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Clarifying the Use of Pre-Litigation Discovery in Chapter 15 Bankruptcy Cases to Investigate Potential Causes of Action

01/07/2022

As cross-border restructurings grow, especially in the wake of the global COVID-19 pandemic, global companies filing for insolvency relief in foreign countries may utilize chapter 15 of the Bankruptcy Code to facilitate the protection of assets located in the U.S. In Chapter 15 proceeding, assistance is available upon recognition of the foreign proceeding under Section 1521 (a) (4) of the Bankruptcy Code to pursue discovery “concerning the debtor’s assets, affairs, rights, obligations, or liabilities.” In a recent matter, In re Comair Ltd., 2021 WL 5312988 (Bankr. S.D. N.Y. November 14, 2021), the court explained when pre-litigation discovery to investigate potential causes of action may proceed.

In Comair, the debtor had commenced a business rescue proceeding in South Africa. The foreign representative commenced Chapter 15 proceedings in the U.S. and sought discovery from the Boeing Company to bolster potential claims against Boeing. The foreign representative sought an order, inter alia, under Section 1521 to permit discovery, compel Boeing to produce documents and examine witnesses who possess information relevant to the investigation into potential claims. The court noted that Chapter 15 is designed to facilitate “protection and maximation of the value of the debtor’s assets.” The foreign representative’s statutory duty under South African law was to “investigate the company’s affairs, business, property and financial situation.” The motion for discovery allows the foreign representative to discharge his duty. The court found that the discovery sought fell within the four corners of Section 1521 (a) (4).

In addition, the court opined that relief under Section 1521 (a) (4) does not require pending litigation. Section 1521 (a) (4) authorizes discovery into “the debtor’s assets, affairs, rights, obligations, or liabilities” without any limitation as to how the foreign representative intends to use that request discovery. Relief under that statute is available to foreign representatives investigating potential causes of action irrespective of how any future litigation proceeds. To find otherwise, the court reasoned would “completely eviscerate the investigatory function that section 1521 (a) (4) is designed to serve.”

Thus, Comair illustrates that chapter 15 can provide broad and flexible assistance to foreign debtors to carry out their duties under foreign law so long as the foreign proceeding is pending. That assistance may be in the form of discovery that could not be obtained in or through the foreign proceeding. For practitioners, that means coordinating proceedings in multiple jurisdictions to enable chapter 15 to have a significant impact on the type and extent of relief sought.

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