Document Type

Article

Disciplines

International Law

Abstract

To protect or not to protect... On one hand, a viable business is valuable to society and such a business should be assisted if financial hardship jeopardizes its future.' On the other hand, if a business is unable to cope on its own, it should not be put on life support, and if that business is truly valuable to society another will take its place The United States Bankruptcy Code (the "Code") has taken the kinder, gentler road. Chapter 11 of the Code facilitates the reorganization of viable businesses. Although the reorganization process cannot ensure that a once strong business will rise to past glory, its purpose is to remove some of the hurdles stifling redevelopment.

Globalization has cast the Code in an increasingly international light. For example, U.S. entities are doing business abroad; foreign entities are doing business in the U.S.; and multi-entity. corporate conglomerates made up of both U.S. and foreign entities are becoming more commonplace. As a result of globalization, the Code must adapt to new situations and with these new situations, new dilemmas arise. One such dilemma is whether to protect a debtor's subsidiaries when those subsidiaries are important to that debtor's business and income stream. An illustratidn of this is found in Owens Corning's Chapter 11 proceedings.

In the Owens Coming case,' a parent corporation, Owens Corning was the debtor of a consolidated loan of considerable proportion (the "Loan"). Due to lawsuits beginning between 1981 and 1984 concerning asbestos-containing products,6 Owens Coming met financial difficulty and was unable to continue payments on the Loan.' The Loan was guaranteed by Owens Coming subsidiaries, many of which were foreign corporations with viable and successful businesses of their own.8 However, if the creditors called in the Loan, the subsidiaries would become at risk of bankruptcy themselves.9 Owens Coming and select subsidiaries filed for and were granted reorganization protections, including the automatic stay pursuant to § 362 of the Code. Foreign subsidiaries were not included in these proceedings.

Although guarantors are generally not protected by the debtor's proceedings, 2 there have been exceptions to this rule that deserve attention." Further complicating the extension of the Code to protecting foreign subsidiaries is the tendency to apply a "presumption against extraterritoriality.""' Regardless, there are compelling reasons to apply the Code beyond U.S. borders" and offer protection to a foreign subsidiary guarantor.

Using the Owens Coming example, this article will introduce and discuss two issues. The first issue is whether the automatic stay can be applied to foreign subsidiary guarantors. The second is whether parent and subsidiary codependency can trigger the doctrine of piercing the corporate veil and thus protect both the parent and subsidiary during the parent's Chapter 11 proceedings. Part II of this article will discuss the Code as it relates to the automatic stay and its extension to affiliates of the debtor. Part III will introduce the doctrine of piercing the corporate veil ("PCV") and illustrate how it has been used in insolvency proceedings. Part IV will address trends in PCV scholarship and the benefits it may have for protecting debtors. Part V will discuss extraterritorial application of the Code and present an example of an international insolvency proceeding. Part VI will continue discussion of the international arena and address the importance of "universalism" in light of trends toward globalization. Universalism is most important when considering comity and the likelihood of success in extending the Code outside the U.S.

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