The authors, Stephen M. Packman, Esquire, Chair of the Debtor & Creditors' Rights Group at Archer & Greiner P.C. in Haddonfield, N.J., and Douglas G. Leney, Esquire, an Associate in the Group, presented the following paper last month in Miami, Florida, at the Annual Regional Conference of INSOL International, the International Association of Restructuring, Insolvency & Bankruptcy Professionals. INSOL International is a worldwide federation of national associations for accountants, lawyers and other professionals who specialize in turnaround and insolvency, encompassing 40 Member Associations worldwide with more than 9,000 members. Mr. Packman is a Fellow of INSOL International and a graduate of INSOL's Global Insolvency Practice Course, an intensive, nine-month program offered by INSOL in conjunction with professors and lecturers from universities, institutions and firms all over the globe. Mr. Packman also serves as Co-Chair of Archer & Greiner's International Law Practice Group.
Stephen M. Packman, Esq.a1
Douglas G. Leney, Esq.a2
I. Introduction
In the nearly seven years since the United States Bankruptcy Code1 was amended to include a new Chapter 15 to address cross-border insolvencies,2 a number of previously unsettled insolvency issues has been put to the test, with some measure of clarity coming from the courts while still other guidance is provided by Chapter 15 itself. To be sure, Chapter 15, like its predecessor transnational legal texts,3 seeks to provide a general framework for recognition of foreign proceedings, relief which may be granted to a foreign representative, and cooperation among foreign courts in which concurrent proceedings are pending. However, Chapter 15 does not explicitly provide instruction with respect to claims procedures, either within or outside the United States. Courts have thus been left to fashion their own means of ensuring fair adjudication of claims while simultaneously seeking to protect the interests of local constituencies. The issue is further compounded when the claims at issue are foreign tax claims, which are generally not recognized outside the country in which they arise. This paper begins by examining the various approaches to administering cross-border insolvencies, which provides some context for the various ways in which claims may be treated. It then outlines the historical reasons for non-recognition of foreign tax claims, and provides potential solutions which are consistent with the goals of Chapter 15 and international insolvency jurisprudence.
II. The Theoretical Spectrum: From Universalism to Territorialism
"Universalism" refers to a concept in which a single court – that of the debtor's "home country" – would maintain exclusive jurisdiction over a debtor's assets, wherever located, and distribute them in accordance with the law of that country.4 Under a "pure universalist" approach, courts in other, "non-home" countries would be expected to recognize and enforce the laws and priorities of the home country's court.5 This end of the philosophical spectrum is championed by those such as Jay Lawrence Westbrook, a leading advocate of the universalist convention. Professor Westbrook submits that in order for universalism in international bankruptcies to succeed, a single law and a single forum must govern each case.6 Proponents of universalism espouse among its theoretical benefits the reduced administration costs to the bankruptcy estate, as a result of one centralized proceeding rather than multiple international fragments; increased predictability on an ex ante basis, as a result of knowing the debtor's home country, and therefore, the applicable insolvency law;7 and, in large part due to this increased predictability, encouragement of foreign investment and extension of credit. While these perceived benefits may still be far more theory than practice, even critics of the universalism view concede that "the globalization of business eventually will harmonize the now-divergent debt collection and insolvency systems of the countries of the world, making conditions ripe for universalism."8
In response to the relatively stricter rigidity imposed by a pure universalism approach, the notion of "modified universalism" instead combines the core elements of pure universalism – one main proceeding and one main body of law – with the flexibility for countries other than the home country to "evaluate the fairness of the home-country procedures and to protect the interests of local creditors."9 This is accomplished by the establishment of a main proceeding in the home country and the appointment of a foreign representative charged with the administration of the debtor's assets. However, rather than a single venue and mandatory application of a single body of law, modified universalism allows for, on a case by case basis, the initiation of ancillary proceedings in other countries, and some degree of discretion in applying foreign law. In other words, where application of the home country's law would offend justice or public policy in the country where an ancillary proceeding may be pending, the ancillary court – against a backdrop of deference and cooperation with the home country – would nevertheless have some discretion in choosing to apply the foreign law. If this sounds familiar, it is because the Model Law and Chapter 15 have embraced a modified universalism approach in the administration of transnational insolvency proceedings.
