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101
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Sec.
704. Rate of Interest on Tax
Claims. Under current law, there is no uniform rate of interest
applicable to tax claims.
As a result, varying standards have been used to determine the applicable
rate. Section 704 of the Act
amends the Bankruptcy Code to add section
511 for the purpose of simplifying
the interest rate calculation. It provides that for all tax
claims (federal,
state, and local), including administrative expense taxes, the interest
rate shall be determined in accordance with applicable nonbankruptcy law.
With respect to taxes paid under a confirmed plan, the rate of interest
is determined as of the calendar month in which the plan is confirmed.
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Sec.
705. Priority of Tax Claims.
Under current law, a tax
claim is entitled
to be treated as a priority
claim if it arises
within certain specified time periods. In the case of income taxes, a priority
arises, among other time periods, if the tax return was due within three
years of the filing of the bankruptcy
petition or if the
assessment of the tax was made within 240 days of the filing of the
petition. The 240-day
period is tolled during the time that an offer in compromise is pending
(plus 30 days). Though the statute is silent, the Supreme Court in Young
v. United States, 535 U.S. 93 (2002) held that the three-year period
is tolled during the pendency of a previous bankruptcy case. Section
705 amends section
507(a)(8) of the
Bankruptcy
Code to codify the rule tolling priority periods during the pendency of
a previous bankruptcy case during that three-year or 240-day period together
with an additional 90 days. It also
includes tolling
provisions to adjust for the collection due process rights provided by the
Internal Revenue Service Restructuring and Reform Act of 1998. During any
period in which the government is prohibited from collecting a tax as a
result of a request by the
debtor for a hearing
and an appeal of any collection action taken against the
debtor, the priority
is tolled, plus 90 days. Also, during any time in which there was a stay
of proceedings in a prior bankruptcy case or collection of an income tax
was precluded by a confirmed bankruptcy plan, the priority is tolled, plus
90 days.
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Sec.
706. Priority Property Taxes
Incurred. Under current law, many provisions of the
Bankruptcy Code
are keyed to the word "assessed." While this term has an accepted meaning
in the Federal system, it is not used in many state and local statutes and
has created some confusion. To eliminate this problem with respect to real
property taxes, section 706 amends
section 507(a)(8)(B) of
the Bankruptcy Code by replacing the word "assessed" with "incurred."
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Sec.
707. No Discharge of Fraudulent
Taxes in Chapter 13.
Under current law, a
debtor's ability to discharge tax debts varies depending on whether
the debtor is in
chapter 7 or chapter
13. In a chapter
7 case, taxes that are not dischargeable
include taxes from a return due within three years of the
petition date, taxes
assessed within 240 days, or taxes related to an unfiled return or false
return. Chapter 13, on the
other hand, allows these obligations to be discharged. Section
707 of the Act amends
Bankruptcy
Code section 1328(a)(2)
to prohibit the discharge of tax
claims described
in section 523(a)(1)(B)
and (C) as well as
claims for a tax
required to be collected or withheld and for which the
debtor is liable
in whatever capacity pursuant to section
507(a)(8)(C).
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102
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Sec.
708. No Discharge of Fraudulent
Taxes in Chapter 11. Under current law, the confirmation of a chapter
11 plan discharges a corporate
debtor from most
debts. Section 708 amends section
1141(d) of the
Bankruptcy
Code to except from discharge in a corporate chapter
11 case a
debt specified in
subsections 523(a)(2)(A)
or (B) of the
Bankruptcy
Code owed to a domestic
governmental unit.
In addition, it excepts from discharge a
debt owed to a
person as the result
of an action filed under subchapter III of chapter 37 of title 31 of the
United States Code or any similar state statute. Section
708 excepts from discharge a
debt for a tax or
customs duty with respect to which the
debtor made a fraudulent
tax return or willfully attempted in any manner to evade or defeat such
tax.
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Sec.
