Document Type

Article

Disciplines

International Law

Abstract

In In re Metzeler1 the bankruptcy court for the Southern District of New York held that in an ancillary case under section 304 of the Bankruptcy Code, the representative of a foreign bankruptcy estate may not maintain actions pursuant to the Code preference and fraudulent conveyance provisions, but rather is limited to those actions granted by foreign law. The court also found that preference and fraudulent transfer actions pursuant to foreign law seeking to recover property in the United States are sufficient grounds to bring a section 304 petition, and that when the section 109(a) debtor requirement is met, the foreign debtor need not have either a place of business or leviable property in the United States. The limitation on the use of the preference and fraudulent transfer provisions of the Bankruptcy Code curtails the ability of a foreign representative to take advantage of United States substantive law. Allowing a foreign representative to file a section 304 petition despite the absence of tangible or leviable property makes ancillary relief more readily available. Requiring that the definition of a Code debtor be met restricts this availability.

This note considers the problems involved with the recognition of foreign representatives and their claims prior to the enactment of the Bankruptcy Code in 1978. After examining the structure and conflicting interpretations of section 304, the note outlines the In re Metzeler opinion. The note contends that while the Court's findings that a foreign representative could not make use of American avoidance powers and need not have tangible property in this country are consistent with the fundamental purposes of section 304, the Code does not support the determination that the foreign debtor must comply with the section 109(a) definition of who may be a debtor under the Code. It concludes that as the first in depth analysis of both questions, subsequent cases should follow the Metzeler opinion, less the requirement that the foreign debtor has to qualify as a Code debtor.

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