At the other end of the philosophical spectrum on administration of international insolvency is the "territorialism" approach. In stark contrast to universalism, territorialism attempts to provide a more flexible and organic process for bankruptcies which may require more than one central proceeding. Lynn LoPucki, a supporter of cooperative territorialism, frames the basic approach of pure territoriality as follows: "[i]n a territorial system, the necessary international cooperation takes place in each case. That is, 'parallel' bankruptcy proceedings are initiated in each country in which the corporate group has substantial assets. Each court appoints a "representative" for the estate of each entity filing in its jurisdiction. Those representatives then negotiate a solution to the debtor's financial problems. If the estates are worth more in combination than they are separately, it will be in the interests of the representatives to combine them."10 The perceived benefits of territorialism include safeguards against potentially biased foreign courts or laws; keeping a closer eye on local assets and thus a affording a greater level of protection to local creditors; and furthering national sovereignty while eliminating blind deference to foreign laws.11
With the goal of preserving some measure of cooperation among countries and courts, a modified form of territorialism known as "cooperative territorialism" has emerged. This approach, like the pure territorialism from which it is derived, would still favor separate insolvency proceedings in each country in which a debtor maintains interests. However, a key element of cooperative territorialism would be cooperation among various representatives appointed in their respective country's proceedings, and this discretionary cooperation and joint decision-making would somewhat temper the blanket application of "local country" laws in each proceeding, where it is determined that the debtor's overall bankruptcy estate is better served through such cooperation.12
While none of the above theories can provide a perfect solution to the problems facing the many players involved in international insolvency proceedings, it seems evident that pure universalism, and its mandate for one singular proceeding, is likely an unrealistic option. This is not to suggest that pure territorialism, and its "race to assets" approach spread among numerous countries and courts, provides a more palatable answer to the problem. Whether the Model Law and Chapter 15, and the principles of modified universalism they encompass, have aimed in the right direction or not, it seems that multiple proceedings in multiple countries are an inevitability, and therefore some level of international cooperation is required. Accordingly, we now shift our focus to the manner in which claims are adjudicated in these cases, and the unique problems associated with foreign tax claims.
III. Claims Procedures and Treatment in Cross-Border Cases
Prior to the enactment of Chapter 15, U.S. bankruptcy courts' willingness to recognize or enforce the laws of foreign jurisdictions found its roots in general principles of international comity.13 Notions of comity were codified in Chapter 15's predecessor statute – Section 30414 of the Bankruptcy Code – but the mechanics of where, when, and how to apply comity have long been amorphous concepts in U.S. courts. Unlike judgments entered in other states, foreign judgments are not governed by the Full Faith and Credit Clause.15 Moreover, the United States is not a party to any international agreement regarding the recognition of foreign judgments.16 Nevertheless, more than a century ago, in the landmark case of Hilton v. Guyot,17 the Supreme Court of the United States decided in favor of a presumptive recognition of foreign judgments, subject to certain requirements, including a reciprocity requirement with the country seeking to enforce said judgment.18
While Section 304 employed some degree of judicial analysis of weighing policy interests and examining various factors,19 including comity, in recognizing a foreign insolvency proceeding, Chapter 15 streamlined the process and made recognition fairly automatic provided the requisite procedural elements were met.20 Upon the bankruptcy court's recognition of a foreign main or non-main proceeding, Chapter 15 relatively clearly enumerates various forms of relief which may be granted to the foreign representative of the petitioning debtor, as well as certain powers and duties which may be vested in the foreign representative vis-à-vis the administration of the Chapter 15 case.21 Chapter 15 is also clear that interim relief may be granted to the foreign representative upon commencement of the Chapter 15 case and until the petition for recognition is decided by the bankruptcy court.22 When it comes to the issue of claims administration, however, Chapter 15 is not so clear. Chapter 15 does not explicitly provide for a local, territorialist claims administration process to be conducted in the United States, nor does it explicitly state, without reservation, that the Chapter 15 case will defer all claims adjudication to the home country. Rather, Section 1521(b) provides that "[u]pon recognition of a foreign proceeding, whether main or nonmain, the court may, at the request of the foreign representative, entrust the distribution of all or part of the debtor's assets located in the United States to the foreign representative or another person, including an examiner, authorized by the court, provided that the court is satisfied that the interests of creditors in the United States are sufficiently protected."23 The notion of protection of local, U.S. interests and public policy appears elsewhere throughout Chapter 15.24
In practice, this has manifested in several different ways. Where the claims administration process in the foreign proceeding does not seem to infringe upon the public policy exception embodied in Section 1506, U.S. bankruptcy courts have simply recognized and enforced the claims procedure as binding on U.S. parties in interest. This was the case in the Chapter 15 proceedings of Alitalia,25 Quebecor World Inc.,26 and De Coro Limited.27 On the other hand, where the public policy exception may be implicated, the Chapter 15 court may make recommendations regarding the claims procedure's modification before recognizing and enforcing same. For example, in the matter of Ephedra Products Liability Litigation, the Bankruptcy Court for the Southern District of New York approved the recognition and enforcement of a foreign claims procedure in Canada, but only after the Canadian claims procedure was amended to provide for notice and opportunity to be heard by claimants.28
In at least one instance, the Chapter 15 court expressly reserved its ability to review any proposed distribution to be made in the foreign main proceeding to ensure that such distribution was consistent with protecting the interests of U.S. creditors.29 "[I]t was clear from the start that Judge Bentz expressed reservations about the distribution of Railpower U.S. assets in the Canadian Proceeding which is why every key order he entered in the Chapter 15 case included a provision to the effect that Railpower U.S. assets were not to be distributed in the Canadian Proceeding without the prior approval of this Court."30 In the case of De Coro Limited, the Bankruptcy Court for the Middle District of North Carolina approved the recognition and enforcement of the claims procedure in Hong Kong, the debtor's home country. Subsequently, the Internal Revenue Service sought to be carved out of the approved claims procedure, contending that its tax claim would not be recognized in a Hong Kong insolvency court, and therefore, it would be "manifest injustice" within the meaning of Section 1506 to be bound by such claims process. The Bankruptcy Court rejected this argument as speculative and consisting "entirely of supposition" on the part of the Internal Revenue Service.31 The Bankruptcy Court thus directed the Internal Revenue Service to file its claim against the debtor in the Hong Kong proceedings. However, some of the concerns raised by the Internal Revenue Service in connection with the perceived non-recognition of its claim abroad are discussed in the next section of this paper. Nevertheless, creditors must be careful when filing claims in cross-border bankruptcy cases. Unless case protocol specifically calls for claims to be filed in the Chapter 15 case, a U.S. trade creditor filing its claim in a U.S. non-main proceeding – and not where the foreign main proceeding is pending – will likely lead to disallowance of the claim.32
Once it is determined where a creditor must file its claim, the issue then becomes how that claim will be treated for distribution purposes. The Model Law mandates a minimum level of fair "treatment" of creditors – that is, foreign creditors must be treated in the same manner that local creditors are treated, including the rights associated with participating in the local insolvency proceedings.33 This is different, however, than the "treatment" of a particular foreign creditor's claim. In that regard, the Model Law does not mandate universal cross-priority of claims, and requires only that a foreign creditor's claim be treated as well as a similarly situated general unsecured creditor's claim.34 The Model Law leaves to each enacting country, at its option, whether to recognize foreign priority claims and foreign revenue claims.35 Affording cross-priority to foreign claims is one thing where there is only one insolvency proceeding pending in one court; it is another matter entirely where there are multiple ancillary proceedings pending in various jurisdictions. Simply put, in many instances, different countries afford vastly different priorities to seemingly similar claims. For example, consider the various treatments of secured creditors' claims compared with employee claims around the world: (i) countries where employee claims trump those of secured creditors include Chile, Columbia, Indonesia, and Mexico; (ii) countries where secured creditors' claims enjoy priority over claims of employees include Austria, Canada, Japan, Malaysia, South Africa, the United States; and (iii) countries where employee claims do not enjoy any priority a all, and are simply paid together with those of "common creditors" include Estonia and Germany.36 This can serve as an impediment to the overarching spirit of cooperation and comity embodied by the Model Law and other transnational regimes, and increase tensions between countries hosting what ought to be cooperatively parallel proceedings in a cross-border case. Perhaps nowhere is this tension more evident than in the recognition and treatment of foreign tax claims.
