Creditors of bankrupt foreign companies may have an alternative remedy in United States courts for recovering their debts. A recent case in the Southern District of New York, Osanitsch v. Marconi PLC, 363 B.R. 361 (S.D.N.Y. 2007), addressed the procedure for filing claims against foreign companies that have declared bankruptcy in a country other than the United States.

When a foreign company files bankruptcy in its home country, often it will file an ancillary proceeding in the U.S. under Section 304 (now Chapter 15) of the Bankruptcy Code. The purpose of such ancillary proceeding is to “facilitate centralized liquidation of the debtor’s estate according to the rules of the debtor’s home country.” Osanitsch v. Marconi PLC, 363 B.R. 361, 364 (S.D.N.Y. 2007). In an ancillary proceeding, as in Osanitsch, the foreign debtor can request and the U.S. court can grant an injunction prohibiting creditors from filing or continuing various lawsuits against the debtor.

Such an ancillary proceeding also gives the U.S. bankruptcy court jurisdiction to hear actions that preserve, protect or recover property of the foreign debtor. However, in Osanitsch, the district court found that section 304 (now chapter 15) does not necessarily give the US bankruptcy courts jurisdiction to hear actions brought by U.S. creditors that are unrelated to preservation or recovery of the debtor’s property. Osanitsch, 363 B.R. at 365. Thus, if a court has granted a broad sweeping injunction prohibiting the creditor’s claims and the bankruptcy court does not have jurisdiction to hear the claim, a US creditor then has limited means within the U.S. by which to recover its debt. However, the court in Osanitsch held that if a U.S. creditor wishes to recover a debt against a foreign bankrupt, it may be able to seek a modification of the injunction and ask the court to allow it to pursue its claim in other US courts. Osanitsch, 363 B.R. at 367-68. Consequently, requesting a modification of the injunction to allow the creditor’s claims may provide an alternative avenue for recovering debts from a foreign debtor.

For more information see Osanitsch v. Marconi PLC, 363 B.R. 361 (S.D.N.Y. 2007).