709. Stay of Tax Proceedings
Limited to Prepetition Taxes. Under current law, the filing of a
petition for relief
under the Bankruptcy Code activates an automatic stay that enjoins the commencement
or continuation of a case in the United States Tax Court. This rule was
arguably extended in Halpern v. Commissioner,
100
which held that the tax court did not have jurisdiction to hear a case involving
a postpetition year. To address this issue, section
709 of the Act amends section
362(a)(8) of the
Bankruptcy
Code to specify that the automatic stay is limited to an individual
debtor's prepetition
taxes (taxes incurred before entering bankruptcy). The amendment clarifies
that the automatic stay does not apply to an individual
debtor's postpetition
taxes. In addition, section 709
provides that the stay applies to both prepetition and postpetition tax
liabilities of a corporation
so long as it is a liability that the bankruptcy court may determine.
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Sec.
710. Periodic Payment of Taxes
in Chapter 11 Cases. Section
710 of the Act amends section
1129(a)(9) of the
Bankruptcy
Code to provide that the allowed amount of priority tax
claims (as of the
plan's effective date) must be paid in regular cash installments within
five years from the entry of the
order for relief.
The manner of payment
may not be less favorable than that accorded the most favored nonpriority
unsecured claim provided
for by the plan (other than cash payments made to a class of
creditors under
section 1122(b)). In addition,
it requires the same payment treatment to be accorded to a secured
claim that would
otherwise meet the description of an unsecured
claim under section
507(a)(8).
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Sec.
711. Avoidance of Statutory Liens
Prohibited. The Internal Revenue Code gives special protections
to certain purchasers
of securities and motor vehicles notwithstanding the existence of a filed
tax statutory lien.
Section 711 of the Act amends
section 545(2) of the
Bankruptcy
Code to prevent that provision's special protections from being used to
avoid an otherwise valid
statutory lien.
Specifically, it prevents the avoidance of unperfected
liens against a
bona fide purchaser,
if the purchaser
qualifies as such under section 6323
of the Internal Revenue Code or a similar provision under state or local
law.
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Sec.
712. Payment of Taxes in the
Conduct of Business. Although current law generally requires trustees
and receivers to pay taxes in the ordinary course of the
debtor's business,
the payment of administrative expenses must first be authorized by the court.
Section 712(a) of the Act amends
section 960 of title
28 of the United
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100.
96 T.C. 895 (1991). •
103
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States Code
to clarify that postpetition taxes in the ordinary course of business must
be paid on or before when such tax is due under applicable nonbankruptcy
law, with certain exceptions. This requirement does not apply if the obligation
is a property tax secured by a
statutory lien against
property that is abandoned under section
554 within a reasonable time
after the statutory
lien attaches. In addition, the requirement does not pertain where the
payment is excused under the Bankruptcy Code. With respect to chapter
7 cases, section
712(a) provides that the payment
of a tax claim may
be deferred until final distribution pursuant to section
726 if the tax was not incurred
by a chapter 7 trustee or if
the court, prior to the due date of the tax, finds that the estate has insufficient
funds to pay all administrative expenses in full. Section
712(b) amends section
503(b)(1)(B)(i) of the
Bankruptcy Code to clarify that this provision applies to secured as well
as unsecured tax claims,
including property taxes based on liability that is in rem, in personam
or both. Section 712(c) amends
section 503(b)(1) to exempt
a governmental unit
from the requirement to file a request for payment of an administrative
expense. Section 712(d)(1)
amends section 506(b) to
provide that to the extent that an allowed
claim is oversecured,
the holder is entitled to interest and any reasonable fees, costs, or charges
provided for under state law. Section
712(d)(2), in turn, amends
section 506(c) to permit
a trustee to recover from a secured
creditor the payment
of all ad valorem property taxes.
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Sec.
713. Tardily Filed Priority Tax
Claims. Section 713 of
the Act amends section 726(a)(1)
of the Bankruptcy Code to require a
claim under section
507 that is not timely filed
pursuant to section 501 to
be entitled to a distribution if such
claim is filed the
earlier of the date that is ten days following the mailing to
creditors of the
summary of the trustee's final report or before the trustee commences final
distribution.
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Sec.
714. Income Tax Returns Prepared
by Tax Authorities. Section
714 of the Act amends section
523(a) of the
Bankruptcy
Code to provide that a return prepared pursuant to section
6020(a) of the Internal Revenue
Code, or similar State or local law, constitutes filing a return (and the
debt can be discharged),
but that a return filed on behalf of a taxpayer pursuant to section
6020(b) of the Internal Revenue
Code, or similar State or local law, does not constitute filing a return
(and the debt cannot
be discharged).