IV. The Revenue Rule and Traditional Policy Regarding Foreign Tax Claims
Foreign tax claims present a special set of problems in international insolvency proceedings in part because a foreign tax claim is often unenforceable in countries outside that in which the claim arose. In the United States, the refusal to recognize foreign revenue or penal judgments runs contrary to the general presumption of enforceability of foreign judgments as articulated by the Hilton v. Guyot court.37 This presumption against recognition of foreign tax claims traces its more than 200-year old history to English common law. In 1775, in deciding the contract case of Holman v. Johnson, Lord Mansfield wrote that "... no country ever takes notice of the revenue laws of another."38 The historical reasons for this refusal to recognize foreign tax claims – termed the "revenue rule" – are varied and generally policy-driven, but two of the most commonly cited are (i) that enforcement of foreign tax claims would require some review and analysis of those claims, and may result in the enforcing nation declaring the tax law upon which the claim is based to be invalid, which may in turn result in embarrassment and tension between the countries; and (ii) that courts generally lack the necessary competence or context to properly understand, evaluate, and enforce tax claims arising in other nations.39
The revenue rule was explicitly incorporated into American jurisprudence in the case of Her Majesty the Queen v. Gilbertson,40 which involved Canadian taxing authorities attempting to levy certain logging taxes against U.S. citizens in Oregon. In recognizing that the Supreme Court of the United States had not previously opined directly on the revenue rule, the Ninth Circuit nonetheless confirmed that the revenue rule has long been a doctrine recognized in the United States: "since its inception [the revenue rule] has become so well recognized that this appears to be the first time that a foreign nation has sought to enforce a tax judgment in the courts of the United States ... The revenue rule has been with us for centuries and as such has become firmly embedded in the law."41 The revenue rule, or some variation thereof, has been applied in other countries, such as Canada, England, Ireland, and France.42 Essentially, in the absence of a tax treaty explicitly providing for the reciprocal treatment of tax claims between two countries, those countries should expect that their respective tax claims may simply not be recognized in courts abroad.43 Recently, the Bankruptcy Court for the Southern District of New York denied millions of dollars in tax claims filed by the Republic of Indonesia against a U.S. debtor in a Chapter 11 proceeding, citing that "the Revenue Rule is firmly entrenched in the law of the Second Circuit" and that the doctrine of stare decisis left the court with no choice but to apply the rule and deny the Republic's claims.44
The revenue rule has certainly been met with its share of criticism: "[i]n an age when virtually all states impose and collect taxes and when instantaneous transfer of assets can be easily arranged, the rationale for not recognizing or enforcing tax judgments is largely obsolete."45 In the context of international insolvency, the Model Law, Chapter 15, and the ALI Project are noticeably silent regarding the recognition and enforcement of foreign tax claims. This lack of guidance cuts against the generally (modified) universalist philosophies embraced by these doctrines, and leaves open the issue of finding a more workable solution which both comports with the more rigid framework of the universalist model while simultaneously addressing the international concerns giving rise to the revenue rule in the first place.46 In order to be practical in its application, any such solution will likely require the abandonment – or at the very least, significant retooling – of the revenue rule and the manner in which countries treat foreign tax claims, if only in the limited "universe" of bankruptcy proceedings.
Upon its enactment, Chapter 15 specifically declined to "change or codify present law as to the allowability of foreign revenue claims or other foreign public law" in cross-border proceedings subject to its terms.47 A solution which is both practical and implementable must therefore be fashioned. The first potential solution is not so much a new paradigm for the treatment of foreign tax claims in transnational insolvency proceedings, but rather a continuation of the manner in which the United States already attempts to address foreign tax claims – bilateral tax treaties. The United States maintains tax treaties with a number of foreign countries.48 These treaties seek, among other things, to correct the issue of double-taxation, and often provide for reductions or exemptions of certain kinds of taxes imposed on foreign residents in a reciprocal manner. Tax treaties also provide relief from many of the concerns underlying the revenue rule. For example, the presence of a tax treaty between two nations will eliminate the need for judicial scrutiny – and thus potential embarrassment and tension – as the enforcing country will simply be applying the enforcement set forth in the treaty. Similarly, the judicial competence and context concern is eliminated by an ex ante understanding of the terms of the treaty, and a mechanical application of its terms with respect to foreign tax claims.49 Finally, concerns regarding national sovereignty and furthering the laws of another nation are ameliorated by a reciprocity requirement under the applicable treaty.50 However, while at first glance tax treaties seem to address some of the problems associated with the revenue rule, it should be noted that treaties typically only contemplate double-taxation issues, and do not specifically mandate recognition of foreign tax claims in insolvency proceedings. Moreover, tax treaties as a solution to the treatment of foreign tax claims seems relatively inefficient, in that each country would be left to negotiate the terms of multiple bilateral treaties with other countries on a case-by-case basis.
