may not be for longer than 18 months.
ii. (B): The extension of debtor exclusivity for approval may not be past 20 months.
d. 1125(a)/(b): The plan proponent files the plan and a disclosure statement, which
provides adequate information for a reasonable investor to make an informed
judgment about the plan. The court declares what constitutes adequate information,
after which a plan proponent may solicit creditor approval of the plan.
i. Adequate information has the same goal as securities law: informed decision-
making.
ii. 1125(c): Different disclosure statements can be sent to different classes, but not
to different claims within a class.
iii. Section 1123 prohibiting solicitor creditor approval plan until the court has
approved the disclosure statement.

Section 1121 (b) grants the debtor exclusivity for the first 120 days of the case. If the debtor files its plan
within that 120 day period, no other plan may be filed during the first 180 days of case while the debtor
tries to obtain creditor acceptance of its plan, section 1121 (c) (3).

120-day and 180-day period begin running at the same time- the date of the order of relief. If, for
example, the debtor files a plan 30 days after the order of relief, it will have 150 more days of exclusivity
to obtain creditor acceptance.
e. 1129(a): Even with unanimous approval, the court cannot approve a plan that is not
proposed in good faith, is partially forbidden by law, etc.
V. Pre-Pack Plans
a. A pre-pack is when the debtor negotiates with creditors pre-filing, and then submits the
plan and disclosure statement all at once at asks for approval.
b. 1126(b): If the court approves everything, the pre-petition solicitations of approval may
count for plan approval.
c. Risk: The court may not approve the pre-petition disclosure statements, mooting
everything.
d. Problem: There is no automatic stay protection.
DAY 4
Sale as a Going Concern
I. Rather than completely reorganizing (going through the Chapter 11 process), some
debtors simply opt to sell the business. 363 is now interpreted to permit sales of the whole
business. This is done through a Motion to Sell to an Identified Bidder, assign
all executory contracts.
II. 363(b): sales outside the ordinary course of business require court approval (this includes
sales of the full business). Such approval is normally governed by the business judgment
rule.
III. 363(f): It is possible to sell a business “free and clear of any interest in such property of an
entity other than the estate,” stripping off any other security interests in the property. (This
is not afforded in state law)
a. This can only be done under certain circumstances:
i. (3): if the sale price is greater than the aggregate values of all liens
(oversecured properties can be sold without consent of lien holders)
ii. (2): if the entities with pre-petition interests consent to the sale (failure to
respond to notice of sale is construed as consent).
iii. (4): if you have a bona fide dispute over the interest, you can sell free of that
interest (but the interest likely still attaches to proceeds)
b. This can lead to a much higher purchase price than property encumbered by liens.

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 c. 363(f) is still subject to adequate protection concerns, so the liens stripped are usually
transferred to the proceeds of the sale.
d. 363(f) may also break the chain of successor liability. But give adequate
protection to those stripped of security.
e. 363(k): A lien holder may bid on the property/company, and offset its purchase price by
the amount of its lien. Secured creditor can credit bid; this is very important
so that if first bidder bids, bid can be challenged by credit bid.
\363(m): Only good faith is required to show that the sale is valid. All appeals are moot.
i. Campbell v. Motors Liquidation Co. (In re Motors Liquidation Co. et al. F/K/A
General Motors Corp.) (2010)(CB 10-28): Absent a stay, mootness of appeals
in 363(b) sales is almost inevitable, because the court would essentially have
to rewrite a sale agreement based on a successful appeal—something they
lack the power to do.
Appellate Jurisdiction over unstayed sale order issued by a
bankruptcy court is limited to whether the property was sold in
good faith.
f. In re On-Site Sourcing, Inc. (2009)(CB 10-21): Elements of a 363 sale designed to
substitute for a Chapter 11 plan will not be permitted, as they constitute a run-
around of the plan process.
IV. If there are no assets remaining after the secured creditors, professionals, and government
creditors get paid, the Asset Purchase Agreement typically provides for dismissal of the
Chapter 11 case. If there are assets to distribute, the Agreement typically provides for
conversion to Chapter 7.
a. In re Buffet Partners, LP (2014)(CB 10-35): A structured dismissal can avoid the
unnecessary cost/expense of conversion to Chapter 7, while still not rising to the
level of a sub rosa plan.
b. In re Humboldt Creamery, LLC (2009)(CB 10-38): 363 sales are often premised on the
fact that the company is losing value, and if not purchased immediate, all value as a
going concern will be lost. This is too easy for companies to manipulate for courts to
take such a lackadaisical approach to reviewing the cases.

The bankruptcy code provides three ways to end a Chapter 11 case: confirmation of
a plan, conversion to a Chapter 7 liquidation, or dismissal. The code contemplates
that dismissal will return the parties to their prebankruptcy positions, except to the
extent the bankruptcy court orders otherwise. In a structured dismissal, however,
the bankruptcy court’s dismissal order alters the rights and liabilities of the parties
in ways that differ from the three options outlined in the code. Unlike a Chapter 11
plan, a structured dismissal does not require disclosure, voting by affected
constituents and bankruptcy-court findings that the plan meets substantive and
procedural legal standards, including compliance with the code’s priority rules.
Unlike conversion to Chapter 7, a structured dismissal does not lead to a statutorily
regulated liquidation consistent with established bankruptcy priorities. And unlike a
straight dismissal, a structured dismissal does not simply return the parties to their
prebankruptcy positions.

The Bankruptcy Code makes clear that distributions in chapter 7 liquidation must
follow the priority distribution scheme. While chapter 11 has more flexibility than

10
chapter 7 of the Bankruptcy Code when it comes to the priority of distributions, a
bankruptcy court cannot confirm a chapter 11 plan that contains priority-violating
distributions over the objection of an impaired creditor class. However, the
Bankruptcy Code does not explicitly provide for what priority rules—if any—apply to
the distribution of assets if a case is dismissed. Jevic  addressed that gap.

