(SRI) - A federal bankruptcy judge has denied BTA Bank's attempt to use U.S. bankruptcy law to shield it from an overseas legal proceeding, a ruling that limits the reach of the U.S. bankruptcy court in foreign insolvency disputes.
Judge James Peck of the U.S. Bankruptcy Court in Manhattan Monday rejected a bid by BTA to use U.S. bankruptcy law's "automatic stay" provision to protect it from a Swiss legal proceeding.
The dispute concerns a loan agreement from 2008 that documents the terms of a $20 million loan from the Swiss subsidiary of Banque International de Commerce - BRED Paris (BIC-BRED) to BTA. In response to BTA's default in 2009, BIC-BRED sought to attach BTA's assets held in two Swiss banks for repayment of the $20 million loan. BTA then filed suit in U.S. bankruptcy court to hold BIC-BRED in contempt of court for violating the stay.
In finding no ground to hold the French bank in contempt, Peck said that such a reading of the law would convert the U.S. bankruptcy court system into "a global clearing house" for determining the right to move ahead with foreign lawsuits involving businesses with only the most insignificant contacts in the U.S. In his ruling, Peck limited the application of the automatic stay to within U.S. borders except in those situations where there is a "demonstrated relationship" between the foreign proceeding and a company's property in the U.S.
Neither BTA nor BIC-BRED have tangible assets or employees within the U.S., conduct no business within the U.S., and their only connections with the U.S. are balances in accounts of correspondent banks located in the U.S., Peck said in his ruling.
Asking a U.S. bankruptcy judge to step into every dispute, no matter how remote, involving a foreign debtor is inconsistent with the goal of supporting a main bankruptcy case in a foreign jurisdiction, Peck said.
"If the provision regarding the automatic stay in chapter 15 cases were to be construed in the manner urged by the [BTA Bank's representative], even the court in the foreign main proceeding in Kazakhstan would be subject to the stay and would need permission from [the U.S. Bankruptcy Court in Manhattan], before taking any action that might impact the foreign debtor," Peck said. "No rational cross-border insolvency regime would give a bankruptcy court in the United States so much unintended automatic extraterritorial power in conjunction with the recognition of a foreign proceeding."
U.S. Bankruptcy Court in Manhattan granted in March BTA's request to recognize its voluntary restructuring pending before the Specialized Financial Court of Almaty City in Kazakhstan as a "foreign main proceeding," as defined under Chapter 15 of the U.S. bankruptcy code.
BTA is expected to finalize the restructuring of its $12.2-billion debt in September, following the creditors' approval in May.