Moreover, if foreign tax claims are to be recognized abroad, what priority (if any) should they be given? There exist a number of policy arguments both for and against affording tax claims priority in bankruptcy. For example, proponents for tax priority argue that affording tax claims priority protects the revenue base for the common good, and avoids shifting the burden of the debtor's unpaid taxes to be defrayed by other taxpayers.51 Additionally, taxing authorities are statutory, involuntary creditors of debtors, unable to negotiate terms of extending credit or otherwise vested with the advantages that voluntary creditors enjoy, and thus their claims should be given priority over those of general unsecured creditors.52 In contrast, critics of tax priority argue that the tax debts owed by a given debtor are unlikely to be significant in terms of governmental revenue, yet deprive private creditors of any real hope of recovery in a bankruptcy proceeding.53 Moreover, critics of granting priority to tax claims contend that the taxing authorities, unlike most private creditors, are armed with a number of ways in which to collect their taxes due, such as the imposition of default interest and penalties, third-party liability, and governmental liens and levies upon the debtor's assets, which more than make up for the taxing authority's "involuntary creditor" woes.54 Inconsistencies among treaties could result in similar tax claims being subjected to different priority schemes depending upon the country in which such claims originate.
The better solution, it seems, is to include foreign tax claims under the broad umbrella of cross-priority universalism of Chapter 15 and the Model Law, while reserving a public policy exception "safety valve" to prevent abuse or the recognition of claims which are patently offensive to justice. This would essentially mean a limited abrogation of the revenue rule in the narrower context of claims administration in international insolvency proceedings, and would help to foster the overarching goals of cooperation and communication. Similar to the treaty approach, presumptive recognition and enforcement of foreign tax claims in insolvency proceedings also would also solve many of the problems caused by unpredictability under the current regime, such as whether the claim will be recognized and what priority will be afforded to the claim if it is indeed recognized. Presumptive recognition and enforcement would also provide less incentive for non-home countries to commence their own ancillary proceedings, and increased trust and deference to a centralized home country proceeding will in turn decrease administrative costs to the insolvency estate. Cross-priority thus appears to be an attractive option, provided the public policy exception is properly framed and invoked only when necessary.
In order for cross-priority of foreign tax claims to be a realistic option in international bankruptcy proceedings, there must nevertheless remain some sort of public policy exception similar to that found in doctrines providing for the enforcement of foreign judgments.55 The difficulty with such an exception lay in properly defining its scope. If the exception is too narrowly tailored, then its invocation may be hindered, resulting in foreign tax claims which are manifestly unjust in countries in which they are filed. On the other hand, if the exception is too broad, then it simply eviscerates the notion of recognition and cross-priority in the first place, giving rise to many of the problems the revenue rule sought to prevent entirely, such as broad case-by-case judicial examination and application of the tax claims of other nations. Rather, the public policy exception should be implicated only when the foreign tax claims at issue are "crooked" or "illegal,"56 or where the claims so exceed some definable threshold that they may be considered to be unduly burdensome or unenforceable as manifestly unjust.57
V. Conclusion
While the revenue rule seems to be historically entrenched in American jurisprudence, perhaps it is time to reconsider its application, if only in the insolvency context. A default rule in favor of non-recognition only leads to an increase in territorialist ancillary proceedings, commenced in an effort to protect the interests of local taxing authorities. This of course then leads to increased administration costs, which in turn only serves to act as a detriment to creditors as a whole. The better course, it seems, is some sort of broad scale implementation of a universalist approach, whereby tax claims – whether domestic or foreign – are afforded the same priority across the board, and subject only to judicial review of the "home court" when the basis underlying such foreign claims is patently offensive to the law of the home jurisdiction. In any event, whether or not there exists a perfect solution to these problems, the authors remain hopeful that future revisions to Chapter 15 and cross-border insolvency protocols abroad recognize the issues caused by an international tendency to not recognize foreign tax claims, and at least attempt to address those issues head-on.