CONSENSUAL PLAN CONFIRMATION REQUIREMENTS

 VOTE Requirement § 1129(a)(8) – each class accepts (2/3 total
amount of claim and 50% of claim §1126 © and (d) or class in unimpaired
 Good Faith § 1129(a)(3) –
 Feasibility Study 1129 (a) (11): Confirmation is not likely to be
followed by liquidation or the need for further financial reorganization of the
debtor, unless such liquidation or reorganization is proposed in the plan.
 Best interest Test 11229 (a) (7): In each impaired class of claims or
interests, each claim holder has either accepted the plan or will receive at
least what they would have received under a Chapter 7 liquidation. (Best
interest test of creditors)
 Payment in full of all administrative claims (§ 1129(a)(9)
-Administrative claims, domestic support obligations, taxes under 507(a)(8),
and secured government claims that would be taxes under 507(a)(8) except
for their secured status must be paid in full.

VOTING REQUIREMENT

each class accepts (2/3 total amount of claim and 50% of claim §1126 (c)

1126(f): A class that is not impaired under the plan is presumed to consent and
does not need to vote on the plan.
Either unimpaired or cure impairment
1124: A class is unimpaired if the plan (1) leaves unaltered the legal, equitable, and
contractual rights to which the claim entitles the holder, or
(2) notwithstanding contractual provisions entitling accelerated payment after
default, the plan cures any default that occurred before or after the commencement
of the case, reinstates the maturity of the claim as it existed pre-default,
compensates the holder for any damages that occurred due to reasonable reliance
on the contractual provision allowing accelerated payment, and does not otherwise
alter the legal, equitable, and contractual rights of the holder.
If the creditor has a debtor who has a below market rate interest rate pre-petition,
i.e., 3% as opposed to market rate of 6%, the best interest test allows the debtor to
lock in the interest rate post-petition. If the plan in any way changes the rights of
the holder, adversely or beneficially, there is impairment. Shorting payment period
of extending the term-impairment.

11
CRAM DOWN
FAIR and EQUITABLE
Secured Claims

1129(b)(2): Fair and equitable means that the plan provides

For secured claims: Either retaining liens of the allowable amount, receive deferred cash payments at
least of the allowable amount, liens attached to the proceeds of a 363(k) sale of the property, or “the
realization by such holders of the indubitable equivalent of such claims.”

Secured Claims and Section 1129 (b)(2)(A)(i) - involuntary refinancing

(A) With respect to a class of secured claims, the plan provides-

(i)
(i) that the holder of such claims retain the liens securing such claims whether the property
subject to such lien is retained by the debtor or transferred to another entity, to the extent of the
allowed amount of the claims (you can maintain the lien to the secured claim to the extent of the
value of collateral), and

On going concern value will be used

Value of collateral will be reorganization value not liquidation value
Value of collateral
Section 506 (a): “Such value shall be determined in light of the purpose of the valuation
and of the proposed disposition or use of such property, and in conjunction with any
hearing on such disposition or use on a plan affecting such creditor’s interest.” Assocs.
Comm. v. Hash, 529 U.S. 953 (1997)

(ii) that each holder of a claim of such class receive

on account of such claim deferred cash payments totaling at least the allowed amount of such
claim
of a value as of the effective date of the plan of at least the value of such holder’s (creditor)
interest in the estate (debtor) in such property.

Examples of Application of Section 1129 (b) (2) (A) (i)- interest rate in contract higher
than market rate, you can use market rate.
Debtor borrowed $10M from X, Granted X a security interest in all equipment. Interest
rate of 10% loan; loan accelerated.
Debtor files. Market rate of interest is now 5%; equipment now worth 9 M.

Without lender’s consent, Debtor can: Give X a note for $9M secured by equipment (X
will then also have an unsecured claim for $1M). Note will bear interest at 5%
Maturity and amortization will be whatever is consistent with feasibility,
Debtor’s cash flow and general commercial terms (no 100 year notes)

Examples of Application of Section 1129 (b) (2) (A) (i)- interest rate has risen.

12
 Same facts as the last slide, except flip interest rates: loan was made at 5% interest,
and the rates have now risen to 10%

Debtor can, without lender’s consent (and under 1124 (2))

Cures any defaults;
Compensate the lender for such defaults
Reinstate the loan
And continue with the loan at 5%.

(ii) for the sale, subject to section 363(k) of this title, of any property that is subject to the liens
securing such claims, free and clear of such liens, with such liens to attach to the proceeds
of such sale, and the treatment of such liens on proceeds under clause (i) or (iii) of this
subparagraph; or

Section Claim and Section 1129(b)(2)(A)(ii)- Sale of Collateral

“(ii) for the sale
“Subject to Section 363 (K) of this title” (That’s credit bidding)
“of any property that is subject to the liens securing such claims, free and clear of such
liens, with such liens to attach to the proceeds of such sale, and the treatment of such
liens on proceeds under clause (1) and (111) of this subparagraph.

Without the consent of the creditor, you can sell the secured property and the
treatment of such lien on proceeds will be (1)- involuntary financing or (111) surrender

Application of Section 1129 (b)(2)(A)(ii)

Debtor has two office buildings. One building is worth $8M and has two mortgages;
one for $8M and the second for $2M.
In plan, debtor proposes to sell the building for $8M payable $1M down, $7M note at a
market rate of interest. Both lenders object.
Debtor can sell the building in the plan (subject to lender’s credit bid).
The lender’s lien will then attach to the proceeds. This is an application of clause (ii)
Then have to treat proceeds under clause (1) or clause (iii).

(iii) for the realization by such holders of the indubitable equivalent of such claims.
Clause(iii)- “indubitable equivalent”
Generally used to surrender collateral to satisfy secured claim.
Does not eliminate unsecured claim deficiency claim.
No substitutions allowed (unless cash) due to uncertainties in valuation.

