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How Low Can You Go? Minimum Jurisdictional Threshold for U.S. Bankruptcy Courts in Cross-Border Insolvency Cases

Thomas J. Shiah[1]

In the modern global economy, there are numerous companies (for purposes of this article, each is referred to as a “foreign entity”) that, despite having a majority of their principal assets, operations, employees and/or management located outside of the United States, rely on the U.S. court system to adjudicate their issues. As economic markets shift, or as a foreign entity otherwise finds itself needing to restructure its debt or right-size its capital structure, complex cross-border jurisdictional and insolvency issues often arise, even in circumstances where U.S.-based investors are not a principal source of capital.

One such issue is the proper jurisdiction in which the foreign entity should commence its bankruptcy proceedings. Some foreign entities with only tenuous ties to the U.S. may still seek the protections of the Bankruptcy Code[2] for many reasons. In some circumstances, a foreign entity or its investors may prefer the predictability of the chapter 11 bankruptcy process to the myriad uncertain (and often less nuanced) insolvency laws located throughout Europe and Asia, which often favor liquidation over restructuring. In other circumstances, however, a creditor may prefer to foreclose on assets securing the foreign entity’s obligations and avoid the obstacles (including the worldwide automatic stay) that a chapter 11 proceeding in the U.S. would impose.

When a foreign entity decides to avail itself of (or is otherwise subjected to) a chapter 11 proceeding, it must meet certain minimum requirements set forth in the Bankruptcy Code that apply to all entities, foreign and domestic. For instance, pursuant to § 109(a) of the Bankruptcy Code, only an entity with a domicile, place of business or property within the U.S. can commence a chapter 11 proceeding.[3] However, the Bankruptcy Code is silent as to the amount of property necessary for jurisdiction to be proper. This gives rise to a basic question: Is there a minimum threshold of property interests a foreign entity (that does not have a place of business or domicile in the U.S.) needs to possess in the U.S. in order to seek the protections of, and reorganize under, the Bankruptcy Code?

Within the context of § 109(a), case law indicates that even in situations where a foreign entity is faced with jurisdictional challenges by parties in interest in an attempt to remove the case to a different jurisdiction,[4] U.S. bankruptcy courts are not inclined to dismiss the case and relinquish control over the proceeding.[5] Recently, in both the Almatis B.V. and Marco Polo Seatrade B.V. (MPS) cases, the U.S. Bankruptcy Court for the Southern District of New York found that sufficient property existed in the U.S. to allow for a reorganization of those debtors through the chapter 11 process. The SDNY court reached these conclusions despite the fact that only certain of the Almatis and MPS debtors had property or otherwise had a place of business in the U.S.

The Almatis Cases
On April 30, 2010, the Almatis debtors filed their chapter 11 petitions along with a pre-packaged plan of reorganization. Almatis and its affiliates had operations in the U.S., the Netherlands, Germany, China, India and Japan.[6] Together, these companies developed, manufactured and produced premium specialty alumina-based products.

For certain of the Almatis debtors, the lack of jurisdictional ties to the U.S. appears striking.[7] For instance, while some of the Almatis debtors were organized under the laws of Delaware, others were organized under the laws of the Netherlands or Germany. Additionally, although four of the company’s nine production facilities and 300 of the 850 employees were located in the U.S., it did not appear that all of the debtors had property located in the U.S.[8] However, the first-day affidavit in support of Almatis’s chapter 11 seems to indicate that jurisdiction was proper for each of the Almatis debtors on the basis of holding some property interest in the U.S.[9]

Despite the tenuous jurisdictional connections with the U.S. for certain of the Almatis debtors, no party objected to jurisdiction during the chapter 11 proceedings. However, prior to the commencement of the chapter 11 cases, Dubai International Capital LLC, Almatis’s private-equity owner, had formally requested the Dutch Enterprise Chamber to enjoin the Almatis debtors from filing a U.S. Bankruptcy petition.[10] On April 8, 2010, the Dutch Enterprise Chamber conducted a hearing on the request and, on April 12, 2010, ruled that there were no grounds to grant any of the relief requested by Dubai International Capital, thereby allowing the debtors to proceed with the chapter 11 restructuring process.[11]

