The United States, the world’s second-largest exporter of goods and services, is increasingly exporting a less tangible service: bankruptcy jurisdiction.

Foreign companies in need of restructuring are increasingly opting to file for Chapter 11 bankruptcy protection in US courts. Chapter 11 is a provision in US bankruptcy law that enables businesses to restructure their debts and assets, allowing them to continue operations while developing a plan to repay creditors. Since 2020, approximately 70 foreign companies have filed for Chapter 11 in the US Bankruptcy Courts, primarily in the Southern District of New York, Southern District of Texas, and Delaware courts. Chapter 11 filings include both pre-packaged (pre-agreed with a majority of creditors) and free-fall Chapter 11 cases. Notable examples include LATAM Airlines, a Chilean airline with $16 billion in liabilities; Altera Infrastructure, a UK-based oil and gas supplier with $3.7 billion in liabilities; and Diebold Nixdorf, a Dutch ATM manufacturer with $2.7 billion in liabilities.

Some of the factors driving insolvent foreign companies to seek US bankruptcy protection include:

• Access to Debtor-in-Possession (DIP) Financing: Under US jurisdiction, companies can access DIP financing, often while keeping existing management in control, unlike in most foreign jurisdictions where companies are placed under receivership. Additionally, the US capital markets are highly developed and offer substantial liquidity for DIP financing.
• Global and Enforceable Automatic Stay: Upon filing, companies benefit from the suspension of worldwide payment obligations. With many lenders having a US presence or assets, US automatic stay provisions are generally more enforceable than those in other jurisdictions, as lenders are cautious about defying US courts. The proverbial “long arm of justice” is particularly relevant for bankruptcy cases filed under US laws.
• Flexibility and Contracts Rejection: US bankruptcy laws allow companies to reject or renegotiate burdensome contracts and leases, a key factor for asset-heavy businesses such as airlines and infrastructure companies, which need flexibility to secure long-term viability.

The bar for eligibility for Chapter 11 in the United States is relatively low and requires either incorporation under US laws, possession of assets in the US (including intangible assets or bank accounts), US residence, or even retainers paid to US-based professionals (e.g., legal counsel or financial advisors).

While Chapter 11 provides a trusted, flexible, and enforceable bankruptcy framework for international businesses to reorganize and emerge stronger, there are instances in which a local bankruptcy proceeding might be preferred, notably, mitigating professional costs and fees, cross-border issues such as the local recognition of foreign proceedings, or the local concentration and dispersed nature of key creditors and critical vendors.

Hence, foreign companies considering filing Chapter 11 in the United States are strongly advised to engage legal and financial experts with cross-border credentials and a deep understanding of the nuances of both US and international bankruptcy proceedings.