The U.S. Bankruptcy Code is coming
to dominate international restructurings
The U.S. Bankruptcy Code is coming to dominate international restructurings.
However, for British companies that may file chapter 11 in the U.S.,
British creditors may not fare well. British insolvency law is pro-bank.
Chapter 11 claims to have worldwide jurisdiction. No countries
outside the U.S. have been consulted on the subject, much less agreed
to it. For example, Regus became the first UK company to file for
chapter 11 in the U.S. without an equivalent bankruptcy protection
in the UK. Regus's UK holding company went into Chapter 11 as well.
This means that Regus's holding company has global protection against
its creditors under American law. The filing was uncontested because
it gives a "stay" against the company's creditors, making
it a powerful bargaining tool for Regus's management in its talks
with the landlords.
Another UK company, Cenargo, filed for Chapter 11. It has a U.S.
bond issue but no U.S. operations or staff. It did have a recently
opened bank account in New York, however, which was enough to satisfy
a New York court that it had jurisdiction over the company. Chapter
11 gives Cenargo's management worldwide protection against any creditors,
including its bankers in the UK.
The Royal Bank of Scotland put Cenargo into liquidation in the UK
courts just two weeks after its Chapter 11 filing, therefore defying
the U.S. courts. UK courts also issued orders that Cenargo discharge
the filing. UK creditors did not want Cenargo to escape its obligations
to bankers in the UK, secured creditors at that, just because the
management has a checkbook in New York. The New York judge suggested
that the appointment of UK liquidators was in contempt of his own
Chapter 11 order.
This information is not intended to constitute legal advice,
nor a substitute for legal advice.
Reprinted with permission from Trade Vendor Monthly Blakeley & Blakeley