The New Chapter 15 of the Bankruptcy Code: A Step toward Erosion of National Sovereignty

Northwestern Journal of International Law & Business The N ew Chapter 15 of the Bankruptcy Code: A Step toward Erosion of National Sovereignty John J. Chung 0 1 0 Thi s Article is brought to you for free and open access by Northwestern University School of Law Scholarly Commons. It has been accepted for inclusion in Northwestern Journal of International Law & Business by an authorized administrator of Northwestern University School of Law Scholarly Commons 1 Roger Williams University School of Law Follow this and additional works at: http://scholarlycommons.law.northwestern.edu/njilb Part of the Bankruptcy Law Commons, and the International Law Commons Recommended Citation - The New Chapter 15 of the Bankruptcy Code: A Step Toward Erosion of National Sovereignty I. INTRODUCTION The reform of the Bankruptcy Code, pursuant to the enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (the "Act"), has attracted much attention due to the dramatic reform of bankruptcy law relating to individual debtors under Chapters 7 and 13. Much less attention has been paid to the landmark introduction of the new Chapter 15 under the Act. Chapter 15 governs transnational bankruptcies. It applies in every bankruptcy of a multinational corporation that is an American corporation or a foreign corporation with assets or operations in the United States. According to its proponents, this new structure was long overdue in light of the increasingly global nature of economic activity and the reach of multinational companies. The push for internationalization has been provided by a group of international legal scholars, judges and lawyers, whose efforts were instrumental to the enactment of Chapter 15. They describe Chapter 15 as a means to promote global economic activity and growth and a needed device to enable different courts around the world to communicate and cooperate with each other in the administration of a bankrupt estate with assets and creditors in different countries. Such admirable goals are difficult to quibble with, and Congress enacted Chapter 15 in the spirit of economic growth and global cooperation. 'Associate Professor, Roger Williams University School of Law; B.A. 1982, Washington University (St. Louis); J.D. 1985, Harvard Law School. The author was a long-time resident of Geneva, Switzerland, where this article was written. The author wishes to thank Fred Tung for his generosity in sharing his thoughts. The author also wishes to thank Lynn LoPucki for his thoughts and comments on an earlier draft, which were invaluable in refining the analysis. This article would not have been possible without the foundation of Professor LoPucki's scholarship. Any error is, of course, mine. 27:89 (2006) At first glance, Chapter 15 seems harmless enough, with its emphasis on international cooperation and communication. Few would object to such benign goals. The reality, however, is that Chapter 15 is more than a device to promote cooperation. In their most restrained interpretation, its backers view it as a vehicle to push the United States toward a universalist approach to transnational bankruptcies. So what. is this universalism? Universalism, in short, is about one court in one country taking control of a multinational bankruptcy and applying its domestic bankruptcy law to all of the debtor's assets and creditors worldwide. Chapter 15 moves in that direction by, among other things, requiring an American court to defer to the jurisdiction of a foreign bankruptcy proceeding under certain circumstances. So what is wrong with universalism? Its supporters claim that it is an inevitable and desirable outgrowth of and catalyst to global economic growth. However, at its heart, universalism is about the displacement of national law in favor of foreign law. The intended effect and ultimate goal is to remove entire classes of people and transactions from the protection of their national law and subject them to foreign law. Under universalism, an American citizen whose transactions are exclusively within the United States will be forced into a foreign court applying foreign law in the event of bankruptcy by a foreign counterparty-even if the parties expected local law to apply. Moreover, universalism's claimed benefits are largely hypothetical, abstract, and unproven. Its proponents promise overall economic gains and efficiencies, but there is little proof that such benefits are actually generated. In contrast, the economic harms are much more certain. Even if one assumes arguendo that it does generate benefits, the question needs to be asked: benefits for whom? Like the benefits, the beneficiaries are hypothetical, but the injured parties are real and easily identifiable. For those whose expertise and interests lie outside of bankruptcy law, it may seem that the debate surrounding Chapter 15 involves arcane and highly technical issues of interest only to bankruptcy professionals. Actually, the debate (...truncated)