Chapter 15 of the U.S. Bankruptcy Code provides a streamlined process for recognition (a form of comity) of a foreign insolvency proceeding. However, courts are divided as to whether a foreign debtor must satisfy the general definition of “debtor” as that term is used in section 109(a) of the Bankruptcy Code, which requires a debtor seeking bankruptcy relief to reside or have a domicile, a place of business, or property in the United States.On February 28, 2022, the U.S. District Court for the Middle District of Florida (the “Florida District Court”) ruled that section 109(a) does not apply in chapter 15 cases.

itors (including the bondholders and unions), but was not able to reach an agreement with any of these constituencies.Given the City’s deteriorating financial condition and the Receiver’s failure to obtain concessions from key creditors, the Receiver ultimately filed a Chapter 9 petition in the Court on November 10, 2022. Before filing the Chapter 9 petition, the Receiver obtained the requisite written authorization from the Secretary. Two major objections were filed to the City’s eligibility for Chapter 9 relief, one by the City’s mayor and City Council (the “Elected Officials”), and one by bondholder Preston Hollow. The Elected Officials argued that the City lacked authority under state law to file for Chapter 9 relief, while Preston Hollow claimed that the City did not negotiate in good faith with its creditors prior to filing for bankruptcy.DISCUSSIONIn addressing these objections, the Court examined whether the City met all statutory criteria for eligibility for Chapter 9 relief. Section 109(c) of the Bankruptcy Code provides that an entity may file for Chapter 9 only if that entity (i) is a municipality, (ii) is “specifically authorized” under state law to file for Chapter 9 or the filing is made by an officer with authority to file the Chapter 9 petition, (iii) is insolvent, (iv) desires to effect a plan of adjustment, and (v) has engaged in good faith negotiations with its creditors. 11 U.S.C. § 109(c). With respect to the fifth requirement, a debtor may be excused from engaging in prepetition negotiations where such negotiations are “impracticable.” 11 U.S.C. § 109(c)(5)(C). Further, Section 921 of the Bankruptcy Code provides that a petition may be dismissed when the debtor fails to satisfy any of the criteria for eligibility or where the petition is filed in bad faith. 11 U.S.C. § 921(c).State Law Authorization (11 U.S.C. § 109(c)(2))The Elected Officials claimed that the City lacked authority to file for Chapter 9 bankruptcy because the City’s home rule charter vested all legislative power

See Batista v. Alvarenga Mendes (In re MMX Sudeste Mineração S.A.), No. 17-24038-RNS (S.D. Fla. Apr. 20, 2018).Apparently, only one court outside of the Second Circuit has relied on the Barnet ruling in a published opinion in finding that section 109(a) applies in a chapter 15 case. See In re Forge Grp. Power Pty Ltd., 2018 WL 827913, at *13 (N.D. Cal. Feb. 12, 2018) (vacating a bankruptcy court order denying chapter 15 recognition on the basis of Barnet, but noting that "the debtor eligibility requirements of 11 U.S.C. § 109(a) apply in Chapter 15 cases" and "the requirement of 'property in the United States' is satisfied by a security retainer that remains the property of the debtor until the funds are applied by the attorney for services actually rendered").It should be noted that chapter 15's predecessor—section 304 of the Bankruptcy Code—did not require a foreign debtor to qualify as a "debtor" under section 109(a) as a condition to relief.

To file bankruptcy in the U.S., a debtor must reside in, have a domicile or a place of business in, or have property in the United States. 11 U.S.C. § 109(a). In cross border chapter 15 cases, courts have considered whether a representative of a foreign debtor must satisfy that jurisdictional test.In 2013, the Second Circuit said the test must be satisfied. SeeDrawbridge Special Opportunities Fund LP v. Barnet(In re Barnet), 737 F.3d 238 (2d Cir. 2013). But earlier this month, the Eleventh Circuit said it didn’t based on case precedent in the Circuit. See Al Zawawi v. Diss (In re Al Zawawi), No. 22-110224, 2024 U.S. App. LEXIS 7955 (11th Cir. Apr. 3, 2024).In a chapter 15 case, a foreign representative of a debtor in an insolvency case in another country files a petition in the U.S. for recognition of the foreign case. The chapter 15 case is ancillary to the foreign case and not a full plenary U.S. bankruptcy case.The chapter 15 case will allow the foreign representative to seek assistance from the U.S. court for matters related to the main proceeding in the other country. For instance, the foreign representative might need access to a U.S

