THE LONG-ARM OF US BANKRUPTCY COURTS’ JURISDICTION
In today’s global economy, it is increasingly rare that insolvency matters are purely domestic. US bankruptcy law – anchored by the broad automatic stay, debtor-in-possession model, ability to sell assets free and clear of liens, claims and interests, and flexible discharge mechanics – offers a compelling platform for financially distressed companies, even if they are headquartered abroad.
But this global appeal raises challenging legal questions that often lack clear answers. Can US courts truly exercise authority over foreign debtors and international assets? What happens when foreign creditors object or decline to comply? How enforceable are US bankruptcy orders, including the automatic stay, in foreign jurisdictions?
This article addresses these key questions – examining jurisdictional thresholds, extraterritorial reach, foreign recognition frameworks, and, most critically, how objections from foreign creditors can shape or derail cross-border insolvency efforts.
Threshold question: eligibility under section 109(a)
Chapter 11 eligibility hinges on section 109(a) of Title 11: debtors must have a domicile, place of business, or “property” in the US.
Courts have confirmed that even minimal assets, such as a US bank account or legal-retainer with a US law firm – can suffice to meet this threshold. For example, in In re Global Ocean Carriers Ltd., a US Bankruptcy Court in Delaware closely examined a debtor’s assets and found that funds in a US bank account and the existence of a retainer to US bankruptcy counsel – regardless of the amount – satisfied the threshold property requirement.
Moreover, as the Second Circuit explained in the 2013 case of In re Barnet, these threshold requirements apply equally to Chapter 15 proceedings, wherein the US bankruptcy court recognises a foreign bankruptcy proceeding.
Oct-Dec 2025 issue
King & Spalding LLP