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Selecta Determination Provides Further Guidance on Chapter 15 and Bankruptcy Credit Events

The EMEA Determinations Committee's recent bankruptcy determination involving Selecta CDS provides additional insight on the types of chapter 15 filings that are likely to trigger Credit Events.

On October 12, 2020, the Credit Derivatives Determinations Committee ("DC") for EMEA determined that the chapter 15 filing of Selecta Group B.V. ("Selecta") triggered a Bankruptcy Credit Event under credit default swaps ("CDS"). The DC's determination, along with its earlier decisions involving Thomas Cook and Matalan, provides helpful guidance regarding the circumstances in which the filing of a chapter 15 petition will trigger a CDS Credit Event. 

As discussed in our earlier Commentary, the DC previously considered whether a chapter 15 filing had triggered a bankruptcy on two prior occasions and reached divergent conclusions.  

  • In August 2020, the DC determined that Matalan's chapter 15 filing, which sought recognition of an English scheme as a foreign main proceeding, had triggered a Bankruptcy Credit Event. The DC found the relief the company sought, which would automatically include a stay of actions against the company, to be "similar" to a judgment of insolvency or bankruptcy (meeting the requirements of limb (c) of the "bankruptcy" definition).
  • In contrast, last September, the DC held that Thomas Cook's chapter 15 filing did not trigger a Bankruptcy Credit Event. Thomas Cook sought recognition of its own English scheme as a foreign nonmain proceeding and did not seek an automatic stay, and the DC concluded that the relief sought was not similar to an insolvency judgment.  

Unlike recognition of a foreign main proceeding, recognition of a foreign nonmain proceeding under chapter 15 of the Bankruptcy Code does not automatically trigger a stay of actions. Whether or not a stay is granted is within the discretion of the court. So the question remaining after the Thomas Cook and Matalan decisions was whether a petition seeking recognition of a foreign nonmain proceeding and a stay would trigger a bankruptcy.  

The Selecta decision appears to have answered that question in the affirmative, as the DC found that the stay and provisional relief under section 1519 of the Bankruptcy Code sought by the Swiss vending machine operator's petition was indeed similar to an insolvency judgment.

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