11 U.S.C. Section 1520 - Effects of Recognition

What Is Section 1520?

Section 1520 specifies the legal consequences that automatically follow recognition of a foreign proceeding as a "foreign main proceeding" under Section 1517. The automatic effects are the central practical value of Chapter 15 recognition: instead of having to litigate for protection of U.S. assets piece by piece, the foreign representative obtains an immediate, comprehensive U.S. stay and related protections by operation of law upon recognition.

The Automatic Stay Applies: Section 1520(a)(1)

Section 1520(a)(1) provides that, upon recognition of a foreign main proceeding, Section 362 applies "with respect to the debtor and the property of the debtor that is within the territorial jurisdiction of the United States." This is the most important consequence: U.S. creditors of the foreign debtor are immediately subject to the same automatic stay that would apply in a domestic Chapter 7 or Chapter 11 case.

The stay protects U.S. assets and U.S. activities of the debtor. It does not extend extraterritorially to foreign assets, which are governed by the foreign court's stay regime.

Sections 363 and 549 Apply to U.S. Assets: Section 1520(a)(2)

Section 1520(a)(2) provides that Sections 363, 549, and 552 apply "to a transfer of an interest of the debtor in property that is within the territorial jurisdiction of the United States to the same extent that the sections would apply to property of an estate." This means:

• Sales of U.S. property of the debtor outside the ordinary course of business require court approval (Section 363(b)).
• Postpetition (post-recognition) unauthorized transfers of U.S. property can be avoided (Section 549).
• Pre-petition security interests in proceeds of pre-petition collateral continue subject to Section 552 limitations on after-acquired property.

These protections function as a U.S. estate-management overlay even though Chapter 15 does not create a U.S. "estate" in the traditional Section 541 sense.

Right to Operate the Debtor's Business: Section 1520(a)(3)

Section 1520(a)(3) gives the foreign representative the rights and powers of a trustee under Section 363 and Section 552 with respect to the property of the debtor within the territorial jurisdiction of the United States. The foreign representative may, in effect, operate the debtor's U.S. business or administer the debtor's U.S. assets in the same way a U.S. trustee or debtor in possession could.

Restrictions on Other U.S. Proceedings: Section 1520(a)(4)

Section 1520(a)(4) provides that, unless the court orders otherwise, the foreign representative may not commence a domestic case under another chapter of the Bankruptcy Code with respect to the debtor without filing a new petition. This rule prevents accidental or implicit conversion to a domestic insolvency proceeding upon recognition.

Standing in Other U.S. Proceedings: Section 1520(c)

Section 1520(c) provides that subsection (a) does not affect the right to commence an individual action or proceeding in a foreign country to the extent necessary to preserve a claim against the debtor. It also preserves the right of a creditor in a foreign country to seek a preserve-the-claim order in that foreign forum even though the U.S. stay attaches.

Modification of Stay and Other Effects

The Section 1520 effects are subject to all the modification and termination mechanisms that govern Section 362 in domestic cases. Creditors may seek relief from stay under Section 362(d), which becomes available through the Section 1520(a)(1) incorporation. Courts have also held that Section 1520 effects may be tailored by court order under Section 1522 to address protection of creditors and other interested persons.

Foreign Non-Main Proceedings: Different Regime

Recognition as a foreign non-main proceeding does not trigger Section 1520. The foreign representative in a non-main proceeding instead must request specific relief under Section 1521, with the court applying a balancing test that considers whether U.S. creditors and other interested parties are adequately protected. The main / non-main distinction is therefore consequential, not merely categorical.

Major Doctrinal Cases

• In re Bear Stearns High-Grade Structured Credit Strategies Master Fund, Ltd., 374 B.R. 122 (Bankr. S.D.N.Y. 2007) - Discussed scope of automatic Section 1520 effects.
• In re Vitro S.A.B. de C.V., 701 F.3d 1031 (5th Cir. 2012) - Limited Section 1520/1521 relief where foreign plan would have approved non-debtor releases incompatible with U.S. law.
• In re Atlas Shipping A/S, 404 B.R. 726 (Bankr. S.D.N.Y. 2009) - Applied Section 1520 effects and discussed turnover obligations.
• In re Toft, 453 B.R. 186 (Bankr. S.D.N.Y. 2011) - Discussed limits on extraterritorial application of Section 1520.
• In re Qimonda AG, 462 B.R. 165 (Bankr. E.D. Va. 2011) - Applied Section 1522 to tailor Section 1520 effects to protect U.S. licensees of foreign-held intellectual property.
• In re Daewoo Logistics Corp., 461 B.R. 175 (Bankr. S.D.N.Y. 2011) - Discussed scope of asset-transfer restrictions following recognition.

Related Bankruptcy Code Sections

• Section 362 - Automatic stay (applied to U.S. assets under 1520(a)(1))
• Section 363 - Use, sale, or lease of property (applied under 1520(a)(2))
• Section 1515 - Application for recognition
• Section 1517 - Order granting recognition
• Section 1521 - Relief that may be granted upon recognition
• Section 1522 - Protection of creditors and other interested persons