US bankruptcy courts may advance the global scope of cross-border insolvency proceedings


Financier Worldwide Magazine

March 2014 Issue

March 2014 Issue

With the increasing global nature of insolvency proceedings, an important criterion of a successful cross-border reorganisation is whether the company’s plan of reorganisation and orders obtained under one country’s insolvency laws will be recognised internationally and enforced by foreign courts. This is especially the case where the company in question has assets outside of its home country or could be subject to litigation in a variety of fora. 

This article provides some insight on how US courts have dealt with this issue by discussing the recent decision in In re Sino-Forest Corp., 501 B.R. 655 (Bankr. S.D.N.Y. 2013), where the United States Bankruptcy Court for the Southern District of New York extended comity to orders entered in a foreign proceeding under Chapter 15 of the United States Bankruptcy Code and principles of comity. 

Relevant Chapter 15 framework 

A foreign debtor may seek recognition of a foreign order via two avenues. Under section 1521, a bankruptcy court may grant the type of relief enumerated in section 1521(a) and (b) or relief that a court deems proper under an undefined and more flexible ‘appropriate relief’ standard. 11 U.S.C. § 1521. However, relief sought under section 1521 is limited by section 1522, which requires creditors or other interested entities, including the debtor, to be ‘sufficiently protected’. 11 U.S.C. § 1522. A foreign debtor can also seek to enforce a foreign order under section 1507, which allows a court to provide ‘additional assistance’ to a foreign representative if it is ‘consistent with the principles of comity’ and satisfies sections 1507(b)(1)-(5), which include certain claimholder and other protections. 11 U.S.C. § 1507. 

As the Fifth Circuit noted in In re Vitro S.A.B. de C.V., 701 F.3d 1031, 1054 (5th Cir. 2012), the relationship between section 1507 and 1521 “is not entirely clear”. In offering clarity, the Vitro court prescribed a three step analysis to resolve the ambiguity, treating 1507’s ‘additional assistance’ standard as a catch-all for relief that cannot first be granted under either: (i) sections 1521(a) and (b)’s enumerated relief; or (ii) section 1521’s ‘appropriate relief’ language. Id. Furthermore, the court interpreted ‘appropriate relief’ to include any relief that was formerly available under Chapter 15’s predecessor section 304. Id.

Doctrine of comity

Chapter 15 does not define comity but incorporates the concept, including explicitly in both sections 1507 and 1509. See In re Fairfield Sentry Ltd., 484 B.R. 615, 626-28 (Bankr. S.D.N.Y. 2013) (“Chapter 15 emanates from and was designed around this central concept of comity”). As described in Hilton v. Guyot, 159 U.S. 113 (1895), a seminal US case, comity is “the recognition which one nation allows within its territory to the legislative, executive, or judicial acts of another nation, having due regard both to international duty and convenience, and to the rights of its own citizens or of other persons who are under the protection of its laws.” Id. at 164. More recently, comity has been described as “tak[ing] into account the interests of the United States, the interests of the foreign state or states involved, and the mutual interests of the family of nations in just and efficiently functioning rules of international law.” In re Atlas Shipping A/S, 404 B.R. 726, 733 (Bankr. S.D.N.Y. 2009) (citations omitted). 

In applying the doctrine, the Second Circuit has stated “[c]omity will be granted to the decision or judgment of a foreign court if it is shown that the foreign court is a court of competent jurisdiction, and that the laws and public policy of the forum state and the rights of its residents will not be violated”. Cunard S.S. Co. v. Salen Reefer Servs. AB, 773 F.2d 452, 457 (2d Cir. 1985). Among other factors, courts take into consideration whether the foreign proceeding was conducted with procedural fairness and have considered the following: (i) whether creditors of the same class are treated equally in the distribution of assets; (ii) whether the liquidators are considered fiduciaries and are held accountable to the court; (iii) whether creditors have the rights to submit claims which, if denied, can be submitted to a bankruptcy court for adjudication; (iv) whether the liquidators are required to give notice to potential claimants; (v) whether there are provisions for creditors meetings; (vi) whether a foreign country’s insolvency laws favour its own citizens; (vii) whether all assets are marshalled before one body for centralised distribution; and (viii) whether there are provisions for an automatic stay and for the lifting of such stays to facilitate the centralisation of claims. Finanz AG Zurich v. Banco Economico S.A., 192 F.3d 240, 249 (2d Cir. 1999); In re Sino-Forest Corp., 501 B.R. at 663. 

Comity as applied in the context of third party non-debtor releases

The opinion in Sino-Forest provides a good example of a court’s application of the doctrine. At issue in Sino-Forest was whether to approve a settlement between class action claimants and a non-debtor defendant who, in exchange for certain third party non-debtor releases, agreed to contribute CAD $117m and other concessions to the debtor’s plan for the benefit of creditors. In re Sino-Forest Corp., 501 B.R. at 659. The settlement was approved by the Ontario Superior Court of Justice and appellate motions were dismissed by the Court of Appeals for Ontario. Id. at 658. 

After noting that third party non-debtor releases must satisfy a ‘rigorous standard’ in a Chapter 11 under binding Second Circuit precedent, the court held that it could approve the releases under section 1507 in the interest of comity. 

In re Sino-Forest Corp., 501 B.R. at 661. In adopting language from a prior decision, the court stated, “[p]rinciples of enforcement of foreign judgments and comity in chapter 15 cases strongly counsel approval of enforcement in the United States of the third-party non-debtor release and injunction provisions included in the Canadian Orders, even if those provisions could not be entered in a plenary chapter 11 case.” Id. at 662 (emphasis added) (quoting In re Metcalfe & Mansfield Alt. Invs., 421 B.R. 685, 696 (Bankr. S.D.N.Y. 2010)). 

In extending comity, the court reasoned that “Canadian courts afford creditors a full and fair opportunity to be heard in a manner consistent with standards of U.S. due process”, and the “the trial court reached a reasoned decision that it had the jurisdiction to grant the requested relief and that such relief was appropriate in the circumstances”, noting that the objectors had the opportunity to appeal, which failed. In re Sino-Forest Corp., 501 B.R. at 663. Further, the court held that neither sections 1507(b)(1)-(5) nor section 1506 barred such relief. Id. at 664-5. 

There is, however, at least one US court that has refused to extend comity to a foreign court order with similar releases. In Vitro, the Fifth Circuit declined to extend comity under section 1507 to a Mexican court order that included third party non-debtor releases in favour of certain non-debtor subsidiary guarantors. Vitro, 701 F.3d at 1069. The Vitro court, in affirming the lower court, first held that the releases did not fall within section 1521(a) or (b)’s enumerated relief or the ‘appropriate relief’ standard more generally, and regardless would be precluded under section 1522. Id. at 1058-60. Interestingly, the Fifth Circuit did not bar the relief under section 1507 merely because third party non-debtor releases are not permitted under Fifth Circuit precedent. Id. at 1062. Instead, the court found that extending comity was inappropriate on other grounds, such as the lack of compelling circumstances and the negative impact on objecting creditors. Id. at 1067-69. Unfortunately, the Vitro court never reached the section 1506 issue of whether granting the releases would be manifestly contrary to public policy. Id. at 1069-70.               

The Sino-Forest court, in distinguishing its decision from the Vitro decision, highlighted such facts as the “near unanimous support” for the debtor’s plan, the lack of reliance on insider votes, the absence of objections to the releases and that the Canadian court’s decision reflected a “similar sensitivity” to US courts on the third party non-debtor release issue. In re Sino-Forest Corp., 501 B.R. at 665-66. 


As the Sino-Forest decision demonstrates, the doctrine of comity continues to play an important role under American jurisprudence and remains a critical consideration for determining whether US courts will enforce orders entered by foreign courts. Sino-Forest also highlights that Chapter 15 is a powerful tool to assist companies attempting to successfully effect a cross-border restructuring of its business.


Pedro A. Jimenez is Partner-in-Charge of Jones Day’s Miami office and Alex M. Sher is an associate at Jones Day. Mr Jimenez can be contacted on +1 (305) 521 1751 or by email: Mr Sher can be contacted on +1 (212) 326 8304 or by email:

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