Although the record does not expressly reflect whether the SDNY Court ever formally addressed the issue of jurisdiction over all of the Almatis debtors, a driving force behind Almatis’ decision to file in the U.S was the view that the insolvency laws of the Netherlands and Germany, respectively, were not suited to assist in the implementation of a global restructuring of the debtors’ diverse capital structure, and that “multi-jurisdictional insolvency proceedings [would] undermine, rather than facilitate, the desired restructuring.”[12] Apparently, the SDNY court determined that it had jurisdiction based on the low threshold set forth in § 109 of the Bankruptcy Code. Perhaps the SDNY court was also influenced by the fact that the formal insolvency procedures in either the Netherlands or Germany would have likely forced the debtors into a liquidation with little, if any, chance at reorganizing, while the Bankruptcy Code offered the Almatis debtors a more flexible, predictable in-court process that would provide them with reorganization alternatives.

The MPS Cases
Just three months after the Almatis case, on July 29, 2011, another Netherlands-based company, MPS, and three of its affiliates commenced chapter 11 cases in the SDNY court. MPS, an international maritime shipping company, had nearly $210 million of secured debt at the time of its filing. Immediately after filing, MPS’s two principal lenders, Crédit Agricole and Royal Bank of Scotland (together, the “principal lenders”), each filed a motion to dismiss the chapter 11 cases contesting the propriety of U.S. jurisdiction on the grounds that (1) the MPS debtors did not meet the requirements of § 109(a) of the Bankruptcy Code, (2) the MPS debtors’ chapter 11 filing was made in bad faith and should be dismissed under § 1112 of the Bankruptcy Code, and (3) the SDNY court’s abstention under § 305(a) of the Bankruptcy Code was in the best interests of creditors and MPS.[13] The SDNY court found the arguments unpersuasive and refused to dismiss the cases.

The principal lenders argued that MPS was not eligible for relief under chapter 11 in the U.S. because (1) MPS and its affiliates were foreign entities that lacked places of business in the U.S., (2) MPS’s vessels all operated under foreign flags, (3) MPS’s principal offices were in the Netherlands, (4) MPS had no satellite offices or employees in the U.S., (5) MPS’s businesses operated primarily in foreign waters, (6) the loan documents were governed by foreign law and provided for foreign courts to have exclusive jurisdiction over disputes thereunder, (7) MPS’s secured creditors were foreign entities, and (8) the members of the unsecured creditors’ committee were foreign entities.[14] Indeed, the principal lenders noted that MPS’s insubstantial “ties” to the U.S. consisted mainly of an interest in a comingled pooled working capital reserve account maintained by MPS’s New York-based pool manager[15] and an unused fee retainer in the amount of $250,000 held by its counsel in New York.[16] The principal lenders asserted that these property holdings were too insubstantial to provide the MPS debtors with proper jurisdiction before the SDNY court.[17]

Nonetheless, the SDNY court found that MPS’s property interests in both the pooled account and in the unearned portion of the retainer provided to MPS’s New York counsel together were sufficient to satisfy “the relatively low bar that is necessary under Section 109 for there to be property sufficient to establish eligibility.”[18] In explaining its reason for retaining jurisdiction, the SDNY Court stated that “109(a) simply uses the word ‘property,’ property in the U.S. It doesn’t say that [the] property needs to be significant in amount. It just has to be here.”[19]

Interestingly, not all four MPS debtors possessed U.S. property interests at the time of the chapter 11 filing. Only one of the four MPS debtors paid for, and thereby owned the interest in, the retainer, and yet another individual MPS debtor was the sole interest owner of the pooled account. In light of these facts, the SDNY court grappled with a theory that it could use to explain how a property interest of one debtor could extend to its co-debtors.[20] In connection with the retainer, the SDNY court questioned whether the retainer paid by one MPS debtor was intended to be on behalf of all MPS debtors. Ultimately, perhaps persuaded by the engagement letter indicating that all four MPS debtors were clients,[21] the SDNY court concluded that the retainer was on behalf of all the MPS debtors and thus created a U.S.-based property interest for each debtor. This, combined with the money contained in the pooled account, was sufficient for the SDNY court to find jurisdiction.[22] Finding otherwise would have prevented the SDNY court from exercising jurisdiction over all of the MPS debtors.