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Sec.
715. Discharge of the Estate's
Liability for Unpaid Taxes. Under the Bankruptcy Code, a trustee
or debtor in possession
may request a prompt audit to determine postpetition tax liabilities incurred
by the bankruptcy estate. If the government does not make a determination
or request an extension of time to audit, then the trustee or
debtor in possession
is discharged from any such tax liability. Several court cases have held
that while this protects the
debtor and the trustee,
it does not necessarily protect the estate. Section
715 of the Act amends section
505(b) of the
Bankruptcy
Code to clarify that the estate is also protected if the government does
not make a determination or request an extension of time to audit the
debtor's tax returns.
Therefore, if the government does not make a determination of postpetition
tax liabilities or request extension of time to audit, then the estate's
liability for unpaid taxes is discharged.
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104
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Sec.
716. Requirement to File Tax
Returns to Confirm Chapter 13 Plans. Under current law, a
debtor may enjoy
the benefits of chapter 13 even if delinquent in the filing of tax returns. Section
716 of the Act responds to this
problem. Subsection (a) amends
section 1325(a) of the
Bankruptcy Code to require a chapter
13
debtor to file all
applicable Federal, state, and local tax returns as a condition of confirmation
as required by section 1308
(as added by section 716(b)).
Section 716(b) adds section
1308 to chapter
13 to require a chapter
13
debtor to be current
on the filing of tax returns for the four-year period preceding the filing
of the case. If the returns are not filed by the date on which the meeting
of creditors is
first scheduled, the trustee may hold open that meeting for a reasonable
period of time to allow the
debtor to file any
unfiled returns. The additional period of time
may not extend beyond
120 days after the date of the meeting of the
creditors or beyond
the date on which the return is due under the last automatic extension of
time for filing. The
debtor, however, may obtain an extension of time from the court if the
debtor demonstrates
by a preponderance of the evidence that the failure to file was attributable
to circumstances beyond the
debtor's control.
Section 716(c) amends section
1307 of the
Bankruptcy Code
to provide that if a chapter 13 debtor fails to
file a tax return as required by section
1308, the court must dismiss
the case or convert it to one under chapter
7 (whichever is in the best
interests of creditors
and the estate) on request of a party in interest or the United States trustee
after notice and a hearing.
Section 716(d) amends section
502(b)(9) of the
Bankruptcy
Code to provide that in a chapter
13 case, a
governmental unit's
tax claim based on
a return filed under section 1308 shall be deemed to be timely filed if the
claim is filed within
60 days from the date on which such return is filed. Section
716(e) states the sense of
the Congress that the Judicial Conference of the United States should propose
for adoption official rules with respect an objection by a
governmental unit
to confirmation of a chapter 13 plan when such claim
pertains to a tax return filed pursuant to section
1308.
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Sec.
717. Standards for Tax Disclosure.
Before creditors
and stockholders may be solicited to vote on a chapter
11 plan, the plan proponent
must file a disclosure statement that provides adequate information to holders
of claims and interests
so they can make a decision as to whether or not to vote in favor of the
plan. As the tax consequences of a plan can have a significant impact on
the debtor's reorganization
prospects, section 717 amends
section 1125(a) of the
Bankruptcy Code to require that a chapter
11 disclosure statement discuss
the plan's potential material Federal tax consequences to the
debtor, any successor
to the debtor, and
to a hypothetical investor that is representative of the claimants and interest
holders in the case.
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Sec.
718. Setoff of Tax Refunds.
Under current law, the filing of a bankruptcy
petition automatically
stays the setoff of a prepetition tax refund against a prepetition tax obligation
unless the bankruptcy court approves the setoff. Interest and penalties
that may continue to accrue may also be nondischargeable pursuant to section
523(a)(1) of the
Bankruptcy
Code and cause individual debtors undue hardship. Section
718 of the Act amends section
362(b) of
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105
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the
Bankruptcy
Code to create an exception to the automatic stay whereby such setoff could
occur without court order unless it would not be permitted under applicable
nonbankruptcy law because of a pending action to determine the amount or
legality of the tax liability. In that circumstance, the governmental authority
may hold the refund pending resolution of the action, unless the court,
on motion of the trustee and
after notice and a hearing,
grants the taxing authority adequate protection pursuant to section
361.
