Source: http://email.internationallawoffice.com/Newsletters/Insolvency-Restructuring/USA/Caplin-Drysdale-Chartered/Chapter-15-at-11-Chapter-15-provides-provisional-relief-in-Hanjin-Shipping
Timestamp: 2019-04-21 10:17:28+00:00

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This is the second instalment in a series on the US cross-border insolvency statute, Chapter 15 of the Bankruptcy Code, which took effect 11 years ago (for further details please see "Chapter 15 at 11: Bankruptcy Code's cross-border insolvency law approaches 11th anniversary").
Although Section 1519 of the code does not mention the automatic stay under Section 362, it is not uncommon for foreign representatives to seek application or imposition of the automatic stay on a provisional basis, rather than the issuance of a temporary injunction. A foreign representative's decision to pursue that route can alter the legal procedures and substantive requirements that the representative must follow or satisfy.
The bankruptcy court in Hanjin did not expressly address any of these standard and procedure issues in its written rulings. Citing an unpublished decision of the US Bankruptcy Court for the District of New Jersey – which states (without discussion) that provisional relief in Chapter 15 "requires satisfaction of the injunctive relief standard"(32) – the foreign representative in Hanjin argued that he was entitled to application of the automatic stay because the prerequisites for injunctive relief were satisfied. The court agreed, making the requisite findings with regard to irreparable harm and the likelihood of obtaining recognition.(33) In addition, the foreign representative sought provisional relief as part of an omnibus motion filed in the main bankruptcy case, which contained requests for other forms of relief, including recognition of the Korean insolvency proceeding. By including the request for provisional relief within this larger motion, the foreign representative might have been presenting provisional relief as something integral and ancillary to recognition, and therefore belonging in the main case. It is unclear whether the foreign representative made such a tactical decision. Nevertheless, the bankruptcy court did not expressly address or weigh in on the issue; it simply granted provisional relief without mentioning whether an adversary proceeding was required.
Recent amendments to the Federal Rules of Bankruptcy Procedure, which took effect on December 1 2016, could have bearing on the procedures issue discussed above. In particular, amended Rule 2002(q) now requires a bankruptcy court to "promptly schedule and hold a hearing on the petition [for recognition]" after it is filed.(34) The amended rule further provides that, if the court "consolidates the hearing on the petition [for recognition] with the hearing on a request for provisional relief, the court may set a shorter notice period" for the hearing, in lieu of the standard 21-day notice period.(35) These amendments are intended to respond to Section 1517(c) of the code, which provides that petitions for recognition "shall be decided upon at the earliest possible time".(36) In the wake of these amendments, it remains to be seen whether shortened notice periods for recognition and consolidated hearings will become normal practice. Since petitions for recognition are heard and determined in the main bankruptcy case,(37) it also remains to be seen whether the availability of consolidated hearings on provisional relief and recognition will support the view that foreign representatives need not file separate adversary proceedings to obtain provisional relief.
The Hanjin case is an example of how essential provisional relief can be for foreign debtors to preserve the status quo and maintain business operations before a ruling on recognition. However, provisional remedies are merely the opening phase of a Chapter 15 case. To obtain the full benefits of Chapter 15, recognition of the foreign insolvency proceeding must also be obtained – this will be discussed in the next instalment in this series.
(1) Decision and order on maritime lienholders' motion for reconsideration ¶¶ 1 11(a), In re Hanjin Shipping Co Ltd, 16-27041 (Bankr DNJ September 20 2016) ECF 191. Hanjin's vessels were also barred from entering ports around the world "because of uncertainty about who would pay docking fees, container-storage and unloading bills". Costas Paris and Erica E Phillips, "Hanjin Shipping's Troubles Leave $14 Billion in Cargo Stranded at Sea", Wall St Journal, September 7 2016, available at http://www.wsj.com/articles/billions-in-cargo-remains-stranded-at-sea-1473285117.
(2) Order granting provisional relief pursuant to Sections 362, 365(e), 1519, 1520 and 105(a) of the Bankruptcy Code pending hearing on petition for recognition as a foreign main proceeding ¶ G at 4, In re Hanjin Shipping Co Ltd, 16-27041 (Bankr DNJ September 9 2016), ECF 102.
(3) Declaration of Tai-Soo Suk in support of (I) verified Chapter 15 petition; (II) motion of foreign representative for entry of provisional relief in aid of foreign main proceeding; and (III) certain related relief ¶ 15, at 5, In re Hanjin Shipping Co Ltd, 16-27041 (Bankr DNJ September 2 2016), ECF 3.
(4) 11 USC § 1520(a)(1).
(5) Id §§ 365(e), 1521(a)(7).
(6) Fed R Bankr P 2002(q)(1).
(8) 11 USC § 1519(a)(1).
(9) See provisional relief order, supra note 2, at 5 to 6. Three creditors appealed the provisional relief order to the US District Court for the District of New Jersey and requested a stay of the order pending the appeal, which the court denied. The creditors then appealed the denial of their requested stay to the US Court of Appeals for the Third Circuit, which dismissed the appeal on the ground that denial of the stay was not an appealable order.