The SDNY court also found that there was no evidence that MPS filed for chapter 11 in bad faith. First, at the date of the hearing, the case was less than 90 days old. At that point, in spite of MPS’s precarious financial status, it was premature to declare that there was an “absence of a reasonable likelihood of rehabilitation.”[23] Importantly, the SDNY court denied the motion to dismiss on this issue under § 1112 of the Bankruptcy Code without prejudice—leaving open the possibility of dismissal at a later date if it became clear that MPS’s financial situation was not improving and there was no reasonable likelihood of rehabilitation for MPS.[24] Additionally, the SDNY court was not persuaded by the principal lenders’ argument that MPS’s retainer payment, made on the same day that MPS filed the chapter 11 cases, was a bad-faith effort to “manufacture jurisdiction.”[25] The SDNY court did note, however, that if the payment were made solely to manufacture jurisdiction, the SDNY court would not have ruled in the same way.[26]

Alternatively, the principal lenders argued that the SDNY court should suspend or dismiss the chapter 11 proceeding under § 305(a) of the Bankruptcy Code because “the interests of creditors and the debtor would be better served by such dismissal or suspension.”[27] In their view, there was “no prospect of a recovery for unsecured creditors or equity holders.”[28] However, the SDNY court denied the principal lenders’ request for abstention, stating that “at least for the time being, the interests of the creditors are better served by maintaining the case as a fully active chapter 11 case, not dismissing it.”[29] The bases supporting the SDNY court’s decision may have included the fact that there was no foreign insolvency proceeding pending and the fact that there were some U.S.-based unsecured creditors.[30]

The SDNY court’s exercise of jurisdiction in both the Almatis and MPS cases appear to simply be a continuation of the past practices of U.S. bankruptcy courts imposing low thresholds when reviewing or upholding challenges to a foreign entity’s nexus to the U.S., thereby permitting that foreign entity to be a debtor under the Bankruptcy Code. Even the enactment of chapter 15, although arguably fostering cooperation among nations in administering cross-border insolvencies, has apparently done little to change this. The implications of this phenomenon are clear: Chapter 11 remains a viable solution for many foreign entities, even those that have but a kernel of property located in the U.S.

The next several years, however, may foster a change in the jurisdictional landscape for extra-territorial insolvency cases and give foreign entities more optionality when determining whether chapter 11 is the most viable, beneficial and preferred insolvency statute. For example, at present, many foreign entities, such as Almatis, seek restructuring within chapter 11 because the Bankruptcy Code lends itself to efficiency and formality while dealing with and dispatching often-complex, disjointed and multi-national debtors that may have creditors with varying expectations and goals. Moreover, many other insolvency regimes, especially those found throughout Europe, do not currently afford debtors the restructuring capabilities that the Bankruptcy Code does. Recently, however, numerous countries have either implemented, or began the process of implementing, modified insolvency laws that are, in some cases, modeled after the Bankruptcy Code. For example, on March 1, 2012, new insolvency rules will come into effect in Germany, a jurisdiction that has traditionally had rigid insolvency laws. The new German corporate restructuring rules are somewhat akin to those in the U.S. and are intended to facilitate debtor-in-possession proceedings and the use of restructuring plans and other exchange mechanisms as a viable alternative to liquidation. Accordingly, as jurisdictions such as Germany continue to refine the insolvency laws that govern foreign entities operating in their jurisdictions, the need for non-U.S. debtors to avail themselves of Bankruptcy Code protection may be alleviated.


1. Jonathan D. Canfield and Meryl L. Rothchild are associates in the Financial Restructuring group at Stroock & Stroock & Lavan LLP, and Thomas J. Shiah is a Law School Graduate, awaiting admission, in the Financial Restructuring group at Stroock & Stroock & Lavan LLP.  The opinions expressed in this article are solely those of the authors, are subject to change, and do not necessarily reflect the opinions of Stroock & Stroock & Lavan LLP or any of its clients.