Prior Problem
Debtor can “surrender” the proceeds of the sale to senior lender in full satisfaction of both
secured claims (leaving the junior lender with an unsecured claims) – This is application of
clause (iii)i

Note this this is not possible under Section 363 (f), unless you interest 363 (f) (5) broadly.

363(f): It is possible to sell a business “free and clear of any interest in such property of an
entity other than the estate,” stripping off any other security interests in the property.

13
Unsecured Claims
Realm of absolute priority rule
Statute: Section 1129 (b) (2) (B):
“(B) with respect to a class of unsecured claims
“(i) the plan provides that each holder of such class receive or retain on account of such claim property
of a value as of the effective date of the plan, equal to the allowed amount of such claim
Or
“(iii) the holder of any claim or interest rate that is junior to the claims of such claims or interest that is
junior to the claims of such class will not receive or retain under the plan on account of such junior claim
or interest on any property.
Clause ii is the statutory formulation of the absolute priority rule.

Application: Insolvent Debtor

X is a chapter 11 debtor. It has $30 M in claims, and $15 M in assets.
Equity holders (they are a junior class of interests) cannot participate so long as creditor claims are not
paid in full.
Plan will typically eliminate all equity interest if debtor insolvent.
If so, they are deemed to reject (Sec. 1129 (g)) and plan proponent will have to show that creditors are
not receiving any more than they are owed (the second part of “fair and equitable”)
So in any case in which equity is eliminated, there is an entity valuation –

When you need to convert debt to equity- you need to know capitalization rate so you can know the
value of the company- because creditors cannot receive more than what they are owed (second part of
“fair and equitable”)

Section 1517 states that recognition must be given if: The foreign proceeding for which recognition is
sought is either a “foreign main proceeding” or a “foreign nonmain proceeding”
The person or body apply for recognition is a “foreign representative”. The procedural requirements of
Section 1515 are met. English versions of the documents authorizing the foreign proceeding and
authorizing the applicant to be a foreign representative.

Initial Definition of “Foreign Proceeding” — § 101(23): The term “foreign proceeding” means a collective
judicial or administrative proceeding in a foreign country, including an interim proceeding, under a law
relating to insolvency or adjustment of debt in which proceeding the assets and affairs of the debtor are
subject to control or supervision by a foreign court, for the purpose of reorganization or liquidation.

Breakdown of Foreign Proceedings

Flynn v. Wallace (p.147):

to qualify as a foreign main proceeding, the foreign representative must establish:

(1) a proceeding,
(2) that is judicial or administrative,
(3) collective,
(4) in a foreign country,
(5) conducted under law relating to insolvency,
(6) under the supervision of a foreign court, and

14
(7) for the purpose of reorganization or liquidation.

“Foreign Representative”—§ §1 10 01 1( (2 24 4) )

The term “foreign representative” means a person or body, including a person or body appointed on an
interim basis, authorized in a foreign proceeding to administer the reorganization or the liquidation of
the debtor’s assets or affairs or to act as a representative of such foreign proceeding.

§101 (23)
The term “foreign proceeding” means a collective judicial or administrative proceeding in a foreign
country, including an interim proceeding, under a law relating to insolvency or adjustment of debt in
which proceeding the assets and affairs of the debtor are subject to control or supervision by a foreign
court, for the purpose of reorganization or liquidation.
Hence, to qualify as a foreign main proceeding, the foreign representative must establish: a (1) a
proceeding, (2) that is judicial or administrative, (3) collective, (4) in a foreign country, (5) conducted
under law relating to insolvency, (6) under the supervision of a foreign court, and (7) for the purpose or
reorganization or liquidation.

“Proceeding” – acts and formalities set down in law so that courts, merchants, and creditors can know
them in advance, and apply them evenly in practice. In the context of corporate insolvencies, the
hallmark of a ‘proceeding’ is a statutory framework that contains a company’s actions and that regulates
the final distribution of company’s assets.

Collective proceeding – one that considers the rights and obligations of all creditors. Provides for the
distribution of proceeds according to a priority distribution set forth in the Companies Act.

Foreign Main Proceeding vs. Foreign Non- Main Proceeding

Different Types of Cases- Different Types of Relief of Section 1517(b) states:

Such foreign proceeding shall be recognized—

(1) as a foreign main proceeding if it is pending in the country where the debtor has the center of its
main interests; or
(2) as a foreign nonmain proceeding if the debtor has an establishment within the meaning of section
1502 in the foreign country where the proceeding is pending.
Initial Presumption: §1516(c): the debtor’s registered office or habitual residence is presumed to be its
COMI.
Habitual residence is not defined in the Bankruptcy Code but has been analyzed as virtually identical to
the concept of domicile, which “is established by physical presence in a location coupled with an intent
to remain their indefinitely.”

15
The presumption regarding the debtor’s registered office is also its COMI is included for “speed and
convenience of proof” where there is no serious controversy.

Summary of Model Law’s Universalism

Can only be one main proceeding
As stated in the Legislative Guide accompanying the Model Law:
Main insolvency proceedings have universal scope. They aim at encompassing all the debtor’s assets on
a world-wide basis and at affecting all creditors, wherever located.

Only one set of main proceedings may be opened in the territory covered by the Convention.
Section 1521(a)(5) then allows the court to “entrust[] the administration or realization of all or part of
the debtor’s assets located in this State to the foreign representative or another person designated by
the court”, and Section 1521(b) allows the distribution of the proceeds of the assets realized

foreign main proceedings generally are viewed by bankruptcy courts to be more supplementary in
nature. Therefore, bankruptcy courts often will defer to the practices and the procedures of the
jurisdiction of the foreign main case to a greater extent, which allows the foreign debtor to incorporate
those favorable aspects of the foreign insolvency regime into the Chapter 15 process as well.

