Third-Party Releases Through Chapter 15—Loophole Or Comity?

Recent filings suggest that companies are leveraging recognition proceedings under Chapter 15 of the U.S. Bankruptcy Code to obtain relief they couldn't achieve under foreign or U.S. bankruptcy law alone. Noteworthy decisions highlight a judicial openness—grounded in comity—to recognize foreign proceedings in the U.S. that include third-party releases. Japanese companies eyeing this path should weigh the potential benefits against the risks of perceived abuse.

1. An Overview of Chapter 15 Proceedings

Chapter 15 facilitates cross-border insolvency cases by allowing foreign debtors to access U.S. bankruptcy protections through recognition of foreign proceedings.¹ They are not standalone proceedings, but rather ancillary to foreign proceedings that enable U.S. courts to enforce foreign court orders and extend protections under U.S. bankruptcy or other law such as the automatic stay.²