(10) Appellee's objection to appellant's amended motion for emergency review 3, In re Hanjin Shipping Co Ltd, 16-3652 (3d Cir September 22 2016). See also Bonnie Eslinger, "Bankrupt Hanjin Shipping Unloading Cargo at California Port", Law360 (September 12 2016), available at www.law360.com/articles/838737/bankrupt-hanjin-shipping-unloading-cargo-at-calif-port.
(11) 11 USC § 1519(a)(1).
(12) Id § 1522(a). The United Nations Commission on International Trade Law Model Law on Cross-Border Insolvency – which Chapter 15 is based on – uses the words 'adequately protected' rather than 'sufficiently protected', but Congress opted to use 'sufficiently protected' to avoid confusion with the specialised term 'adequate protection' under US bankruptcy law, which refers to the court-fashioned protection to prevent diminution in value of a secured creditor's collateral. See HR Rep 109-31(I), at 115 (2005), as reprinted in 2005 USCCAN 88, 178.
(13) 11 USC § 1519(c).
(15) See id § 1519(a), providing that "the court may…grant relief of a provisional nature, including…" (emphasis added), and Vitro SAB de CV v ACP Master Ltd, 455 BR 571, 579 (Bankr ND Tex 2011) stating that "the relief enumerated in section 1519 is not all-inclusive".
(16) 11 USC § 1519(a)(2).
(19) Id §§ 1519(b), 1521(a)(6).
(22) 11 USC § 362(b)(1) and (4). In addition, the court may not stay the exercise of certain rights under financial or security-related contracts in a Chapter 15 case, rights that are also exempted from reach of the automatic stay. See id § 1519(f).
(23) HR Rep 109-31(I), at 114 (2005), as reprinted in 2005 USCCAN 88, 176-77.
(24) 11 USC § 1519(e).
(25) Winter v NRDC Inc, 555 US 7, 20 (2008).
(26) Compare In re Pro-Fit International Ltd, 391 BR 850, 861 (Bankr CD Cal 2008) (holding that the prerequisites for injunctive relief apply "only where the relief sought under § 1519 is injunctive relief, such as the staying of execution pursuant to § 1519(a)" and not where "the foreign representative is seeking different relief", such as imposition of the automatic stay under Section 362) with In re Worldwide Educational Services Inc, 494 BR 494, 498-99 (Bankr CD Cal 2013) (holding that the prerequisites for injunctive relief apply to all forms of provisional relief in Chapter 15, including requests to impose the automatic stay). See also In re Ace Track Co, 556 BR 887, 894 note 6 (Bankr ND Ill 2016) agreeing in dictum with Pro-Fit that the standards and procedures applicable to injunctions do not apply to requests to impose the automatic stay provisionally in Chapter 15.
(27) See Ace Track, 556 BR at 894 6; Pro-Fit International, 391 BR at 864 to 865.
(28) Fed R Bankr P 7001(7), 7065.
(29) These requirements and hurdles include the preparation and filing of a complaint that satisfies applicable pleading standards, the payment of a filing fee, the issuance and service of a summons, and the preparation and filing of motion requesting injunctive relief. See Fed R Bankr P 7003, 7004, 7008, 7009 and 7065. In addition, any injunction or restraining order issued in an adversary proceeding must state the reasons why it was issued and describe in reasonable detail the acts enjoined or restrained. This is binding only on the parties and their representatives who receive actual notice of it by personal service or otherwise. See Fed R Civ P 65(d).
(30) See Pro-Fit International, 391 BR at 861 noting that a request for a stay of execution under Section 1519(a)(1) "would require an adversary proceeding" while a request to impose the automatic stay would not.
(31) Worldwide Educational Services, 494 BR at 499 note 1. See also Ace Track, 556 BR at 894 note 6: "From a purely practical standpoint, requiring an adversary for interim relief would...make such relief difficult if not impossible to obtain prior to the hearing [on the petition for recognition] to which the relief is intended to act as a bridge." See also In re Ho Seok Lee, 348 BR 799, 801 (Bankr WD Wash 2006), holding that a request for a permanent injunction in Chapter 15 to protect a foreign debtor's assets did not require the filing of an adversary proceeding. But cf Fed R Bankr P 1018 advisory committee's note to 2010 amendment, stating that "proceedings governed by § 1519(e)...of the Code must comply with [Bankruptcy] Rules 7001(7) and 7065, which provide that actions for injunctive relief are adversary proceedings governed by Part VII of the rules" (emphasis added). The advisory committee notes accompanying the bankruptcy rules are "not determinative" of a legal issue, but are "of weight" in a court's interpretation of a rule. See Torres v Oakland Scavenger Co, 487 US 312, 316 (1988) (citations omitted); In re Nat Football League Players Concussion Injury Litig, 775 F 3d 570, 577 note 6 (3d Cir 2014).
(32) In re Innua Canada Ltd, 09-16362 (DHS), 2009 WL 1025088, at *3 (Bankr DNJ March 25 2009).
(33) Provisional relief order, supra note 2, at 4 to 5.
(34) Fed R Bankr P 2002(q)(1).
(36) 11 USC § 1517(c). See also Fed R Bankr P 2002 advisory committee's note to 2016 amendment.
(37) See Fed R Bankr P 1018.

References: § 1520
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 § 362
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 § 1517