Under Chapter 15 of the Bankruptcy Code, after notice and a hearing, the court is authorized to issue an
order recognizing the foreign proceeding as either a "foreign main proceeding" (a proceeding pending in
a country where the debtor's center of main interests are located) or a "foreign non-main proceeding"
(a proceeding pending in a country where the debtor has an establishment, (2) but not its center of main
interests). 11 U.S.C. § 1517. Upon recognition as a foreign main proceeding, the debtor is entitled to
provisional relief under §1519, “where relief is urgently needed to protect the assets of the debtor or
the interests of the creditors”. The Relief includes the stay of any pending action, Entrusting
administration of assets to foreign representative And Other relief, including the taking of discovery
Immediately upon the recognition of a foreign main proceeding, mandatory relief under 11 U.S.C.
§ 1520 may also be invoked. The foreign representative is also authorized to operate the debtor's
business in the ordinary course.

§ 1519 - Relief that may be granted upon filing petition for recognition
(a)From the time of filing a petition for recognition until the court rules on the petition, the
court may, at the request of the foreign representative, where relief is urgently needed to
protect the assets of the debtor or the interests of the creditors, grant relief of a provisional
nature, including—
(1)staying execution against the debtor’s assets;
(2) entrusting the administration or realization of all or part of the debtor’s assets located in
the United States to the foreign representative or another person authorized by the court,
including an examiner, in order to protect and preserve the value of assets that, by their
nature or because of other circumstances, are perishable, susceptible to devaluation or
otherwise in jeopardy; and
(3) any relief referred to in paragraph (3), (4), or (7) of section 1521(a).
Xxx

Relief in a Foreign Main Proceeding—§1520

(a) Upon recognition of a foreign proceeding that is a foreign main proceeding—

16
(1) sections 361 (adequate protection ) and 362 (automatic stay) apply with respect to the
debtor and the property of the debtor that is within the territorial jurisdiction of the United
States;
(2) sections 363 (use, sell or lease assets), 549, and 552 (property not subject to lien) apply to
a transfer of an interest of the debtor in property that is within the territorial jurisdiction of
the United States to the same extent that the sections would apply to property of an estate;
(3) unless the court orders otherwise, the foreign representative may operate the debtor’s
business and may exercise the rights and powers of a trustee under and to the extent
provided by sections 363 and 552; and
(4) section 552 applies to property of the debtor that is within the territorial jurisdiction of
the United States.

The Difference Between Mandatory and Discretionary Relief? COMI

If the foreign proceeding is pending where the debtor’s COMI is located, it is a foreign main
proceeding, and entitled to mandatory relief set forth in §1520

But what of “foreign non main proceedings”?

If not a foreign main proceeding, is it a foreign nonmain proceeding? NO.
To be a foreign nonmain proceeding, the country from which the foreign representative comes
from has to have an “establishment”
§ 1502(2): “establishment” means any place of operations where the debtor carries out a
nontransitory economic activity
Mere presence of assets insufficient. Must conduct some regular economic activity – agency
office; take and make orders; etc.

Restrictions on relief
There are nonetheless certain restrictions.
If relief is discretionary, then under § 1521(a) that relief may be granted "only if the interests of
the creditors and other interested entities, including the debtor, are sufficiently protected”
Further, under § 1522(b) a court may place upon discretionary relief "conditions it considers
appropriate."
One court has observed that the policy underlying section 1522 is that there should be “a
balance between relief that may be granted to the foreign representative and the interests of
the person that may be affected by such relief”
Finally, § 1506 states that:
Nothing in this chapter prevents the court from refusing to take an action governed by this
chapter if the action would be manifestly contrary to the public policy of the United States.

1521 (a) – only if interests of creditors and other interested entities, including debtor, are sufficiently
protected.
1522 (b) – conditions it considers appropriate
1506- public policy

Foreign judgments are “generally granted comity as long as the proceedings in the foreign court ‘are
according to the course of a civilized jurisprudence, i.e., fair and impartial” or “meet our fundamental
standard of fairness” In re Rede Energia S.A.

17
Discretionary Relief (§1521)

(a)Upon recognition of a foreign proceeding, whether main or nonmain, where necessary to effectuate

the purpose of this chapter and to protect the assets of the debtor or the interests of the creditors, the
court may, at the request of the foreign representative, grant any appropriate relief, including—
(1) staying the commencement or continuation of an individual action or proceeding concerning
the debtor’s assets, rights, obligations or liabilities to the extent they have not been stayed under
section 1520(a);
(2) staying execution against the debtor’s assets to the extent it has not been stayed under
section 1520(a);
(3) suspending the right to transfer, encumber or otherwise dispose of any assets of the debtor to
the extent this right has not been suspended under section 1520(a);
(4) providing for the examination of witnesses, the taking of evidence or the delivery of
information concerning the debtor’s assets, affairs, rights, obligations or liabilities;
(5) entrusting the administration or realization of all or part of the debtor’s assets within the
territorial jurisdiction of the United States to the foreign representative or another person,
including an examiner, authorized by the court;
(6) extending relief granted under section 1519(a); and
(7) granting any additional relief that may be available to a trustee, except for relief available
under sections 522, 544, 545, 547, 548, 550, and 724(a).
(b) Upon recognition of a foreign proceeding, whether main or nonmain, the court may, at the request
of the foreign representative, entrust the distribution of all or part of the debtor’s assets located in the
United States to the foreign representative or another person, including an examiner, authorized by the
court, provided that the court is satisfied that the interests of creditors in the United States are
sufficiently protected.
(c)In granting relief under this section to a representative of a foreign nonmain proceeding, the court
must be satisfied that the relief relates to assets that, under the law of the United States, should be
administered in the foreign nonmain proceeding or concerns information required in that proceeding.
(d) The court may not enjoin a police or regulatory act of a governmental unit, including a criminal
action or proceeding, under this section.
(e) The standards, procedures, and limitations applicable to an injunction shall apply to relief under
paragraphs (1), (2), (3), and (6) of subsection (a).
(f)The exercise of rights not subject to the stay arising under section 362(a) pursuant to paragraph (6),
(7), (17), or (27) of section 362(b) or pursuant to section 362(o) shall not be stayed by any order of a
court or administrative agency in any proceeding under this chapter.

