Exacting Their Tolling Period: Chapter 15 Debtors Entitled to Benefit of Section 108 of the Bankruptcy Code

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Contributed by Dana Hall

Foreign representatives, in the unlikely event that this vexing issue has been taking its toll on your nightly rest, fret no more – a decision is here.  In a case of first impression, Judge Lifland of the United States Bankruptcy Court for the Southern District of New York determined that a chapter 15 foreign representative is, pursuant to section 103(a) of the Bankruptcy Code, entitled to the benefit of the tolling provisions contained in section 108 of the Bankruptcy Code.  As if this were not, in and of itself, sufficient to ensure a peaceful slumber for foreign representatives fretting the expiration of various statutory deadlines, Judge Lifland also determined that, even if section 108 were not automatically applicable in chapter 15 cases, sections 1507 and 1521(a)(7) of the Bankruptcy Code provide bankruptcy courts with the discretionary authority to extend section 108 relief to chapter 15 foreign representatives.

In In re Fairfield Sentry Ltd., the foreign representatives of the debtor, a former BLMIS (Bernard L. Madoff Investment Securities LLC) feeder fund and chapter 15 debtor, sought to take advantage of the tolling provisions in section 108 to extend several key deadlines for commencing civil suits and continuing certain actions that had already been commenced.  Section 108(a) permits a trustee to commence an action on behalf of a debtor within the period permitted by state law for such action or within two years after the order for relief, whichever is later, and section 108(b) provides a 60-day extension of the time permitted for filing pleadings and performing other acts.  In Fairfield, Judge Lifland, relying in part on an extensive legislative history, determined that the unequivocal language of section 103(a) – “this chapter … appl[ies] in a case under chapter 15….” – mandates that a representative be automatically entitled to the benefit of section 108’s tolling provisions.

Judge Lifland rejected the objecting parties’ argument that the omission of section 108 from section 1520 of the Bankruptcy Code, which enumerates the effects of recognition of a foreign main proceeding, precludes the separate relief that section 108 provides.  The objecting parties had argued that because section 1520 specifically grants a foreign representative the ability to “exercise the rights and powers of a trustee under and to the extent provided by sections 363 and 552…,” the foreign representative was limited exclusively to the benefit of those sections.  Judge Lifland, however, determined that it would have been superfluous for Congress to include section 108 within section 1520 given its explicit incorporation via section 103(a).  Judge Lifland similarly rejected the objecting parties’ argument that the foreign representative was not a “trustee” for purposes of applying section 108.  Rather, Judge Lifland determined that, because “trustee” is specifically defined in section 1502(6) of the Bankruptcy Code to include, but not necessarily be limited to, a “trustee, debtor in possession in a case in any chapter of this title, or a debtor under chapter 9 of this title,” relief was not necessarily precluded for a foreign representative.  Notably, however, the definitions provided in section 1502 apply only for purposes of chapter 15.  As such, it is not certain that a uniquely defined term in chapter 15 would necessarily apply to an interpretation of a general provision included in the first chapter of the Bankruptcy Code.  Nonetheless, citing Local Union No. 38. Sheet Metal Workers’ Intern. Ass’n v. Custom Air Sys., Inc., a case in which the United States Court of Appeals for the Second Circuit determined that section 108(b) applied to a debtor in possession, Judge Lifland similarly determined that, where an entity such as a foreign representative essentially functions as the trustee, such entity will generally be afforded the protections of section 108.

In addition to finding that section 103(a) provides automatic application of the section 108 tolling provisions to a foreign representative in a chapter 15 case, Judge Lifland also determined that sections 1507 and 1521(a)(7) of the Bankruptcy Code grant a bankruptcy court sufficient flexibility to apply, in its discretion, section 108 to a chapter 15 foreign representative.  Section 1507 permits a bankruptcy court to “provide additional assistance” to a foreign representative under the Bankruptcy Code or other applicable laws, and section 1521(a)(7) enables the court to grant any additional relief, with the exception of several provisions not relevant here, otherwise available to a trustee when such relief is “necessary to effectuate the purpose of [chapter 15] and to protect the assets of the debtor or the interests of the creditors.”  Finding that the foreign representative would, by application of section 108, be enabled to undertake further investigations, commence further actions, and thereby recover additional funds for creditors, Judge Lifland permitted the foreign representative in Fairfield to rely on the tolling provisions of section 108 pursuant to the broad discretion provided under sections 1507 and 1521(a)(7).  Unsurprisingly, Judge Lifland also determined that the date of the “order for relief” referenced in section 108 is, for chapter 15 purposes, the date on which a bankruptcy court grants recognition of a foreign main proceeding.

Although Judge Lifland’s conclusions may seem unsurprising to those practitioners familiar with chapter 15 and the specific language of section 103(a), this case of first impression is significant because, in no unclear words, it ensures the benefit of section 108’s tolling provisions to a foreign representative in a chapter 15 case.  So foreign representatives, don’t fret, you’ve still got time…at least in the SDNY.