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Foreign Creditors That Participate in Bankruptcy Proceedings Subject to Court's Extraterritorial Control
Description Appeals court held that a foreign bank that participated in a Chapter 7 proceeding involving a U.S. debtor were properly enjoined by the bankruptcy court, along with all other debtors, from bringing any other action in a foreign court against the debtor.
Topic International Law
Key Words Bankruptcy, Extraterritoriality
C A S E   S U M M A R Y
Facts A Hong Kong bank that does business in the U.S. loaned $24 million to Odyssey, an international business. Odyssey's major shareholder, Simon, personally guaranteed the loan. The guarantee states that the law and courts of Hong Kong would govern disputes. Facing debts of $200 million, Simon filed Chapter 7 bankruptcy and listed the loan guarantee as a liability. The bank filed a proof of claim in the bankruptcy court. The bankruptcy court discharged Simon of his debts and enjoined any creditors from further actions against Simon. The bank claimed that the bankruptcy court holding was valid only in the U.S., so it could sue Simon on the debt in Hong Kong. The court rejected that claim. The bank appealed.
Decision Affirmed. "Congress clearly intended extraterritorial application of the Bankruptcy Code." In general, "protection of in rem or quasi in rem jurisdiction is a sufficient basis for a court to restrain another court's proceedings." Hence, an international proceeding may be enjoined in this case and the bank may not sue Simon in Hong Kong. The bank agreed to participate in the bankruptcy proceedings, so it became subject to the court's determination of the matter.
Citation In re Simon, 153 F.3d 991 (9th Cir., 1998)

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