Footnotes
a1 Stephen M. Packman is a shareholder with Archer & Greiner, P.C. in Haddonfield, New Jersey, and chairs the firm's Bankruptcy (Debtor/Creditor Rights) practice group. He is a member of the inaugural class of INSOL Fellows.
a2 Douglas G. Leney is an associate with Archer & Greiner, P.C. in Haddonfield, New Jersey, and a member of the firm's Bankruptcy (Debtor/Creditor Rights) practice group.
1 Title 11 of the United States Code, 11 U.S.C. §§ 101, et seq. (the "Bankruptcy Code").
2 The addition of Chapter 15 was among many amendments to the Bankruptcy Code under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA"), which was enacted on April 20, 2005.
3 These texts include, for example, the UNCITRAL 1997 Model Law on Cross-Border Insolvency (the "Model Law"), the American Law Institute's Principles of Cooperation in Transnational Insolvency Cases Among Members of the North American Free Trade Agreement (the "ALI Principles"), and the European Union Insolvency Regulation (the "EU Regulation").
4 Lynn M. LoPucki, The Case for Cooperative Territoriality in International Bankruptcy, 98 Mich. L. Rev. 2216, 2220 (2000).
5 Jonathan M. Weiss, Tax Claims in Transnational Insolvencies: A "Revenue Rule" Approach, 30 Va. Tax Rev. 261, 269 (2010).
6 Jay Lawrence Westbrook, A Global Solution to Multinational Default, 98 Mich. L. Rev. 2276, 2292 (2000).
7 Of course, this assumes that a given debtor's "home country" may be readily determined without dispute. In a global economy where the countries of a debtor's incorporation, principal place of business, headquarters, inventory, and primary market may all be different, such a determination may itself lead to as much fragmented and protracted litigation as would multiple insolvency proceedings themselves under a territorialist approach.
8 See LoPucki, supra note 4 at 2217.
9 In re Maxwell Commc'n Corp. plc, 170 B.R. 800, 816 (Bankr. S.D.N.Y. 1994).
10 See LoPucki, supra note 4 at 2219.
11 See Weiss, supra note 5 at 274-75.
12 See Weiss, supra note 5 at 276-77.
13 "The extent to which the law of one nation, as put in force within its territory, whether by executive order, by legislative act, or by judicial decree, shall be allowed to operate within the dominion of another nation, depends upon what our greatest jurists have been content to call 'the comity of nations.'" Hilton v. Guyot, 159 U.S. 113, 163- 64 (1895).
14 11 U.S.C. § 304 (repealed 2005).
15 The Full Faith and Credit Clause refers to Article IV, Section 1 of the United States Constitution, which requires that states within the United States must respect the "public acts, records, and judicial proceedings of every other state."
16 Born and Rutledge, International Civil Litigation in United States Courts, (Fifth Edition), Aspen Publishers 2011, p. 1012.
17 159 U.S. 113 (1895).
18 Although not completely abandoned, the reciprocity requirement "is no longer followed in the great majority of State and federal courts in the United States." Restatement (Third) Foreign Relations Law § 481, comment d (1987).
19 These factors are sometimes referred to the "304(c) factors." See 11 U.S.C. § 304(c) (repealed 2005).
20 Zink and Vazquez, U.S. Bankruptcy Code – Chapter 15: The Early Returns, Insolvency Intelligence, Volume 20, Number 2 (March 2007); see also, In re Bear Stearns High–Grade Structured Credit Strategies Master Fund, Ltd., 389 B.R. 325, 333 (S.D.N.Y. 2008).
21 Section 1521 of the Bankruptcy Code provides, in pertinent part:
(a) Upon recognition of a foreign proceeding, whether main or nonmain, where necessary to effectuate the purpose of this chapter and to protect the assets of the debtor or the interests of the creditors, the court may,
at the request of the foreign representative, grant any appropriate relief, including— (1) staying the commencement or continuation of an individual action or proceeding concerning the debtor's assets, rights, obligations or liabilities to the extent they have not been stayed under section 1520
(a);
(2) staying execution against the debtor's assets to the extent it has not been stayed under section 1520 (a);
(3) suspending the right to transfer, encumber or otherwise dispose of any assets of the debtor to the extent this right has not been suspended under section 1520 (a);
(4) providing for the examination of witnesses, the taking of evidence or the delivery of information concerning the debtor's assets, affairs, rights, obligations or liabilities;
(5) entrusting the administration or realization of all or part of the debtor's assets within the territorial jurisdiction of the United States to the foreign representative or another person, including an examiner, authorized by the court;
(6) extending relief granted under section 1519 (a); and
(7) granting any additional relief that may be available to a trustee, except for relief available under sections 522, 544, 545, 547, 548, 550, and 724 (a).