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Sec.
719. Special Provisions
Related to the Treatment of State and Local Taxes. Section
719 of the Act conforms state
and local income tax administrative issues to the Internal Revenue Code.
For example, under Federal law, a bankruptcy petitioner filing on March
5 has two tax years (January 1 to March 4, and March 5 to December 31).
Under the Bankruptcy Code, however, state and local tax years are divided
differently (January 1 to March 5, and March 6 to December 31). Section
719 requires the states to follow
the Federal convention. It conforms state and local tax administration to
the Internal Revenue Code in the following areas: division of tax liabilities
and responsibilities between the estate and the
debtor, tax consequences
with respect to partnerships and
transfers of property,
and the taxable period of a
debtor. Section
719 does not conform state and
local tax rates to Federal tax rates.
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Sec.
720. Dismissal for Failure to
Timely File Tax Returns. Under existing law, there is no definitive
rule with respect to whether a bankruptcy court may dismiss a bankruptcy
case if the debtor
fails to file returns for taxes incurred postpetition. Section
720 of the Act amends section
521 of the
Bankruptcy
Code to allow a taxing authority to request that the court dismiss or convert
a bankruptcy case if the
debtor fails to
file a postpetition tax return or obtain an extension. If the
debtor does not
file the required return or obtain the extension within 90 days from the
time of the request by the taxing authority to file the return, the court
must convert or dismiss the case, whichever is in the best interest of
creditors and the
estate.
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TITLE VIII. ANCILLARY
AND
OTHER CROSS-BORDER CASES
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Title VIII
of the Act adds a new chapter to the Bankruptcy Code for transnational bankruptcy
cases. It incorporates the Model Law on Cross-Border Insolvency to encourage
cooperation between the United States and foreign countries with respect
to transnational insolvency cases. Title VIII is intended to provide greater
legal certainty for trade and investment as well as to provide for the fair
and efficient administration of cross-border insolvencies, which protects
the interests of creditors
and other interested parties, including the
debtor. In addition,
it serves to protect and maximize the value of the
debtor's assets.
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Sec.
801. Amendment to Add Chapter
15 to Title 11, United States Code. Section
801 introduces chapter
15 to the
Bankruptcy Code,
which is the Model Law on Cross-Border Insolvency ("Model Law") promulgated
by the United Nations Commission on International Trade Law ("UNCITRAL")
at its Thirtieth Session on May 12-30,
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106
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1997.
101
Cases brought under chapter 15
are intended to be ancillary to cases brought in a
debtor's home country,
unless a full United States bankruptcy case is brought under another chapter.
Even if a full case is brought, the court may decide under section
305 to stay or dismiss the
United States case
under the other chapter and limit the United States' role to an ancillary
case under this chapter.
102
If the full case is not dismissed, it will be subject to the provisions
of this chapter governing cooperation, communication and coordination with
the foreign courts and
representatives. In any case, an order granting
recognition is required
as a prerequi-site to the use of sections
301 and
303 by a
foreign representative.
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Sec.
1501. Purpose and scope of application.
Section 1501 combines the
Preamble to the Model Law (subsection (1)) with its article 1 (subsec-tions
(2) and
(3)).
103
It largely tracks the language of the Model Law with appropriate United
States references. However, it adds in subsection
(3) an exclusion of certain
natural persons who may be considered ordinary consumers. Although the consumer
exclusion is not in the text of the Model Law, the discussions at UNCITRAL
recognized that such exclusion would be necessary in countries like the
United States where
there are special provisions for consumer debtors in the insolvency laws.
104
The reference to section 109(e)
essentially defines "consumer debtors" for purposes of the exclusion by
incorporating the debt
limitations of that section, but not its requirement of regular income.
The exclusion adds a requirement that the
debtor or
debtor couple be citizens
or long-term legal residents of the
United States. This
ensures that residents of other countries will not be able to manipulate
this exclusion to avoid recognition
of foreign proceedings
in their home countries or elsewhere.
The first exclusion in subsection
(c) constitutes, for the
United States, the exclusion provided in article 1, subsection (2), of the
Model Law. 105
Foreign representatives
of foreign proceedings
which are excluded from the scope of chapter
15 may seek comity from courts
other than the bankruptcy court since the limitations of section
1509(b)(2) and
(3) would not apply to
them.