Although recognition of a foreign proceeding as nonmain does not automatically entitle the foreign
representative to utilize Section 363, Chapter 15 empowers the bankruptcy court to grant additional
discretionary relief in a nonmain proceeding to "protect the assets of the debtor or the interests of the
creditors," which conceivably could include authorization of a Section 363 sale, according to 11 U.S.C. §
1521.

Discretionary Relief (§1521)

Relief can include:

(4) providing for the examination of witnesses, the taking of evidence or the delivery of information
concerning the debtor’s assets, affairs, rights, obligations or liabilities;

18
(5) entrusting the administration or realization of all or part of the debtor’s assets within the territorial
jurisdiction of the United States to the foreign representative or another person, including an examiner,
authorized by the court;
(6) extending relief granted under section 1519(a); and
(7) granting any additional relief that may be available to a trustee, except for relief available under
sections 522, 544, 545, 547, 548, 550, and 724(a).

oProof of need is proof required for an injunction (§1521(e)) ◦Irreparable injury/Inadequate remedy at
law

Likelihood of success on the merits ◦Balance of harms favors person requesting relief Public policy favors

Additional discretionary relief —§ 1521(b)

(b) Upon recognition of a foreign proceeding, whether main or nonmain, the court may, at the request
of the foreign representative, entrust the distribution of all or part of the debtor’s assets located in the
United States to the foreign representative or another person, including an examiner, authorized by
the court, provided that the court is satisfied that the interests of creditors in the United States are
sufficiently protected.

Additional Protections for Stakeholders – §1522

(a) The court may grant relief under section 1519 or 1521, or may modify or terminate relief under
subsection (c), only if the interests of the creditors and other interested entities, including the debtor,
are sufficiently protected.

(b) The court may subject relief granted under section 1519 or 1521, or the operation of the debtor’s
business under section 1520(a)(3), to conditions it considers appropriate, including the giving of security
or the filing of a bond.

(c) The court may, at the request of the foreign representative or an entity affected by relief granted
under section 1519 or 1521, or at its own motion, modify or terminate such relief.

More discretionary relief —§1507(a)

§1507(a) of the Bankruptcy Code also provides that:

(a) Subject to the specific limitations stated elsewhere in this chapter the court,
if recognition is granted, may provide additional assistance to a foreign representative under
this title or under other laws of the United States.
(b)In determining whether to provide additional assistance under this title or under other
laws of the United States, the court shall consider whether such additional assistance,
consistent with the principles of comity, will reasonably assure—
(1) just treatment of all holders of claims against or interests in the debtor’s
property;
(2) protection of claim holders in the United States against prejudice and
inconvenience in the processing of claims in such foreign proceeding;
(3) prevention of preferential or fraudulent dispositions of property of the debtor;
(4) distribution of proceeds of the debtor’s property substantially in accordance with
the order prescribed by this title; and

19
 (5) if appropriate, the provision of an opportunity for a fresh start for the individual
that such foreign proceeding concerns.

In re RedeEnergia S.A. (p. 159)

Brazilian reorganization confirmed nonconsensually

Chapter 15 case filed to seek an injunction requiring US participants to abide by and follow Brazilian
confirmation order. No doubt that the Brazilian plan contained provisions that would have precluded it
from being confirmed if Brazilian company had instead filed a chapter 11 case
Arguments were that:
Brazilian procedure was not fair. Brazilian law allowed for actions and results not permitted under US
reorganization law

Arguments under §1521

Argument was that interest were not “sufficiently protected” .
Court looked to Brazilian majority vote.
Consequences of not entering order, and Rights to appeal in Brazil
Finds interests in US protected
“The Court finds that that the interest of the Rede Debtors and their creditors, including members of the
AD Hoc Group will be sufficiently protected by the granting of the Plan Enforcement Relief. X xx The
Court’s refusal to grant the Plan Enforcement Relief would thus mean that the Brazilian Reorganization
Plan, which has already been substantially consummated, could not be fully implemented and the
distribution to Noteholders would be prevented or substantially delayed. Denying the relief would also
mean that the Ad Hoc Group would likely return to Brazil to attempt to renegotiate and seek a higher
distribution, or would commence lawsuits against the Debtor in the United States to recover further on
its claims. In short, the Ad Hoc Group simply wants another chance to renegotiate the terms of the
Brazilian Reorganization Plan and offers no evidence that its efforts would be successful. Moreover, the
Plan Enforcement Relief does not prevent the Ad Hoc Group from continuing to assert its rights under
Brazilian law in the pending appeals of the decisions of the Brazilian Bankruptcy Court. In balancing the
interests of the Rede Debtors against those of the Ad Hoc Group, the Court concludes that the Plan
Enforcement Relief passes muster under section 1522(a) and is relief that is proper under section 1521.

Arguments under §1507

"[s]ubject to the specific limitations stated elsewhere in this chapter[,] the court, if recognition is
granted, may provide additional assistance to a foreign representative under this title or under other
laws of the United States."
Pursuant to section 1507, the court is authorized to grant any "additional assistance" available under the
Bankruptcy Code or under "other laws of the United States," provided that such assistance is consistent
with the principles of comity and satisfies the fairness considerations set forth in section 1507(b).”

