USA Law and Practice Contributed by: Michael Chernick, Sara Coelho, John Chua and Josh Tryon, A&O Shearman
6.3 Foreign Court Judgments Subject to certain conditions being observed (includ- ing due process requirements and reciprocity), New York courts will generally recognise and enforce the judgments of foreign courts. However, although uni- form laws have been adopted by many US states, when recognition and enforcement of foreign judg- ments are concerned, there is still significant diversity between the states when dealing with procedural and substantive considerations. 6.4 A Foreign Lender’s Ability to Enforce Its Rights A foreign lender’s ability to enforce its rights under a loan or security agreement will depend on the facts and circumstances of each case. Automatically upon the filing of a petition to com- mence insolvency proceedings under the United States Bankruptcy Code, an “automatic” stay comes into effect, prohibiting perfection of interests, termina- tion of contracts, and enforcement activities by credi- tors, with few exceptions. This stay prevents the pro- verbial creditor “race to the courthouse” and provides the debtor with a “breathing spell”, typically to organ- ise a sale or a plan of reorganisation or liquidation. Lenders’ enforcement rights are replaced with rights in the bankruptcy case, and lenders may seek repay- ment from sale proceeds or estate distributions, which may take a variety of forms, including payment of cash or equity, reinstatement of debt, and issuance of replacement obligations. In chapter 11, the reor- ganisation chapter of the Bankruptcy Code, individual creditors are entitled to recover the liquidation value of their claims regardless of how similar creditors placed in the same class vote. Classes of creditors may be bound to a plan when 2/3 in amount and more than 50% in number of the class approve. Class approval is not required; however, if the “cram down” standards are met, which generally prohibit distributions to junior creditors or equity where senior dissenting classes are impaired and require that secured creditors either receive their collateral, its proceeds or its “indubita- 7. Bankruptcy and Insolvency 7.1 Impact of Insolvency Processes
ble equivalent” value, or secured replacement notes. Chapter 7, the liquidation chapter of the Bankruptcy Code, has its own distribution rules. Secured creditors also have the right to credit bid in a sale of their collateral, must consent to the use of cash collateral unless their security interest is “ade- quately protected”, and may seek adequate protec- tion against diminution of the value of their collateral, or relief from the automatic stay for cause. 7.2 Waterfall of Payments The Bankruptcy Code recognises certain rights of lien and payment priority, which are set out in broad strokes below. First, secured creditors are paid from the value of their collateral, subject to estate claims for the costs of maintaining such collateral. Then come administrative claims, priority claims, gen- eral unsecured claims (including deficiency claims of undersecured creditors) and equity, in that order. Administrative claims include expenses of adminis- tering the estate, operating the business on a post- petition basis, and certain statutorily designated items (eg, claims for goods delivered within the twenty days before the petition date and claims arising from a fail- ure of adequate protection). “Priority” general unsecured claims include, among other things, certain taxes and employee claims. Administrative and priority claims must be paid under a plan (some priority claims can be paid over time), and certain priorities apply within these categories. 7.3 Length of Insolvency Process and Recoveries Case length depends on a variety of factors, with the most important being the level of advance planning and creditor agreement at the petition date. In chapter 11 cases, if creditors are solicited on a “pre- packaged” plan and certain notice periods are permit- ted to run prior to filing the case, a bankruptcy case can be as short as a day. More typically, prepackaged bankruptcies take 45-60 days from the petition date.
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