2. Chapter 11 of title 11 of the United States Code.

3. 11 U.S.C. § 109(a).  Section 109(a) of the Bankruptcy Code deals with the question of jurisdiction, while 28 U.S.C. § 1408 (see infra, note 7) deals with the question of venue.

4. For example, section 305(a) of the Bankruptcy Code provides that a U.S. bankruptcy court has broad authority to dismiss or suspend bankruptcy proceedings where the interests of both creditors and the debtor would be better served by such dismissal or suspension, or where a petition under chapter 15 is granted and the purposes of chapter 15 are better served by such dismissal or suspension.  11 U.S.C. § 305(a).

5. U.S. bankruptcy courts have a history of using nominal domestic property to assert jurisdiction over foreign entities.  See In re Global Ocean Carriers, Ltd., 251 B.R. 31, 37-40 (Bankr. D. Del. 2000) (stating that funds in U.S.-based bank accounts and retainer fees held in escrow in the U.S. on behalf of debtors were each property of the debtor sufficient to meet the eligibility requirements of section 109 of the Bankruptcy Code);  In re Globo Comunicacoes e Participacoes S.A., 317 B.R. 235, 249 (Bankr. S.D.N.Y. 2004) (“For a foreign corporation to qualify as a debtor under Section 109, courts have required only nominal amounts of property to be located in the United States, and have noted that there is ‘virtually no formal barrier’ to having federal courts adjudicate foreign debtors’ bankruptcy proceedings.”) (quoting In re Aerovias Nacionales de Colombia S.A. (In re Aviance), 303 B.R. 1, 9 (Bankr. S.D.N.Y. 2003); In re McTague, 198 B.R. 428, 431-32 (Bankr. W.D.N.Y. 1996) (noting that “Congress has elected in § 109(a) not to use a phrase like ‘property that is of consequential value.’”).  But see Georges Affaki, A European View on the U.S. Courts’ Approach to Cross-Border Insolvency – Lessons from Yukos, in Cross-border insolvency and conflict of jurisdictions 13, 13 (Georges Affaki, ed., 2007) (taking the position that the “extensive and extraterritorial jurisdiction over non-U.S. debtors and their assets located both in the U.S. and abroad” is not always desirable.).

6. Decl. of Remco de Jong, Chief Exec. Officer of Almatis B.V., in Support of the Debtors’ Chapter 11 Petitions and First Day Motions and in Accordance with Local Rule 1007-2 ¶¶ 7, 11, In re Almatis B.V., et al., No. 10-12308 (MG) (Bankr. S.D.N.Y. Apr. 30, 2010), ECF No. 3.

7. While the SDNY Court does not discuss under what circumstances venue was proper in the Southern District of New York, for the Almatis debtors, it is likely that the lead debtor’s (Almatis B.V.) New York bank account with Commerzbank NY containing $47,260.00 qualified as a “principal asset” sufficient to satisfy the Bankruptcy Code’s venue requirements.  See Amended Schedules of Assets and Liabilities and Statements of Fin. Affairs, 17, In re Almatis B.V., et al., No. 10-12308 (MG) (Bankr. S.D.N.Y. Sept. 15, 2010), ECF No. 417 (describing Almatis B.V.’s U.S. bank account); see also 28 U.S.C. § 1408 (stating in relevant part that: “a case under title 11 may be commenced in the district court for the district – (1) in which the domicile, residence, principal place of business in the United States, or principal assets in the United States . . . have been located . . . or (2) in which there is a pending case under title 11 concerning such person’s affiliate, general partner, or partnership.”).  Importantly, once the propriety of Almatis B.V.’s venue was established in New York, and assuming the U.S. had proper jurisdiction over all of the Almatis debtors, all of the other Almatis debtors could properly establish venue in New York by relying on their status as affiliates of Almatis B.V.  See id.

8. The U.S.-based plants were located in Georgia, Arkansas, and Pennsylvania, respectively.  Decl. of Remco de Jong, supra note 6, ¶ 11 n.3.