If recognition is granted, the bankruptcy court may grant “additional assistance” to a foreign
representative under chapter 15 or under other laws of the United States, pursuant to section 1507 of
the Code.
Section 1507(b) directs the Court to “consider whether such assistance, consistent with principles of
comity, will reasonably assure” the following:

20
(1) just treatment of all holders of claims against or interests in the debtor’s property;
(2) protection of claim holders in the United States against prejudice and inconvenience in the
processing of claims in such foreign proceeding;
(3) prevention of preferential or fraudulent dispositions of property of the debtor;
(4) distribution of proceeds of the debtor’s property substantially in accordance with the order
prescribed by this title; and
(5) if appropriate, the provision of an opportunity for a fresh start for the individual that such foreign
proceeding concerns.

Section 1507(b)(1)
Section 1507(b)(1) requires that additional relief only be granted if the “just treatment” of creditors is
ensured.
The “just treatment” factor is generally satisfied upon a showing that the applicable law “provides for a
comprehensive procedure for the orderly and equitable distribution of [the debtor]’s assets among all of
its creditors.”
Conversely, a foreign proceeding fails this factor when the proceeding “fails to provide creditors ‘access
to information and an opportunity to be heard in a meaningful manner,’ which are ‘[f]undamental
requisites of due process,’” or when the proceeding “would not recognize a creditor as a claimholder.”

oCourt finds Brazilian law complies

Section 1507(b)(2)
The second factor of section 1507(b) requires that U.S. creditors be protected against “prejudice and
inconvenience in the processing of claims” in the foreign proceeding. Court finds Brazil processes claims
fairly

Section 1507(b)(3)
The third factor of section 1507(b) requires that the additional assistance reasonably assure the
“prevention of preferential or fraudulent dispositions of property of the debtor.”
Court finds nothing fraudulent or preferential about Brazilian court’s determination of secured status

Section 1507(b)(4)
The fourth factor of section 1507(b) requires that the additional assistance provided to a foreign
representative will reasonably assure the “distribution of proceeds of the debtor’s property
substantially in accordance with the [Bankruptcy Code].”
Argument that plan did not comply with “absolute priority” rule, and thus distributed value to
shareholders before creditors paid in full.
Court responds that cramdown provisions of Brazilian law were fair and not dissimilar to US provisions,
and thus this factor met

“Manifestly contrary to public policy”

Statute provides, in § 1506:
◦Nothing in this chapter prevents the court from refusing to take an action governed by this chapter if
the action would be manifestly contrary to the public policy of the United States
Court notes that this defense is to be used “sparingly”
Summary of arguments
The public policy arguments were:
(i) an unfair marketing process;

21
 (ii) the use of “phantom” consolidation and a single insider vote to cram down an otherwise
unconfirmable plan;
(iii) a significant extraction of value for shareholders which is violative of the distribution scheme under
U.S. law;
(iv) disparate treatment of similarly situated creditors; and
(v) targeting of that disparate treatment at U.S.-based creditors, including to protect local creditor
interests.

oCourt dispenses with all of these as follows:

“the public policy exception embodied in section 1506 of the Bankruptcy Code is to be narrowly
construed and applied “sparingly.” “Brazilian bankruptcy law meets our fundamental standards of
fairness and accords with the course of civilized jurisprudence.”

Cooperation

Broad powers to communicate and cooperate:

§1525:
(a) Consistent with section 1501, the court shall cooperate to the maximum extent possible with a
foreign court or a foreign representative, either directly or through the trustee.
(b) The court is entitled to communicate directly with, or to request information or assistance directly
from, a foreign court or a foreign representative, subject to the rights of a party in interest to notice and
participation.

Forms of Cooperation —§1527

o§ 1527:
Cooperation referred to in sections 1525 and 1526 may be implemented by any appropriate means,
including—
(1) appointment of a person or body, including an examiner, to act at the direction of the court;
(2) communication of information by any means considered appropriate by the court;
(3) coordination of the administration and supervision of the debtor’s assets and affairs; (4) approval or
implementation of agreements concerning the coordination of proceedings; and
(5) coordination of concurrent proceedings regarding the same debtor.

Model Law in Japan adopts model law but not allow cooperation.

The rise of protocols.

COMI-Shifting: Trend?

The Internal Weakening of Universalism: Statutory Exceptions oSection 1522(a) conditions the
entrustment of assets for administration or realization to the requirement that creditors be “adequately
protected.”

22
Section 1521(b) places the same restriction on distribution of assets oSection 1506 contains the
”manifestly contrary to public policy” exception

Akers, and “adequate protection”

The tax claims of foreign governments are typically disallowed by all insolvency systems; that is, the
claim for taxes by a Mexican or Thai or Australian taxing authority would not be allowed in a United
States (or an English or an Israeli) proceeding.

This is a problem for universalism; it means that governmental claims from non-COMI governments may
be disallowed, even if there are assets in the non-COMI states

In Akers, the Australian government had a sizable tax claim against a debtor, the debtor had obtained
recognition of a foreign main proceeding in the courts of Australia, and then the foreign representative
proposed to expatriate all funds now in bank accounts in Australia to the jurisdiction of the foreign main
proceeding.
Australian court held that adequate protection required the amount of the government’s claim to be
retained in Australia

When the model law, the basic issue is recognition. But sometimes what you want is a foreign judgment
is to be enforced. In 2012, the case is Rubin.

Beyond the Statute to Gaps in Coverage –The UK Supreme Court and Rubin
In 2012, Rubin v. Eurofinance, S.A., [2012] UKSC 46, [2013] 1 AC 236, took universalists by surprise
In Rubin, one Roman and his company Eurofinance (and others) ran a scheme called ”The Consumers
Trust” to defraud American consumers.
The scheme filed bankruptcy, and Rubin was appointed trustee
Rubin sued the perpetrators of the scheme, including Eurofinance, to recover money for consumers.
Rubin served the lawsuit on Eurofinance in England, where Eurofinance’s registered office was located,
in a manner that complied with both US and UK law
Eurofinance never answered the complaint.
Rubin then obtained a default judgment for US$160 million

Rubin then took the judgment to the UK.