The reference to section 109(b)
interpolates into chapter 15
the entities governed by specialized insolvency regimes under United States
law which are currently excluded from liquidation proceedings under title
11. Section 1501 contains
an exception to the section 109(b)
exclusions so that foreign
proceedings of foreign insurance companies are eligible for
recognition and relief
under chapter 15 as they had
been under section 304. However,
section 1501(d) has the
effect of leaving to State regulation any deposit, es-
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101.
The text of the Model Law and the Report of UNCITRAL on its adoption are
found at U.N. G.A., 52d Sess., Supp. No. 17 (A/52/17) ("Report"). That Report
and the Guide to Enactment of the UNCITRAL Model Law on Cross-Border Insolvency,
U.N. Gen. Ass., UNCITRAL 30th Sess. U.N. Doc. A/CN.9/442 (1997) ("Guide"),
which was discussed in the negotiations leading to the Model Law and published
by UNCITRAL as an aid to enacting countries, should be consulted for guidance
as to the meaning and purpose of its provisions. The development of the
provisions in the negotiations at UNCITRAL, in which the United States was
an active participant, is recounted in the interim reports of the Working
Group that are cited in the Report.
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102.
See section 1529 and
commentary. •
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103.
Guide at 16-19. •
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104.
See id. at 18, ¶60; 19 ¶66. •
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105.
Id. at 17. •
107
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crow, trust
fund or the like posted by a foreign insurer under State law.
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Sec.
1502. Definitions. "Debtor"
is given a special definition for this chapter. This definition does not
come from the Model Law, but is necessary to eliminate the need to refer
repeatedly to "the same debtor
as in the foreign proceeding."
With certain exceptions, the term "person" used in the Model Law has been
replaced with "entity,"
which is defined broadly in section
101(15) to include
natural persons and various legal entities, thus matching the intended breadth
of the term "person" in the Model Law. The exceptions include contexts in
which a natural person is intended and those in which the Model Law language
already refers to both persons and entities other than persons. The definition
of "trustee" for this chapter
ensures that debtors in
possession and debtors,
as well as trustees, are included in the term.
106
The definition of "within the
territorial jurisdiction of the United States" in subsection
(7) is not taken from the
Model Law. It has been added because the United States, like some other
countries, asserts insolvency jurisdiction over property outside its territorial
limits under appropriate circumstances. Thus a limiting phrase is useful
where the Model Law and this chapter intend to refer only to property within
the territory of the enacting state. In addition, a definition of "recognition"
supplements the Model Law definitions and merely simplifies drafting of
various other sections of chapter
15.
Two key definitions of "foreign
proceeding" and "foreign
representative," are found in sections
101(23) and
(24), which have
been amended consistent with Model Law article 2.
107
The definitions of "establishment,"
"foreign court," "foreign
main proceeding," and "foreign
non-main proceeding" have been taken from Model Law article 2, with
only minor language variations necessary to comport with United States terminology.
Additionally, defined terms have been placed in alphabetical order.
108
In order to be recognized as a
foreign non-main proceeding,
the debtor must at least
have an establishment in
that foreign country. 109
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Sec.
1503. International obligations
of the United States. This section is taken exactly from the Model
Law with only minor adaptations of terminology.
110
Although this section makes an international obligation prevail over chapter
15, the courts will attempt
to read the Model Law and the international obligation so as not to conflict,
especially if the inter-national obligation addresses a subject matter less
directly related than the Model Law to a case before the court.
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Sec.
1504. Commencement of ancillary
case. Article 4 of the Model Law is designed for designation of
the competent court which will exercise jurisdiction under the Model Law.
In United States law, section
1334(a) of title
28 gives exclusive jurisdiction
to the district
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106.
See section 1505.
•
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107.
Guide at 19-21, 67-68. •
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108.
See Guide at 19, (Model Law) 21 75 (concerning
establishment); 21 74 (concerning
foreign court); 21 72,
73 and 75 (concerning foreign main and non-main proceedings).
•
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109.
See id. at 21, 75. •
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110.
See id. at 22, Art. 3. •
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108
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courts in
a "case" under this title.