9. In general terms, Remco de Jong, CEO of Almatis stated:

Each of the Debtors is subject to the Bankruptcy Court’s jurisdiction because each has property located within the U.S.  Significantly, virtually all of the lenders under the Prepetition Credit Facilities as well as [Dubai International Capital LLC] have significant contacts in the U.S. which will enable the orders of the Bankruptcy Court to be enforced against such parties in the U.S.  All Senior Lenders that have executed the [plan support agreement], including the funds managed by Oaktree, and each member of the Senior Coordinating Committee, have indicated that they will support the Plan, and commencement of the Chapter 11 Cases to obtain its confirmation. 

Id. 60.

10. Id. ¶ 51.

11. Id.

12. Id. ¶ 59.

13. Transcript of Motion of the Royal Bank of Scotland PLC Pursuant to 11 U.S.C. §§ 105(a), 362(d), and 1112(b) for Entry of Order (I)(A) Suspending Chapter 11 Cases or Granting Relief from the Automatic Stay and (B) Dismissing Chapter 11 Cases, or Alternatively, (II) Dismissing Chapter 11 Cases or Granting Relief from the Automatic Stay Motion for Entry of Interim and Final Orders (I) Authorizing the Debtors to Obtain Post-Petition Financing, (II) Granting Adequate Protection, (III) Scheduling a Final Hearing and (IV) Granting Related Relief at 481:5-82:16, In re Marco Polo Seatrade B.V., No. 11-13634 (Bankr. S.D.N.Y. Oct. 21, 2011) (hereinafter “Transcript”).

14. Motion of the Royal Bank of Scotland PLC Pursuant to 11 U.S.C §§ 105(a), 362(d), and 1112(b) for Entry of Order (I)(A) Suspending Chapter 11 Cases or Granting Relief from the Automatic Stay and (B) Dismissing Chapter 11 cases, or Alternatively, (II) Dismissing Chapter 11 Cases or Granting Relief from the Automatic Stay at 2, In re Marco Polo Seatrade B.V., No. 11-13634 (Bankr. S.D.N.Y. Sept. 12, 2011).

15. Post-Hearing Brief of the Royal Bank of Scotland PLC in Support of its Motion for Entry of Order (I)(A) Suspending Chapter 11 Cases or Granting Relief from the Automatic Stay and (B) Dismissing Chapter 11 Cases, or Alternatively, (II) Dismissing Chapter 11 Cases or Granting Relief from the Automatic Stay at 4, In re Marco Polo Seatrade B.V., No. 11-13634 (Bankr. S.D.N.Y. Oct. 19, 2011) (hereinafter “RBS Brief”).

16. Post-Trial Brief of Debtors and Debtors in Possession at 3, 5, In re Marco Polo Seatrade B.V., No. 11-13634 (Bankr. S.D.N.Y. Oct. 19, 2011).

17. See generally id. at 2-9.

18. Transcript, at 488:13-14.  While the bar may be low, the court did not accept, for purposes of establishing jurisdiction, that ship radio licenses issued by the Liberian office in the U.S. were not property of MPS in the U.S.  Further, the court refused to find that MPS’s relationship with the manager of the pooled account created an agency relationship under which MPS did business in the U.S.  See Transcript, at 487:16-88:3.

19. Transcript, at 488:15-17.

20. Id. at 427:2-10.

21. Id. at 428:11-17.

22. Id. at 491:12-15

23. 11 U.S.C. § 1112(b)(4).  Although the Court expressed some doubt as to whether MPS could rehabilitate and “turn itself around . . . deal effectively with its lenders . . . propose a confirmable plan, and . . . get out of bankruptcy in one piece,” it noted that MPS needed at least some amount of time to attempt a reorganization.  See Transcript, at 493:18-94:1.

24. Id. at 494:2-4.

25. Transcript, at 491:2-5.

26. See id. at 491:3-5.  The court stated that it was “satisfied that the debtors, at the time that they made the decision to commence Chapter 11 cases . . . after consultation with counsel, came to the conclusion that there were contacts with the United States beyond the payment of a retainer . . . that would qualify for purposes of the 109 test.”  Id. at 491:6-15.

27. 11 U.S.C. § 305(a)(1).

28. RBS Brief, at 13-14.

29. Transcript, at 494:5-12.

30. See RBS Brief, at 13 (“The Debtor’s unsecured creditors hold no more than 15% of the Debtors’ outstanding debt (as much as $38 million of at least $250 million outstanding.”).


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