Leyza Blanco is part of a bankruptcy law trend that is likely to shed its obscurity as multinational companies fight to survive the fallout of the global recession.
When the Miami-based GrayRobinson attorney filed a Chapter 15 action on behalf of a Bahamian client in October, it marked only the seventh time in four years such a case had been filed in South Florida.
Blanco has been involved with two of them.
"A client will seek Chapter 15 recognition because they are a foreign company that has U.S. assets," she said. "That recognition permits the courts here to provide the equivalent of a bankruptcy stay for the benefit of the foreign companies that own the U.S. assets."
Chapter 15 is relatively new. It emerged in 2005 as part of the Bankruptcy Abuse Prevention and Consumer Protection Act, in concert with international agreements, to harmonize insolvency cases involving debtors, assets, claimants and other parties in proceedings involving more than one country. It replaced Section 304 of the Bankruptcy Code and even has its own Web site, Chapter15.com.
"It's sort of like the Geneva Convention of bankruptcy," said Charles Tatelbaum, a partner in Adorno & Yoss' Fort Lauderdale, Fla., office.
Such uniformity among countries is viewed as essential in a globalized economy.
"It's a global question of how to deal with corporations that span multiple jurisdictions," said Greg Grossman, a founding shareholder at Astigarraga Davis, who filed the first Chapter 15 case in a South Florida bankrutpcy court in December 2006. "It really took its foothold outside of the U.S. first and was recommended into our bankruptcy system pretty much from abroad."
Grossman said Chapter 15 and its international equivalents offer one main bankruptcy in which parties from all over the world can have their issues adjudicated.
"If you have to do it in multiple places and have the same ground covered multiple times, it's inefficient, and if any area cries out for efficiency, it's the one where we already know the debtor doesn't have enough money to pay everybody," he said.
Every dollar spent on an inefficient procedure is a dollar less that you can give to a creditor, he said.
BORN OF CHAOS
The European Union and an increasing number of other countries now have their own versions of Chapter 15.
Prior to Chapter 15, very difficult complex protocols had to be worked out with the bankruptcy courts in the U.S. and the foreign jurisdiction -- even Canada's.
"Literally the judge in both cases would get on the phone in open court to work out these protocols on who was going to have jurisdiction over what and which was going to be considered the main proceeding and which was going to be the foreign proceeding and which liquidator in Canada was going to be responsible for doing what," recalled Brian Gart, a shareholder and bankruptcy attorney with Berger Singerman's Fort Lauderdale office.
The economic crisis almost immediately put Chapter 15 to the test, with most cases gravitating toward international business centers.
"Most of the Chapter 15s that are pending now in the U.S. are in the Southern District of New York for a reason," explained Gart,. That is "familiarity with the law, and the nexus and connections with the U.S. courts, and creditors having business there."
INTERNATIONAL TRADE
But South Florida's international trade connections suggest Chapter 15 filings are likely to increase here, as well.
"We're seeing more and more foreign insolvency proceedings that are touching the U.S. because of the worldwide economic issues," Tatelbaum said. "I'm involved in cases in Eastern Europe, and that is starting to be a considered strategy: filing an insolvency proceeding under German or Turkish courts and then coming over here with a 15 to deal with the issues in the U.S."
Individuals as well as corporations can file Chapter 15 in the U.S. In fewer than 20 percent of cases, the filing is involuntary.
In a typical case, a foreign entity with U.S. assets filing bankruptcy in its home country appoints a "foreign representative," whose function is similar to a trustee, and petitions U.S. courts for "Recognition of Foreign Proceeding" under Chapter 15. A U.S. judge must then determine whether to declare the legal proceedings in the other country to be a "foreign main" or "foreign non-main" proceeding. In the former case, that is recognition that the debtor's center of main interests are located in that country.
"The differences and consequences of that finding are extremely important to the debtor in that foreign country, because in a foreign main proceeding, the foreign representative is able to sue and be sued here in the States, to apply directly to the bankruptcy court for relief, and they can get the benefits of the automatic stay and to stop the transfer of assets outside of the U.S.," Gart said.
If for some reason the proceeding is determined to be foreign non-main, "while it's not as good and extensive, there still is the right to most of the statutory framework and protection for the creditors in the U.S. But instead of being automatic, it's now discretionary with the court."
Blanco recalls that in her first Chapter 15, she served as the U.S. counsel for the Brazilian airline VRG Linhas Aereas, a creditor owed in excess of $70 million in the Varig Logistica case.
Varig Logistica, which filed a Chapter 15 action in Miami in March, handled Brazilian intrastate cargo shipments for FedEx, UPS and DHL, among others.
"Its relationship with FedEx meant that its bank account in the U.S. was an important asset that they sought to protect when they filed the 15," Blanco said.
BAHAMIAN INSURER
In the British American case, the Bahamian insurer has subsidiaries that own Florida real estate. The company is under "judicial management" in various jurisdictions throughout the Caribbean but is not in liquidation.
In this case, she said, the Chapter 15 petition does not seek to protect the real estate assets because they are owned by British American's subsidiaries. "However, the Chapter 15 filing is a way to start protecting British American and its American assets from the claims of creditors."
British American also has investment funds in the United States, and the fund managers are in Florida.
"With a distressed company, you have people rushing to the courthouse just to get a leg up," Blanco said. Chapter 15 "is a way to even the playing field."
Ron Neiwirth, a bankruptcy attorney and partner with Fowler White Burnett, has filed a case involving insurance company Clico [Bahamas] Ltd.
"Clico had a subsidiary that made South Florida real estate investments," he said. "Clico Enterprises owns Wellington Preserve. It owns 540 acres in Wellington, Fla. -- the biggest piece of undeveloped land Wellington has got. The insurance company went broke because they invested 85 percent of their total asset value in South Florida real estate. Now a liquidator has to be in charge of a foreign main proceeding."
Subscribe to Daily Business Review
