Following the application filed by ALITALIA-SAI in Extraordinary Administration, the Italian airline has received a temporary bankruptcy protection just 24 hours before same was due to be ejected from Terminal 1 at New York’s JFK airport.
Judge Sean Lane of the U.S. Bankruptcy Court in the Southern District of New York rendered a temporary restraining order (TRO) for 10 days until 23 June next, to be automatically extended, unless creditors object, to Monday, 26 June, when a hearing has been set down before the same Judge. Such a TRO allows ALITALIA-SAI to continue to operate at JFK and in the U.S. despite its financial condition.
Chapter 15 is a new chapter added to the Bankruptcy Code by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. It is the U.S. domestic adoption of the Model Law on Cross-Border Insolvency promulgated by the United Nations Commission on International Trade Law (“UNCITRAL”) in 1997, and it replaces section 304 of the Bankruptcy Code. Because of the UNCITRAL source for chapter 15, the way U.S. Courts construe its provisions must be coordinated with the interpretation given by other countries that have adopted it as internal law to promote a uniform and coordinated legal regime for cross-border insolvency cases.
The purpose of Chapter 15, and the Model Law on which same is based, is to provide effective mechanisms for dealing with insolvency cases involving debtors, assets, claimants, and other parties of interest involving more than one country. This general purpose is realized through five objectives specified in the statute:
- to promote cooperation between the United States Courts and parties of interest and the Courts and other competent authorities of foreign countries involved in cross-border insolvency cases;
- to establish greater legal certainty for trade and investment;
- to provide for the fair and efficient administration of cross-border insolvencies that protects the interests of all creditors and other interested entities, including the debtor;
- to afford protection and maximization of the value of the debtor’s assets; and
- to facilitate the rescue of financially troubled businesses, thereby protecting investment and preserving employment.
Generally, a Chapter 15 case is ancillary to a primary proceeding brought in another country, typically the debtor’s home Country. As an alternative, the debtor or a creditor may commence a full Chapter 7 or Chapter 11 case in the United States if the assets in the United States are sufficiently complex to merit a full-blown domestic bankruptcy case.
An ancillary case is commenced under Chapter 15 by a “foreign representative” filing a petition for recognition of a “foreign proceeding.” The petition must be accompanied by documents showing the existence of the foreign proceeding and the appointment and authority of the foreign representative. After notice and a hearing, the Court is authorized to issue an order recognizing the foreign proceeding as either a “foreign main proceeding” (a proceeding pending in a country where the debtor’s center of main interests are located) or a “foreign non-main proceeding” (a proceeding pending in a country where the debtor has an establishment, but not its center of main interests).
Through the recognition process, Chapter 15 operates as the principal door of a foreign representative to the federal and state Courts of the United States. Once recognized, a foreign representative may seek additional relief from the bankruptcy Court or from other State and Federal Courts and is authorized to bring a full (as opposed to ancillary) bankruptcy case. In addition, the representative is authorized to participate as a party of interest in a pending U.S. insolvency case and to intervene in any other U.S. case where the debtor is a party.
Chapter 15 also gives foreign creditors the right to participate in U.S. bankruptcy cases and it prohibits discrimination against foreign creditors (except certain foreign government and tax claims, which may be governed by treaty). It also requires notice to foreign creditors concerning a U.S. bankruptcy case, including notice of the right to file claims.
One of the most important goals of Chapter 15 is to promote cooperation and communication between U.S. Courts and parties of interest with foreign Courts and parties of interest in cross-border cases. This goal is accomplished by, among other things, explicitly charging the Court and estate representatives to “cooperate to the maximum extent possible” with foreign Courts and foreign representatives and authorizing direct communication between the Court and authorized estate representatives and the foreign Courts and foreign representatives.
In the light of the above, ALITALIA-SAI sought Chapter 15 bankruptcy protection for its leased gates at several US airports. The operator of JFK’s Terminal 1 had notified the airline that its lease and contract would be ended on 13 June if it did not pay its bills. Meanwhile the carrier’s US telephone and internet provider had also given notice of its intention to cut off service as of 20 June if its invoices remained unpaid.
The next hearing is scheduled for 26 June before Judge Sean Lane. In the meantime, the TRO issued by the US Court prevents both actions from taking place for the time being.