111
Therefore, since the competent court has been determined in title
28, this section instead
provides that a petition for
recognition commences a
"case," an approach that also invokes a number of other useful procedural
provisions. In addition, a new subsection
(P)
to section 157 of title
28 makes cases under this
chapter part of the core jurisdiction of bankruptcy courts if referred by
the district courts, thus completing the designation of the competent court.
Finally, the particular bankruptcy court that will rule on the petition
is determined pursuant to a revised section
1410 of title
28 governing venue and transfer.
112
The title
"ancillary" in the title of this section and in the title of this chapter
emphasizes the United States policy in favor of a general rule that countries
other than the home country of the
debtor, where a main proceeding
would be brought, should usually act through ancillary proceedings in aid
of the main proceedings, in preference to a system of full bankruptcies
(often called "secondary" proceedings) in each state where assets are found.
Under the Model Law, notwithstanding the
recognition of a
foreign main proceeding,
full bankruptcy cases are permitted in each country (see sections
1528 and
1529). In the
United States, the
court will have the power to suspend or dismiss such cases where appropriate
under section 305.
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Sec.
1505. Authorization to act in
a foreign country. The language in this section varies from the
wording of article 5 of the Model Law as necessary to comport with United
States law and terminology. The slight alteration to the language in the
last sentence is meant to emphasize that the identification of the
trustee or other
entity entitled
to act is under United States law, while the scope of actions that may be
taken by the trustee or
other entity under
foreign law is limited by the foreign law.
113
The related
amendment to section 586(a)(3)
of title 28 makes acting
pursuant to authorization under this section an additional power of a
trustee or
debtor in possession. While
the Model Law automatically authorizes an administrator to act abroad, this
section requires all trustees
and debtors to obtain court
approval before acting abroad. That requirement is a change from the language
of the Model Law, but one that is purely internal to United States law.
114
Its main purpose is to ensure that the court has knowledge and control of
possibly expensive activities, but it will have the collateral benefit of
providing further assurance to
foreign courts that the
United States
debtor or representative
is under judicial authority and supervision. This requirement means that
the
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111.
See id. at 23, Art. 4. •
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112.
New section 1410 of title 28
provides as follows:
A case under chapter
15 of title 11 may be commenced
in the district court for the district——
(1) in which the
debtor has its principal
place of business or principal assets in the
United States;
(2) if the
debtor does not have a
place of business or assets in the
United States, in
which there is pending against the
debtor an action or proceeding
or enforcement of judgment in a Federal or State court; or
(3) in a case other than those
specified in paragraph (1) or (2), in which venue will be consistent with
the interests of justice and the convenience of the parties having regard
to the relief sought by the
foreign representative.
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113.
See Guide at 24. •
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114.
See id. at 24, Art. 5. •
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[SIC]
So in the original. BAPCPA does not create a 28 U.S.C. § 157(P).
Probably intended to refer to 28 U.S.C. § 157(b)(2)(P).
•
109
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first-day
orders in reorganization cases should include authorization to act under
this section where appropriate.
This section
also contemplates the designation of an examiner or other natural person
to act for the estate in one or more foreign countries where appropriate.
One instance might be a case in which the designated
person had a special
expertise relevant to that assignment. Another might be where the
foreign court would be
more comfortable with a designated
person than with
an entity like a
debtor in possession. Either
are to be recognized under the Model Law.
115
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Sec.
1506. Public policy exception.
This provision follows the Model Law article 5 exactly, is standard in UNCITRAL
texts, and has been narrowly interpreted on a consistent basis in courts
around the world. The word "manifestly" in international usage restricts
the public policy exception to the most fundamental policies of the United
States. 116
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Sec.
1507. Additional assistance.
Subsection (1) follows the
language of Model Law article 7.
117
Subsection (2) makes the
authority for additional relief (beyond that permitted under sections
1519-1521,
below) subject to the conditions for relief heretofore specified in United
States law under section 304,
which is repealed. This section is intended to permit the further development
of international cooperation begun under section
304, but is not to be the
basis for denying or limiting relief otherwise available under this chapter.