See Batista v. Alvarenga Mendes (In re MMX Sudeste Mineracao S.A.), No. 17-24038-RNS (S.D. Fla. Apr. 20, 2018).Apparently, only one court outside of the Second Circuit has relied on the ruling in a published opinion in finding that section 109(a) applies in a chapter 15 case. See In re Forge Grp. Power Pty Ltd., 2018 WL 827913, at *13 (N.D. Cal. Feb. 12, 2018) (vacating a bankruptcy court order denying chapter 15 recognition on the basis of Barnet, but noting that "the debtor eligibility requirements of 11 U.S.C. § 109(a) apply in Chapter 15 cases" and "the requirement of 'property in the United States' is satisfied by a security retainer that remains the property of the debtor until the funds are applied by the attorney for services actually rendered").It should be noted that chapter 15's predecessor—section 304 of the Bankruptcy Code—did not require a foreign debtor to qualify as a "debtor" under section 109(a) as a condition to relief.

Whether a foreign bankruptcy case can be recognized under chapter 15 if the foreign debtor does not satisfy the commands of both section 109 (of chapter 1) and section 1517 (of chapter 15) of the Bankruptcy Code has long been a contentious issue. As previewed at an oral argument held on March 10, 2023, the Eleventh Circuit has now waded into this thicket, setting up the possibility of a circuit-level counterweight to the Second Circuit’s seminal decision in In re Barnet.Statutory TextAppearing in chapter 1 of the Bankruptcy Code, section 109(a) states that “only a person that resides or has a domicile, a place of business, or property in the United States, or a municipality, may be a debtor under this title,” i.e.the entire Bankruptcy Code.But what about an entity seeking the refuge afforded by chapter 15, the part of Bankruptcy Code exclusively devoted to cross-border proceedings and foreign debtors?This question implicates two provisions.First, section 103(a) makes “all of [c]hapter 1,” which includes section 109(a), “applicable in [c]hapter 15.”Second, per section 1517, a U.S. bankruptcy court “shall” enter an order recognizing a foreign proceeding so long as: (1) “such foreign proceeding for which recognition is sought is a foreign main proceeding or foreign nonmain proceeding within the meaning of section 1502”; (2) “the foreign representative applying for recognition is a person or body”; and(3) the petition for recognition meets section 1515’s requirements.Divided PrecedentIn In re Barnet, the Second Circuit decided t

Section 101(24) of the Bankruptcy Code defines "foreign representative" as "a person or body, including a person or body appointed on an interim basis, authorized in a foreign proceeding to administer the reorganization or the liquidation of the debtor's assets or affairs or to act as a representative of such foreign proceeding."Section 109(a) of the Bankruptcy Code provides that, "[n]otwithstanding any other provision of this section, only a person that resides or has a domicile, a place of business, or property in the United States, or a municipality, may be a debtor under [the Bankruptcy Code]." In Drawbridge Special Opportunities Fund LP v. Barnet (In re Barnet), 737 F.3d 238 (2d Cir. 2013), the Second Circuit ruled that section 109(a) applies in cases under chapter 15 of the Bankruptcy Code. For purposes of section 109(a), "property in the United States" has been held to include an attorney retainer in a U.S. bank account, causes of action under U.S. law against parties in the United States, and contract rights governed by U.S. law, including U.S. dollar-denominated debt issued under an indenture governed by New York law with a New York choice-of-forum clause.