Eurofinance responded, and claimed the US court, even though clearly the COMI court, did not have
jurisdiction.
The UK Supreme Court agreed.

Summary of holding:
Under United Kingdom common law, foreign judgments based on in personam jurisdiction cannot be
enforced in England unless the traditional common law principles governing the jurisdictional
competence of the foreign court in respect of in personam orders (through presence in the jurisdiction
or submission) or in rem orders (confined to assets in the jurisdiction) were satisfied.
As Eurofinance was not present in the United States, and had not submitted to jurisdiction there, the
Supreme Court declined to recognize the authority of the United States judgment to establish
Eurofinance’s in personam liability on the claims alleged. Eurofinance thus won

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UK- what you could have done, is to bring a model action in UK and bring case against Eurofinance. Lack
of reciprocity. Comi court can do anything, will the court recognize the judgment as a matter of personal
jurisdiction not as a matter of Model Law. Model law does not change non-insolvency related laws.
(personal jurisdiction over defendants originally in the law. So UNCITRAL is coming up with new rules
what will have rules for personal jurisdiction.

The Model Law does not purport to change the noninsolvency-related rules and jurisprudence regarding
recognition of foreign judgments, even if such foreign judgments relate to insolvency
If universalism’s deference to all judgments from a COMI court is to be realized, must change other laws
This have given rise to UNCITRAL’s work on a new Model Law on the Recognition of Insolvency-Related
Judgments (due to be approved by UNCITRAL this summer) ◦http://daccessods.un.org/access.nsf/Get?
OpenAgent&DS=a/cn.9/wg.v/wp.150&Lang=E
Manipulations of Universalism –COMI Shifting and Bankruptcy Tourism
Universalism has a strong pull
To resolve all issues under one law can be attractive, especially when the one law is designed to
facilitate restructuring
This has led to companies in financial trouble to attempt to shift their COMI from a state with no or with
poor restructuring laws to a state with a more developed restructuring law

Bankruptcy tourism- if you can resolve on personal jurisdiction.

COMI Shifting –In re Ocean Rig UDW Inc., 570 B.R. 687 (Bankr. S.D.N.Y. 2017)
Ocean Rig was an offshore ultra deep water drilling contractor
Ocean rig was in a capital intensive industry in a country with not so good reorganization laws.
It was originally registered in Cyprus, then the Marshall Islands (tax reasons).
The Marshall Islands have no equivalent to UK schemes of arrangement or US chapter 11. Registered
place of incorporation for the Ocean Rig of companies.
In fact, it has no restructuring law at all; only liquidation. So lawyers moved their COMI to where there
is reorganization.
Knowing that some form of court restructuring would be necessary, Ocean Rig moved its registration
before commencing its restructuring to the Cayman Islands.
As part of the move, Ocean Rig maintained its head offices and books and records in the Caymans,
conducted board meetings in the Caymans, conducted restructuring negotiations with creditors in the
Caymans, appointed registered agents for payment and notices in the Caymans and provided
notification of the change to investment services providers.
All of this happened over a period of less than a year.

Ocean Rig then filed for administration and approval of a scheme of arrangement in the Cayman Islands.
The scheme of arrangement affected US$3.6 billion of debt, some secured, some unsecured. Scheme of
arrangement is a less formal version of pre-packaged plan.
The Grand Court of the Cayman Islands approved.
The parties then went to the US (in New York) to open a Model Law case (chapter 15 under US law)
Although the court noted that it had the ability to decline to recognize cases in which COMI-shifting was
illegitimate, it found Ocean Rig’s reasons valid:

◦“[Ocean Rigs’] COMI shift to the Cayman Islands was done for legitimate reasons, motivated by the
intent to maximize value for their creditors and preserve their assets.”

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(there is nothing in model law)
Is this new test? COMI is something that the creditor should be able to perceive. Objective. Where the
debt is likely to be covered and restructured. It cant be a foreign main proceeding. COMI is not just
where anyone puts it, but where the operations are in Marshall Island. Most of the debt was incurred in
Marshall Island.

Court overlooked this argument.

Determine COMI at the time the Model Law case is filed. Creditors should reasonably object.

The court recognized the Cayman case as a foreign main proceeding, and the Cayman Islands as Ocean
Rig’s COMI

COMI-shifting: Singapore

Starting in 2010, the Singapore government sought to change its restructuring laws to make Singapore a
more attractive restructuring hub
Law enacted in 2017; in many cases language “borrowed” from US Chapter 11
Specifically recognized that non-Singapore companies could file insolvency in Singapore if they had
substantial assets or carried on business in Singapore or even if “the company has chosen Singapore law
as the law governing a loan or other transaction.”.

Also adopted the UNCITRAL Model Law.

In 2016, Singapore courts proposed and have obtained growing acceptance of Guidelines For
Communication And Cooperation Between Courts

In Cross-Border Insolvency Matters

Now adopted in BVI, the Chancery Division of the High Court of England & Wales, and in New York,
Delaware and Florida

Chapter 15 gives you a sense that in an era of increasing globalization because businesses have presence
in other countries. Business increasingly disregards borders and where will be where they will make
money.

The Bankrupt Code defines a “foreign main proceeding” as “a foreign proceeding pending in the country
where the debtor has the center of its main interest”. §1504 (2) A foreign proceeding shall be
recognized as a foreign main proceeding if it is pending where the debtor as its center of main interests
(COMI) §1517 (b)(1). The Bankruptcy Code does not define “center of main interest” although §1516(c)
thereof states that the debtor’s registered office or habitual residence is presumed to be its COMI.
Again, habitual residence is not defined in the Bankruptcy Code but has been analyzed as virtually
identical to the concept of domicile, which “is established by physical presence in a location coupled
with an intent to remain their indefinitely.”