The additional assistance is made conditional upon the court's consideration
of the factors set forth in the current subsection
304(c) in a context of a
reasonable balancing of interests following current case law. The references
to "estate" in section 304
have been changed to refer to the
debtor property, because
many foreign systems do not create an estate in insolvency proceedings of
the sort recognized under this chapter. Although the case law construing
section 304 makes it clear
that comity is the central consideration, its physical placement as one
of six factors in subsection
(c) of section 304 is
misleading, since those factors are essentially elements of the grounds
for granting comity. Therefore, in subsection
(2) of this section, comity
is raised to the introductory language to make it clear that it is the central
concept to be addressed.
118
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Sec.
1508. Interpretation.
This provision follows conceptually Model Law article 8 and is a standard
one in recent UNCITRAL treaties and model laws. Changes to the language
were made to express the concepts more clearly in United States vernacular.
119
Interpretation of this chapter on a uniform basis will be aided by reference
to the Guide and the Reports cited therein, which explain the reasons for
the terms used and often cite their origins as well. Uniform interpretation
will also be aided by reference to CLOUT, the UNCITRAL Case Law On Uniform
Texts, which is a service of UNCITRAL. CLOUT receives reports from national
reporters all over the world concerning court decisions interpreting treaties,
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115.
See id. at 23-24, ¶82. •
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116.
See id. at 25. •
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117.
Id. at 26. •
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118.
Id. •
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119.
Id. at 26, ¶91. •
110
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model laws,
and other text promulgated by UNCITRAL. Not only are these sources persuasive,
but they advance the crucial goal of uniformity of interpretation. To the
extent that the United States courts rely on these sources, their decisions
will more likely be regarded as persuasive elsewhere.
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Sec.
1509. Right of direct access.
This section implements the purpose of article 9 of the Model Law, enabling
a foreign representative
to commence a case under this chapter by filing a petition directly with
the court without preliminary formalities that may delay or prevent relief.
It varies the language to fit United States procedural requirements and
it imposes recognition
of the foreign proceeding
as a condition to further rights and duties of the
foreign representative.
If recognition is granted,
the foreign representative
will have full capacity under United States law (subsection
(b)(1)), may request such
relief in a state or Federal court other than the bankruptcy court (subsection
(b)(2)), and shall be granted
comity or cooperation by such non-bankruptcy court (subsection
(b)(3) and
(c)). Subsections
(b)(2),
(b)(3), and
(c) make it clear that chapter
15 is intended to be the exclusive
door to ancillary assistance to
foreign proceedings.
The goal is to concentrate control of these questions in one court. That
goal is important in a Federal system like that of the United States with
many different courts, state and federal, that may have pending actions
involving the debtor or
the debtor's property.
This section, therefore, completes for the United States the work of article
4 of the Model Law ("competent court") as well as article 9.
120
Although a petition under current section
304 is the proper method for
achieving deference by a United States court to a foreign insolvency proceeding
under present law, some cases in state and Federal courts under current
law have granted comity suspension or dismissal of cases involving
foreign proceedings
without requiring a section 304
petition or even referring to the requirements of that section. Even if
the result is correct in a particular case, the procedure is undesirable,
because there is room for abuse of comity. Parties would be free to avoid
the requirements of this chapter and the expert scrutiny of the bankruptcy
court by applying directly to a state or Federal court unfamiliar with the
statutory requirements. Such an application could be made after denial of
a petition under this chapter. This section concentrates the
recognition and deference
process in one United States court, ensures against abuse, and empowers
a court that will be fully informed of the current status of all
foreign proceedings
involving the debtor.
121
Subsection (d) has been
added to ensure that a
foreign representative
cannot seek relief in courts in the
United States after
being denied recognition
by the court under this chapter. Subsection
(e) makes activities in
the United States
by a foreign representative
subject to applicable United States law, just as 28 U.S.C. section
959 does for a domestic
trustee in bankruptcy.
122
Subsection (f) provides
a limited exception to the prior
recognition requirement
so that collection of a
claim which is property
of the debtor, for exam-
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120.
See id. at 23, Art. 4, ¶¶79-83; 27 Art. 9, ¶93.
•
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121.
See id. at 27, Art. 9; ¶¶34-35, Art. 15 and ¶¶116-119; 39-40, Art.
18, ¶¶133-134; see also sections 1515(3), 1518.
•
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122.
Id. at 27, ¶93. •
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