(b) Upon recognition of a foreign proceeding, whether main or nonmain, the court may, at the request of the foreign representative, entrust the distribution of all or part of the debtor's assets located in the United States to the foreign representative or another person, including an examiner, authorized by the court, provided that the court is satisfied that the interests of creditors in the United States are sufficiently protected.
(c) In granting relief under this section to a representative of a foreign nonmain proceeding, the court must be satisfied that the relief relates to assets that, under the law of the United States, should be administered in the foreign nonmain proceeding or concerns information required in that proceeding.
22 See generally, 11 U.S.C. § 1519.
23 11 U.S.C. § 1521(b).
24 See, e.g., 11 U.S.C. §§ 1506, 1522(a).
25 In re Alitalia Linee Aeree Italiane S.p.A., Case No. 08-14321-BRL (Bankr. S.D.N.Y.), Docket Ref. No. 23.
26 In re Quebecor World Inc., Case No. 08-13814-JMP (Bankr. S.D.N.Y.), Docket Ref. No. 7.
27 In re De Coro Limited, Case No. 09-10369-WLS (Bankr. M.D.N.C.), Docket Ref. No. 53. The authors of this paper previously represented the foreign representative from Hong Kong in the debtor's Chapter 15 bankruptcy case.
28 In re Ephedra Products Liab. Litig., 349 B.R. 333, 335 (S.D.N.Y. 2006) ("As to due process, while most of the objectors' objections are frivolous, there were various paragraphs of the June 8 Order that conceivably could have been read as permitting the Claims Officer to refuse to receive evidence and to liquidate claims without granting interested parties an opportunity to be heard. At this Court's initiative, the Monitor proposed amendments to the June 8 Order that entirely cured these problems. The Ontario Court promptly adopted these amendments in its August 1 Order, and it is only as a result that this Court now gives its approval to recognition and enforcement of the Procedure.").
29 In re Railpower Hybrid Technologies Corp., Case No. 09-10198-TPA (Bankr. W.D. Pa.), Docket Ref. No. 23.
30 In re RHTC Liquidating Co., 424 B.R. 714, 725 (Bankr. W.D. Pa. 2010).
31 In re De Coro Limited, Case No. 09-10369-WLS, 2010 WL 5140440 at *4-5 (Bankr. M.D.N.C. , December 13, 2010).
32 Nathan and Horn, Demystifying Chapter 15 of the Bankruptcy Code, Business Credit, National Association of Credit Management, June 2009.
33 See Model Law at art. 13.
34 See Weiss, supra note 5 at 299.
35 Jay Lawrence Westbrook, Multinational Enterprises in General Default: Chapter 15, the ALI Principles, and the EU Insolvency Regulation, 76 Am. Bankr. L.J. 1, 16 (Winter 2002).
36 OECD (2007), Asian Insolvency Systems: Closing the Implementation Gap, OECD Publishing, p. 260.
37 See Born and Rutledge, supra note 16 at 1034.
38 98 Eng. Rep. 1120, 1121 (1775).
39 See Weiss, supra note 5 at 304-05.
40 Her Majesty the Queen in Right of the Province of British Columbia v. Gilbertson, 597 F.2d 1161 (9th Cir. 1979).
41 Id. at 1164-66.
42 Brenda Mallinak, The Revenue Rule: A Common Law Doctrine for the Twenty-First Century, Duke J. of Int'l and Comp. Law, 80, 88-92 (2006); see also, Government of India v. Taylor, [1955] A.C. 491 (affirming the decision of the Court of Appeal in In re Delhi Electric Supply and Traction Co. Ltd., [1954] Ch. 131, in which Jenkins, L.J. said: "I have come to the conclusion that if the claim of the applicant were allowed, subject to ascertainment of quantum, the substance and reality of the matter would be that the English court would be collecting tax for the benefit of another State. That would involve an invasion of the principle which, as I think, must be definitely recognized."); Peter Buchanan Ltd. v. McVey, [1954] I.R. 89, [1955] A.C. 516 (in which the Irish Supreme Court strictly applied the revenue rule in an action on a claim by the Scottish liquidator of the plaintiff company, wound up at the instance of the Scottish Revenue to which taxes of £155,000 were due, against the absconding defendant owner of 99 percent of its shares); Héritiers Vogt v. Feltin, Cass. civ., July 3, 1928, 56 Clunet 385 (1929); Bemberg v. Fisc de la province de Buenos Ayres, Seine, Feb. 24, 1949, 1949 J.C.P. II No. 4816, 1949 Sirey II 101 (standing for the proposition that the general French rule of ordre public is that the French courts will not assist in the collection of foreign taxes).