Legislative history indicates that this presumption was “designed to make the recognition as simple and
expedient a possible”in cases where the COMI is not controversial (quoted in In re Ocean Rig)

Court have identified several additional factors in the COMI analysis, to wit:

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(i) location of corporate and executive offices;
(ii) the site where day-to-day control is exercised;
(iii) the exclusivity of decision making at the executive office and the amount of managerial authority at
that location;
iv) the location where corporate records and bank accounts are kept;
(v) where the board of directors and stockholders meet;
(vi) where executives live, have their offices, and spend their time;
(vii) the location where corporate income tax is filed;
(viii) the location designated in the corporate charter; and
(ix) the location where major policy, advertising, distribution, accounts receivable departments and
finance decisions originate.”

While these factors are a helpful guide in determining a debtor’s COMI, the factors are not exclusive and
none of the factor is required nor dispositive.

COMI Summarized by ECJ

According to the European Court of Justice, In re EurofoodsIFSC Ltd., 2006 ECJ CELEX LEXIS 777 (E.C.J.
May 2, 2006):

In determining the COMI of a debtor company, the presumption in favor of the registered office of that
company can be rebutted only if “factors which are both objective and ascertainable by third parties
enable it to be established that an actual situation exists which is different from that which location at
that registered office is deemed to reflect.” ◦The COMI presumption has been though to be overcome
“in the case of a ‘letterbox’ company not carrying out any business in the territory of the Member State
in which its registered office is situated.” ◦The term “interests,” as used in the phrase “center of main
interests,” includes not only commercial, industrial, and professional activities but also the general
economic activities of private individuals. A debtor’s COMI “must be identified by reference to criteria
that are both objective and ascertainable by third parties.”

U.S. interpretations

Some U.S. courts have equated COMI with a debtor’s “principal place of business.”
The general notion of “principal place of business” is where the corporation’s officers “direct, control,
and coordinate the corporation’s activities, i.e., its nerve center, which will typically be found at its
corporate headquarters.”

Factors Used by US Courts

Factors to be considered in determining a corporation’s nerve center include:
(i) location of corporate and executive offices;
(ii) the site where day-to-day control is exercised;
(iii) the exclusivity of decision making at the executive office and the amount of managerial authority at
that location;
iv) the location where corporate records and bank accounts are kept;
(v) where the board of directors and stockholders meet;
(vi) where executives live, have their offices, and spend their time;
(vii) the location where corporate income tax is filed;

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(viii) the location designated in the corporate charter; and
(ix) the location where major policy, advertising, distribution, accounts receivable departments and
finance decisions originate.”

Instead, in determining the COMI, the courts conduct an inquiry as to whether

“whether reasonable and ordinary third parties can discern or perceive” where the debtor is
conducting the operation of its business.

“[A] commonality of cases analyzing debtors’ COMI demonstrates that courts do not apply any rigid
formula or consistently find one factor dispositive; instead, courts analyze a variety of factors to discern,
objectively, where a particular debtor has its principal place of business. This inquiry examines the
debtor’s administration, management, and operations along with whether reasonable and ordinary
third parties can discern or perceive where the debtor is conducting these various functions.” ◦In re
BetcorpLtd., 400 B.R. 266, 290 (Bankr. D. Nev. 2009)

In assessing these factors, a chapter 15 debtor’s COMI is determined as of the filing date of the chapter
15 petitin, without regard to the debtor’s historic operational activities. However, to the extent that the
debtor’s COMI has shifted prior to the filing of the Chapter 15 petition, courts may engaged in a more
holistic analysis to ensure that the debtor has not manipulated COMI in bad faith.

Summary
Although the court noted that it had the ability to decline to recognize cases in which COMI-shifting was
illegitimate, it found Ocean Rig’s reasons valid:

◦“[Ocean Rigs’] COMI shift to the Cayman Islands was done for legitimate reasons, motivated by the
intent to maximize value for their creditors and preserve their assets.”
(there is nothing in model law)
Is this new test? COMI is something that the creditor should be able to perceive. Objective. Where the
debt is likely to be covered and restructured. It cant be a foreign main proceeding. COMI is not just
where anyone puts it, but where the operations are in Marshall Island. Most of the debt was incurred in
Marshall Island.

Court overlooked this argument.

Determine COMI at the time the Model Law case is filed. Creditors should reasonably object.

The court recognized the Cayman case as a foreign main proceeding, and the Cayman Islands as Ocean
Rig’s COMI

However, Foreign Debtors have engaged in various activities supporting their COMI in the Cayman
Islands for almost a year (p.29)

Subsidiary debtors are also registered as foreign companies under the Companies Law in the Cayman
Islands. (p.30)

It also does not matter that UDW is classified as “exempted” under the Cayman Companies Law, even
though “exempted” company status appears to limit the company’s activities in the Cayman Island.

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While exempted companies are prohibited from trading in the Cayman Islands, except in furtherance of
their business outside the Cayman Islands, they may still be managed from there.

Because the business of the Ocean Rig Group is primarily conducted in the high seas, the Court finds
that the Group’s business is generally conducted outside of any jurisdiction in which iti was managed.

The Debtors have not manipulated COMI in bad faith

What is determinative for me is that the real purpose of the comi shifting was never concealed by
debtor. In fact, it was a deliberate and purposeful shift for one reason: to take advantage of the
reorganization law in the Cayman Island.

“In an proceeding for foreign recognition, of great concern to the Court is the potential for mischief and
COMI Manipulation- Thus, even courts that have recently related the COMI focus to the time of the
petition for recognition --- would likely to support a totality of circumstances approach where
appropriate.” The Court finds that the Foreign Debtors purposefully established the Caymand Islands as
their COMI before the Petition Date. The Foreign Debtors actions in doing so were not take in bad faith.
(p.33)

The Foreign Debtor’s Comi shift to the Cayman Islands was done for legitimate reasons, motivated by
the intent to maximize value for their creditors and preserve their assets. No in t bad faith (33)

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