There is substantial precedent in the Southern District of Texas (“SDTX”) for international and cross-border bankruptcy cases, and it is a good place to pursue such cases. See International and Cross-Border Cases in the Southern District of Texasand Foreign Companies Using Chapter 11.
Chapter 15 Cross-Border Cases
The Southern District of Texas has a strong record for recognizing foreign representatives under Chapter 15 and efficiently administering U.S. assets related to their cases. See, e.g., Harkand, Argent and Calmena.
Involuntary International Cases
The Xacur cases set precedent in SDTX for the minimum contacts necessary to bring a foreign citizen into U.S. involuntary bankruptcy jurisdiction. One of these cases discusses factors supporting abstention from exercising that jurisdiction.
Voluntary International Chapter 11 Cases
Yukos set precedent for the minimum contacts necessary to establish jurisdiction over a foreign company that files a voluntary Chapter 11 case in SDTX. Yukos applied the plain terms of the Bankruptcy Code requiring only some property or a place of business as a basis for jurisdiction and found it had jurisdiction over this large Russian oil company. See In re Yukos Oil Company, 321 U.S. 396 (Bankr. S.D. Tx. 2005).
The court dismissed Yukos under §1112 primarily because (i) a tax dispute with the Russian government would be central to the case; (ii) Yukos represented a very large percentage of Russia’s annual oil production; (iii) extraction of oil from the ground is inherently subject to substantial government control; (iv) and the Russian government would not cooperate with the reorganization.
Subsequently, in TMT Group, Judge Isgur found U.S. bankruptcy jurisdiction for shipping company debtors based on similar minimal contacts, but kept the case after demanding that the shipping company debtor with assets and operations all over the world put substantial assets in SDTX to show its good faith and ensure compliance with court orders. See In re TMT Procurement Corp, et al., case no. 13-33763, Docket no. 134, Order entered July 23, 2013.
Subsequently, Seadrill, a London-based company with mobile offshore drilling rigs deployed around the world, filed a Chapter 11 case in SDTX in September 2017. Five months later, Judge Jones confirmed Seadrill’s plan that reorganized its $8 billion of debt.
There is thus precedent for use of Chapter 11 in Houston by shipping companies (like TMT), offshore drilling companies (like Seadrill), who do not represent 20% of the oil and gas production in their home country and are not engaged in a life or death fight with their home government over a $27 billion tax assessment that will be the biggest disputed claim in the Chapter 11 case.
Foreign Companies Using Chapter 11 discusses the different issues presented by Yukos, TMT Group and Seadrill. It describes how the U.S. Bankruptcy Code provides an excellent system to preserve value and reorganize a company as a going concern. §109 only requires some property or a place of business in the U.S. to qualify to be a Chapter 11 debtor. However, other parties can then seek to have the court abstain from hearing the case under §305 or dismiss under §1112.
Foreign Companies Using Chapter 11 describes how these issues came out differently (i) in Avianca where the going concern of a Columbian national airline was preserved through a New York Ch. 11 with tacit Columbian government support, versus (ii) Yukos where the Russian government had assessed a $27 billion, hotly contested tax claim against Yukos and did not want the company to reorganize under Chapter 11.
Foreign Companies Using Chapter 11 has been used for 10 years in a class sponsored by the American College of Bankruptcy and the International Insolvency Institute, and broadcast to 10 law schools. Retired U.S. bankruptcy Judge Allan Gropper, who presided over Avianca, taught this class with me for many years; Rick Mason and I now teach this class.
Materials concerning these international and cross-border matters are listed below and are available for free download at www.zackclement.com.
I have been involved in many of these cases and would be happy to discuss them with you.
Zack Clement
Dated: January 31, 2023
Zack A. Clement, PLLC
3753 Drummond St.
Houston Texas 77025
832 274 7629
zack.clement@icloud.com
www.zackclement.com
Fellow, American College of Bankruptcy
Member, International Insolvency Institute
Admitted to practice in Texas, Illinois, New York, District of Columbia, Virginia