43 See, e.g., Republic of Honduras v. Philip Morris Cos., Inc., 341 F.3d 1253, 1259 (11th Cir. 2003) (holding that the revenue rule barred the Republic's suit to recover tax revenue because "[t]he political branches undisputedly have not entered into any type of tax treaty with any of the Republics that would allow the Republics to enforce their tax claims underlying this suit in this country."); Att'y Gen. of Canada v. R.J. Reynolds Tobacco Holdings, Inc., 268 F.3d 103, 119–22 (2d Cir. 2001) (discussing at length the tax treaty framework as between the United States and Canada).
44 In re BearingPoint, Inc., et al., Chapter 11, Case No. 09-10691-REG, Docket Ref. No. 1964. The Republic of Indonesia filed multiple proofs of claim to recover taxes allegedly due and owing by PT Barents Indonesia, a nondebtor subsidiary of the Chapter 11 debtor BearingPoint, Inc. Notably, for purposes of its analysis under the revenue rule, the bankruptcy court nevertheless assumed that the domestic debtor BearingPoint, Inc. would have been liable to the Republic of Indonesia for the tax claims at issue, but that the revenue rule's application barred recognition of the claims altogether.
45 Restatement (Third) Foreign Relations Law § 483, Reporters' Note 1 (1987); see also, Kovatch, Recognizing Foreign Tax Judgments: An Argument for Revocation of the Revenue Rule, 22 Hous. J. Int'l L. 265 (2000).
46 See Weiss, supra note 5 at 302-03.
47 Pub. L. 109-8, Title VIII, § 801(a), Apr. 20, 2005, 119 Stat. 138, 15 U.S.C. § 1513(b)(2)(A) (2006); cf. Art. 13, UNCITRAL Model Law on Cross-Border Insolvency; see also, In re Lernout & Hauspie Speech Products, N.V., 301 B.R. 651 (Bankr. D. Del. 2003), aff'd, 308 B.R. 672 (D. Del. 2004) (confirming a plan that proposed to pay to Belgian curators in parallel proceeding additional funds for payment only of claims having priority under Belgian law, including tax and employee claims).
48 A list of the countries with which the United States maintains bilateral tax treaties is available online at http://www.irs.gov/businesses/international/article/0,,id=96739,00.html.
49 See Weiss, supra note 5 at 308.
50 Id.
51 Barbara K. Morgan, Should the Sovereign be Paid First? A Comparative International Analysis of the Priority for Tax Claims in Bankruptcy, 74 Am. Bankr. L.J. 461, 3 (2000).
52 Id. at 4.
53 Id. at 6.
54 Id. at 6-7.
55 See Weiss, supra note 5 at 311-12; see also, Karen E. Minehan, The Public Policy Exception to the Enforcement of Foreign Judgments: Necessary or Nemesis?, 18 Loy. L.A. Int'l & Comp. L. Rev. 795, 807 (1996).
56 See, e.g., In re Yukos Oil Co., 320 B.R. 130 (Bankr. S.D. Tex. 2004). In that case, a Russian company sought relief in the United States from what it considered to be punitive and illegal taxation by Russia. Although the bankruptcy court found that the taxation in fact appeared to have been "not conducted in accordance with Russian law," it nevertheless refrained from deciding the matter, instead dismissing the bankruptcy case on jurisdictional grounds. Id. at 136; see also, In re Yukos Oil Co., 321 B.R. 396 (Bankr. S.D. Tex. 2005).
57 With respect to enforcement of foreign tax claims within the United States, one scholar has suggested a possible threshold of enforcement of tax rates up to the top U.S. marginal tax rates at that time. See Weiss, supra note 5 at n. 300. While other possible standards certainly exist, the point is that the policy exception must set a clearly defined threshold at some level under which foreign tax claims will be enforced and given cross-priority without further examination.
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