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Virgin Atlantic Airways Files Chapter 15 Proceeding in New York. What Does That Mean?

Posted by Sean Cork | Aug 04, 2020 | 0 Comments

Who knew there was a chapter 15 to the Bankruptcy Code?  That is, besides bankruptcy attorneys?  As you may have read by now, Virgin Atlantic Airways, founded by billionaire Richard Branson, filed a petition for recognition under chapter 15 of the U.S. Bankruptcy Code on August 4.  This came straight on the heels of Virgin Atlantic filing an insolvency proceeding in the British high court in London.  All well and good, you may say, but what exactly does it all mean?

Let's start with the U.S. side of things first.  Chapter 15 of the Bankruptcy Code addresses what are known as cross-border insolvencies.  The basic idea is that multi-national businesses, such as an airline, present unique legal issues when and if they become insolvent (or go bankrupt, as we would say in the States).  Virgin Atlantic offers flights to and from the United Kingdom, Europe, the United States, Hong Kong, and many other countries.  This means the company has assets, employees, and liabilities in every country where it flies.  Because a country's jurisdiction generally ends at its borders, this places the company's foreign-based assets at great risk.  For example, the high court in London has little or no power to stop Virgin Atlantic's creditors from seizing assets in New York or Hong Kong.  This weakness has the potential to derail the company's reorganization efforts as well as harm creditors in the home jurisdiction, whose only hope of recovery may hinge upon the very same assets that are at risk in foreign countries.

Chapter 15 is designed to alleviate these issues.  A chapter 15 filing is most often not a “main” case, but is an ancillary proceeding to a foreign-based insolvency case.  The idea is for the foreign debtor, like Virgin Atlantic Airways, to gain access to the U.S. Bankruptcy Courts in order to protect and marshal the company's assets here in the U.S.  This is not a full-blown chapter 11 case, but is rather a vehicle to help a multi-national company like Virgin Atlantic Airways effectuate its insolvency proceeding in the United Kingdom.

The first phase of a Chapter 15 case involves a “foreign representative” seeking recognition from the bankruptcy court of the foreign insolvency proceeding.  This will almost certainly happen here.  Once the Bankruptcy Court “recognizes” the foreign proceeding, Virgin Atlantic Airways will be able to seek many forms of relief in the U.S. Bankruptcy Court, the most important of which is an order staying any creditors from seizing assets or taking any other such steps to collect or enforce a debt.  This will almost certainly be done in this case as well, and is one of the primary reasons the company filed the chapter 15 case.  The more interesting option is whether Virgin Atlantic will use its access to the Bankruptcy Courts to file lawsuits against U.S.-based defendants, especially if the causes of action would not be available to them under U.K. law.  This is a very distinct possibility and one that bears watching in the coming months.

About the Author

Sean Cork

Sean Cork, Attorney Recognized as one of the Best Lawyers in America® on numerous occasions since 2013. Sean Comes to the table with Over 18 years experience advising Fortune 500 companies and hedge funds in bankruptcy, restructuring, and insolvency, including leading complex federal litigatio...

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