Timing is Everything…. Proposed Reforms to Chapter 15 on Hold for Now?

Pursuant to the UK's Cross Border Insolvency Regulation 2006 ("CBIR") and the US' Chapter 15, the location of a debtor's center of main interest, or "COMI", is critical to the treatment of a debtor's cross-border insolvency proceedings. The location of debtor's COMI informs whether a jurisdiction will grant recognition of the foreign proceeding and the treatment of that proceeding once recognition is granted (whether as main or non-main proceedings). Part and parcel of determining the location of a debtor's COMI is deciding the time at which that determination is to be made. Both the CBIR and Chapter 15 are based on the UNCITRAL Model Law on Cross Border Insolvency (the "Model Law") adopted by the UN Commission on International Trade Law Assembly in 1997. Jurisdictions that have adopted the Model Law have taken different approaches regarding the appropriate date to conduct a COMI analysis. Some courts have opted to analyze COMI at the time the foreign proceeding was commenced (the "Date of Commencement Approach"). In contrast, an increasing number of courts have found the date of the filing of the application for recognition to be the date by which COMI is determined (the "Date of Filing Approach"). The Date of Filing Approach was used by Judge Lifland in the landmark case, In re Fairfield Sentry Ltd., 714 F.3d 127 (2d Cir. 2013).

Historically, English courts had not considered the date at which COMI is to be determined in significant detail in the context of the CBIR, although decisions had suggested that the relevant date for determining COMI is the time the foreign proceedings were commenced and that the Date of Commencement Approach therefore prevailed. Recently, however, ICC Judge Burton adopted the Date of Filing Approach in the matter of Toisa Limited (an application under the CBIR). Toisa Limited was an international shipping company. Prior to its Chapter 11 filing it had traded and been managed out of various jurisdictions, including a management seat in New York. Toisa Limited entered Chapter 11 in January 2017 and had clearly been managed from New York as part of that debtor in possession process and has been actively trading since that time. Against the background of this fact pattern, Judge Burton considered three rationales offered in support of adopting the Date of Filing Approach: 1) the wording of Article 17 of Schedule 1 of the CBIR is in the present tense; 2) Article 8 of the Model Law stresses "uniformity in its application" and Fairfield Sentry provided strong international precedent to follow; and 3) because COMI has the potential to move, the Date of Commencement approach could make foreign proceedings ineligible for recognition under the CBIR as main proceedings at all, which could not have been the intent of the drafters. Ultimately, Judge Burton followed the Date of Filing Approach in this case, determining COMI as of the date of the filing of the petition for recognition.

However, just as it looked possible that the approaches taken by the respective courts under the CBIR and Chapter 15 might be starting to converge, on November 13, 2019, the National Bankruptcy Conference (the "NBC") authored a letter to certain members of Congress advising specific revisions to Chapter 15 (the "Letter"). The Letter notably called for amendments to the language in 1502(4) and (5) and 1517(b) that, if implemented, would require a determination of COMI as of the date that the foreign proceeding was filed (i.e. the Date of Commencement Approach). In this departure from the Date of Filing Approach utilized by Fairfield Sentry and Toisa, the NBC noted that UNCITRAL amended the Guide to Enactment in 2013 to clarify that the foreign proceeding commencement date is the proper date to measure COMI and that Congress subscribed to the Model Laws promotion of uniformity in enacting section 1508. To date (and no doubt to the relief of many off-shore insolvency practitioners), no legislation has been introduced in Congress addressing revisions to 1502(4) and (5) and to 1517(b) of the Bankruptcy Code however.

Whether the Date of Filing Approach is more widely adopted in further judgments in the English courts is yet to be tested. The approach differs from that prescribed in the EU Regulation on Insolvency Proceedings 2015 (the "EU Regulation"), which requires the automatic recognition of foreign main proceedings commenced in other EU countries (excluding Denmark) from the time that they are opened. However, given the current uncertainty around what recognition arrangements will apply between the UK and EU states in the future following the UK's withdrawal from the EU at the end of January and forthcoming end of the transition arrangements on 31 December 2020, the CBIR and its interpretation could come become even more relevant going forward.