A Preference Pendulum: Extraterritorial Application of Avoidance Powers in the SDNY
Christopher K. Kiplok and Dustin P. Smith of Hughes Hubbard & Reed write: A recent decision by the bankruptcy court for the Southern District of New York in 'Spizz v. Goldfarb Seligman &. Co. (In re Ampal-American)', has moved the pendulum away from extraterritoriality back toward a nearer reach of avoidance powers.
June 13, 2017 at 12:00 AM
16 minute read
The Bankruptcy Court for the Southern District of New York is among the world's leading forums for court-supervised restructuring. As such, it routinely confronts complex flows of funds among affiliates and counter parties across the globe. Among other legal challenges, the extraterritorial application of avoidance provisions of the Bankruptcy Code takes on increased prominence in the district. This question is of particular importance in financial firm wind-downs, shipping restructurings, and other global insolvencies where fiduciaries review such essential functions as payments to vendors, pay-downs of credit facilities, distributions to shareholders, investments redemptions, and professional fees.
While the import of this issue is clear, consensus is not. Jurists have reached alternating conclusions on the issue of whether Congress intended the avoidance provisions to apply to foreign transactions. See Picard v. Bureau of Labor Ins. (In re BLMIS) (BLI), 480 B.R. 501 (Bankr. S.D.N.Y. 2012) (ruling for extraterritoriality). But see Sec. Investor Prot. Corp. v. BLMIS (BLMIS), 513 B.R. 222 (S.D.N.Y. 2014) (ruling against extraterritoriality). Contra Weisfelner v. Blavatnik, (Lyondell), 543 B.R. 127 (Bankr. S.D.N.Y. 2016) (ruling for extraterritoriality). Now, a recent decision by the bankruptcy court for the Southern District of New York in Spizz v. Goldfarb Seligman &. Co. (In re Ampal-American), 562 B.R. 601 (Bankr. S.D.N.Y. 2017) has moved the pendulum away from extraterritoriality back toward a nearer reach of avoidance powers.
'Morrison' and Differing Determinations Of Extraterritorial Intent
The “presumption against extraterritoriality” is a long-standing principal of statutory construction by which courts presume that federal law does not to apply to conduct or property outside the United States unless a contrary congressional intent is evident. The primary reason for this rule is to avoid unintended clashes between domestic laws and those of other nations. The U.S. Supreme Court analyzed this presumption in Morrison v. National Australia Bank, where it articulated a two-step approach to determine whether or not the presumption applies in individual cases. 561 U.S. 247 (2010). First, a court must determine if the presumption has been rebutted by a clear affirmative indication either in the statutory text or the underlying legislative purpose of a law that it is meant to apply extraterritorially, in which case the inquiry ends. Id. at 255. Second, in the absence of a clear affirmative indication, the court must apply the facts of the case and decide if the conduct relevant to the statute's focus occurred within the country (territorial) or outside of the country (extraterritorial). Id. at 266-67. If the presumption is rebutted by clear evidence or the conduct relevant to the statute's focus occurred within the United States, then the presumption is overcome and extraterritorial application may proceed; otherwise the court must dismiss the claim.
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