Actionable Ideas for Companies and Sponsors
Foreign Corporations Are Increasingly Utilizing U.S. Chapter 11 Filings to Restructure
The number of foreign companies utilizing U.S. Chapter 11 to restructure their liabilities has increased significantly over the past three months. Most recently, in the wake of the coronavirus pandemic, Avianca, Colombia’s flagship airline ($ 7.3 billion restructuring), and LATAM Airlines of Chile ($18 billion restructuring) both filed Chapter 11 bankruptcy petitions in the United States. Multinational corporations are increasingly recognizing that the United States bankruptcy code provides the best forum to restructure. Moreover, the requirements for foreign companies seeking to file for Chapter 11 protection are not onerous. To establish eligibility to file in the United States a debtor has to be incorporated in the U.S. or have assets or business operations in the U.S. Once a foreign corporation files in the United States, they are able to receive the benefits of the automatic stay, which provides an injunction on a global basis from parties seeking to enforce actions against the company outside of the bankruptcy proceeding. In addition, in the United States, the debtor stays in control of the company, unlike in numerous foreign countries where an administrator or trustee is appointed to run the company until it is sold or liquidated.