By Daniel M. Glosband, Goodwin Procter LLP, and Jay Lawrence Westbrook, The University of Texas School of Law
In a recent case, In re Barnet, 737 F. 3d 238 (2d Cir. 2013), the Court held that section 109(a) of the Bankruptcy Code bars a foreign bankruptcy proceeding from recognition under Chapter 15 unless the debtor in the foreign proceeding also has a presence in the United States. The Court professed to use a plain meaning rule, but its plain meaning approach and its conclusion that section 109(a) applied to recognition were inappropriate for several reasons:
1) since the term “debtor” is defined differently in Chapter 15 than in section 101(13), it cannot have a “plain” meaning for Chapter 15 purposes;
2) while it is plain that section 103(a) applies Chapter 1 to Chapter 15, the way in which section 109(a) functions in relation to Chapter 15 is not straightforward and requires a structural analysis that the Court sidestepped; and
3) the Congressional mandate in section 1508—which requires that, in interpreting Chapter 15, courts shall consider its international origin and the need to promote an application that is consistent with the needs of international insolvency practice—requires flexibility, not rigid literalism.
Section 109(a) should not apply to recognition of a foreign proceeding. The Barnet decision represents a stubborn adherence to literal statutory interpretation when the statutory provisions at issue prima facie were not susceptible to literal interpretation and when Congress instructed courts to look beyond the statute for guidance in harmonizing Chapter 15 with the Model Law.
This is a brief summary of a much longer article forthcoming in the International Insolvency Review. For the full article see here. Copyright © 2015 INSOL International and John Wiley & Sons, Ltd.