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Chapter 15 is a mechanism that allows US and foreign bankruptcy courts to coordinate and collaborate when assets are spread over multiple countries.
It usually accompanies a bankruptcy case in the filer's home country. In Virgin Atlantic's case, the Chapter 15 protection comes as the airline works to finalize a private rescue plan with the support of the UK court system.
Virgin Atlantic filed for Chapter 15 bankruptcy in New York on Tuesday, becoming the latest airline forced into reorganization during the coronavirus pandemic.
The London-based airline flies exclusively long-haul international routes. It suspended all passenger operations in April when the coronavirus pandemic triggered a crash in travel demand. It began flying passengers again in July. It is 49% owned by Delta, with Branson's Virgin Group owning the remaining 51%.
Chapter 15 is an obscure part of the US Bankruptcy Code designed to facilitate cooperation between US courts and foreign bankruptcy courts. It was added to the code in 2005 by the by the Bankruptcy Abuse Prevention and Consumer Protection Act, and replaced section 304 of the code.
In essence, Chapter 15 allows foreign individuals or companies to file for bankruptcy protection in the US in cases where assets in more than one country are involved.
The courts can coordinate, and debtors are protected from creditors coming after US-based assets while a bankruptcy hearing is held in another country.
Often, Chapter 15 is filed in conjunction with "a primary proceeding brought in another country, typically the debtor's home country," according to the US Court website.
In Virgin Atlantic's case, however, the airline has not filed for administration — a form of bankruptcy in the UK — in London courts yet.
Instead, the airline is working to finalize a £1.2 billion ($1.57 billion) private rescue package with creditors. During a Tuesday court hearing in London, a judge gave the go-ahead for a meeting allowing creditors to vote on the restructuring plan, Bloomberg reported.
During Tuesday's hearing, the airline said it would run out of cash in September without the rescue.
According to US Courts, Chapter 15 has five main objectives:
"To promote cooperation between the United States courts and parties of interest and the courts and other competent authorities of foreign countries involved in cross-border insolvency cases."
"To establish greater legal certainty for trade and investment."
"To provide for the fair and efficient administration of cross-border insolvencies that protects the interests of all creditors and other interested entities, including the debtor."
"To afford protection and maximization of the value of the debtor's assets."
"To facilitate the rescue of financially troubled businesses, thereby protecting investment and preserving employment."
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