By Santiago A. Cueto

foreign company, chapter 11 bankruptcy, bankruptcy court, international business, international attorney, international business lawyer

Several months ago, I handled a matter on behalf of a foreign company that filed for Chapter 11 bankruptcy protection here in the U.S.

When I explained the general details of this case to a seasoned bankruptcy attorney, whom I had run into at legal seminar, I was surprised that he didn’t think it was possible for a foreign company to do so.

I went on to tell them that not only was it possible but it had become quite common in the past several years, particularly with foreign shipping companies.

I mention this because the Wall Street Journal just published an excellent article by Jacqueline Palank precisely on this topic.

The article, Q&A: Foreign Companies Seek Protection of U.S. Chapter 11, serves as an excellent primer for anyone wanting to know why many foreign companies prefer to file for bankruptcy protection in the U.S. rather than in their home country.

Why Foreign Companies Prefer U.S. Bankruptcy Courts

Among international corporate attorneys it’s widely recognized that the United States is the best forum for restructuring international companies.  Other jurisdictions are entirely unforgiving of debtors and offer no alternative plan to reorganize or restructure debt obligations.

Spain for example, which only introduced its current bankruptcy system in 2004,  offers only insolvency procedures.  This may explain why Spanish media giant Prisa recent filed for U.S. Chapter 11 protection to address $3 billion in debt.

Eligibility Requirements Are Easy for Foreign Companies to Meet

The threshold requirements for foreign companies seeking Chapter 11 protection is surprisingly easy. To establish eligibility for Chapter 11 all a foreign company needs to show is that it is incorporated in the U.S. or has assets or operations here.  

A notable example of just how easy it is to meet the Chapter 11 eligibility requirement is TMT Group, a global shipping company, which opened an office in Houston just days before filing for Chapter 11 protection there. 

Chapter 11 Affords Powerful Benefits

The most powerful benefits offered to foreign companies seeking Chapter 11 protection are the automatic stay, debtor in possession status and rejection of outstanding contacts.

  1. Automatic Stay:  Section 362 of the U.S. bankruptcy code serves as an automatic injunction with worldwide effect. It prohibits any party from taking any action against the debtor or property of the estate outside the bankruptcy proceedings. The consequences for violating it can be severe. 
  2. Debtor is Possession: