Bankruptcy Jurisdiction Over Foreign Entities: Exorbitant or Congruent?

As Oscar Couwenberg and Stephen Lubben have demonstrated, foreign firms commonly file bankruptcy in the US in order to take advantage of Chapter 11 of the Bankruptcy Code. But critics outside the US tend to balk at the ease with which debtors can engineer global US bankruptcy jurisdiction by taking advantage of the Bankruptcy Code’s low bar to entry and the worldwide effects of a US bankruptcy case. Critics complain, in particular, that the formal structure of US eligibility and jurisdictional rules promote abusive bankruptcy forum shopping and harmful imposition of US norms on non-US stakeholders: cases with only slim connections to the US that have asymmetric and potentially far reaching effects.

My recent paper advances a revised account of US bankruptcy jurisdiction over non-US debtors from a distinctively Anglo-American standpoint. The paper’s central thesis is that critics overemphasize formal jurisdictional rules and pay insufficient attention to how US courts actually exercise jurisdiction in practice. It compares the formal law ‘on the books’ in the US and UK for determining whether or not a domestic insolvency or restructuring proceeding relating to a foreign debtor can be maintained in each jurisdiction and provides a functional account of how US bankruptcy jurisdiction over foreign entities is exercised in practice, using the concept of jurisdictional congruence as a benchmark. It does not deny the inconvenience that the worldwide stay may cause to stakeholders susceptible to US personal jurisdiction. However, it shows that US courts generally seek to exercise jurisdiction with careful regard to practical enforcement constraints. And while American and British approaches to abusive forum shopping are on different legal cultural paths, the paper also identifies reasons for thinking that they are trending towards rough functional equivalence influenced, at least in part, by the US’s commitment to the UNCITRAL Model Law through Chapter 15 of the Bankruptcy Code.

In sum, the paper lays foundations for further critical reflection on the roles that judges, practitioners and the ‘centre of main interests’ standard play in configuring the market for international bankruptcy case filings and in facilitating and regulating forum shopping in that market. Through the lens of legal development, it also presents some practical and policy challenges for universalism, international insolvency law’s influential theory.

Adrian Walters is Ralph L. Brill Professor of Law and Director of the Program in Business Law at Chicago-Kent College of Law, Illinois Institute of Technology, and a member of the Centre for Business and Insolvency Law at Nottingham Law School, Nottingham Trent University.