Typically, the petition for recognition will be accompanied by either (1) a certified copy of the decision commencing the foreign proceeding and appointing the foreign representative or (2) a certificate from the foreign court affirming the existence of the foreign proceeding and the appointment of the foreign repre­sentative, translated into English if necessary. 11 U.S.C. § 1515.For chapter 15 to apply, the entity must qualify as a debtor under section 109(b) of the Bankruptcy Code. 11 U.S.C. § 1501(c)(1). Generally, a foreign corporation must have a place of business or property in the United States, but minimal property, like a retainer in a law firm’s trust account has be considered sufficient property in the United States to qualify for Chapter 15.

ed the motion, but the First Circuit reversed. The Supreme Court granted certiorari thereafter.The Supreme Court held that 11 U.S.C. § 106(a) abrogates tribal sovereign immunity for the enumerated list of Bankruptcy Code provisions in Section 106(a). Specifically, the Court was convinced that the definition of “governmental unit,” incorporated into Section 106(a), swept in tribal governments by including the broad phrase “other foreign or domestic governments” in its definition. The decision resolved a circuit court split that has existed since 2019. Compare In re Coughlin, 333 F.4th 600, 603-04 (1st Cir. 2022) (holding that the Bankruptcy Code abrogates tribal sovereignty); Krystal Energy Co. v. Navajo Nation, 357 F.3d 1055, 1061 (9th Cir. 2004) (same); with In re Greektown Holdings, LLC, 917 F.3d 451, 460-61 (6th Cir. 2019) (concluding the reverse).Although tribes and tribal entities are now subject to 11 U.S.C. § 106(a), they remain ineligible for bankruptcy relief as debtors since 11 U.S.C. § 109 only provides eligibility to a “person” or “municipality” and a “governmental unit” is not incorporated into either definition.Tribes should, however, consult with counsel to determine how Lac du Flambeau will impact the way tribal businesses conduct their operations off-property going forward. For reference, we include below a list of some of the most important provisions implicated by the holding, along with a brief explanation of those provisions.Tribes may be held liable for violations of the automatic stay as well as the discharge and plan injunctions. Sections 362, 524 and 1141 — The commencement of a bankruptcy case is intended to provide a “breathing spell” for a debtor, imposing an automatic stay that prohibits commencement or continuance of any action to collect or recover a prepetition debt (i.e., a debt arising prior to commencement of the case). The successful completion of a bankruptcy case is then intended to provide a debtor with a “fresh start” through issuance of a

r Native American tribes and their related business ventures are "governmental units" for purposes of the Bankruptcy Code. Their sovereign immunity having been expressly abrogated through Section 106, Native American tribes are now subject to suit before the U.S. Bankruptcy Courts in connection with their commercial enterprises, including, for instance, in litigation initiated to recover allegedly preferential or fraudulent transfers received by tribes and for alleged violations of the automatic stay. As a corollary, no longer will filing of a claim serve as a waiver of the tribe's sovereign immunity, since Section 106(a) accomplished that in the first instance; when filing proofs of claim in pending bankruptcy cases, tribes will likely benefit from the extended deadline for filing proofs of claim available to "governmental units."What remains unclear, though, is whether business entities formed by Native American tribes qualify for relief as "debtors" under the Bankruptcy Code, since Section 109 of the Bankruptcy Code only provides eligibility to a "person" or "municipality"; a "governmental unit" is neither. That issue, though, is left for another day. In the meantime, tribes should consult with their bankruptcy counsel to determine how the Opinion and its holding will impact the way tribal businesses conduct their operations off-property going forward.Notes 599 U.S. ____ (2023)(Opinion). Codified at 11 U.S.C. §§ 101, etseq. (Bankruptcy Code).In re Coughlin, 33 F.4th 600 (1st Cir. 2022), cert. granted sub nom. Lac du Flambeau Band v. Coughlin, 2023 WL 178401 (U.S. Jan. 13, 2023). The definition of "governmental unit" is contained within Bankruptcy Code, Section 101(27) as follows: "United States; State; Commonwealth; District; Territory; municipality; foreign state; department, agency, instrumentality of the United States (but not a United States trustee while serving as a trustee in a case under this title), a State, a Commonwealth, a District, a Territory, a municipality, or a foreign state; or