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Emory Bankruptcy Developments Journal

Abstract

China’s distressed corporate giants are increasingly turning to U.S. bankruptcy courts. Instead of seeking discharge under China’s own bankruptcy system, a growing wave of Chinese megafirms—often state-backed and systemically important—are pursuing cross-border insolvency relief under chapter 15 of the U.S. Bankruptcy Code. This trend raises urgent questions: Why are China’s largest companies reaching across the Pacific to restructure? And how are their filings reshaping entrenched U.S. bankruptcy practices in ways that diverge from other foreign debtors?

At the heart of this phenomenon is a calculated, multi-jurisdictional forum shopping strategy. Chinese debtors typically begin by incorporating a shell entity in an offshore haven. They then initiate a restructuring proceeding in that jurisdiction before seeking chapter 15 recognition in a U.S. court. This sequence is not incidental—it is tactical. It allows debtors to repackage liabilities, circumvent creditor protections, reorder claim priorities, and exploit jurisdictional gaps—obtaining substantive outcomes that would be impermissible had they filed in China or attempted chapter 11 directly in the U.S.

This cross-border arbitrage reflects a convergence of push and pull factors. The U.S. bankruptcy system pulls Chinese debtors in with debtor-friendly procedures, permissive venue rules, market-oriented restructuring norms, and judicial deference to private agreements. These features permit foreign entities without a meaningful U.S. nexus to manufacture venue and access the Bankruptcy Code’s sweeping protections. Meanwhile, China’s own bankruptcy system—politically influenced, procedurally rigid, and hostile to foreign capital—pushes debtors to restructure offshore, often through the artificial siloing of liabilities. These forces create a regulatory vacuum ripe for exploitation.

This Article offers the first systematic analysis of how Chinese debtors are reshaping U.S. cross-border insolvency practices—and what it reveals about the structural vulnerabilities of chapter 15. While domestic forum shopping under chapter 11 has long been a target for legislative reform, the far more corrosive use of chapter 15 by foreign debtors has largely escaped scrutiny. It should not. These debtors are not just passive participants in the U.S. system; they are active disruptors. Their filings distort long-standing doctrines of comity, stretch choice-of-law principles beyond their limits, and set a precedent that incentivizes U.S.-based debtors to pursue similar strategies. In effect, chapter 15 has become an unregulated backdoor—a loophole through which sophisticated debtors can bypass the substantive checks of chapter 11 by simply orchestrating a foreign insolvency proceeding and seeking its recognition in the U.S. To address this distortive effect, we propose a three-part reform agenda for chapter 15.

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