Chapter 15 of the bankruptcy code was codified by Congress as part of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. Together with similar foreign laws, chapter 15 is intended to create a uniform system for recognition of foreign insolvency proceedings and co-operation of courts and administrators in insolvencies involving debtors that have assets in multiple nations. Under chapter 15, a representative of a foreign debtor's estate may apply for recognition of the foreign insolvency proceeding by a Bankruptcy Court. On recognition of a foreign proceeding, chapter 15 allows a Bankruptcy Court to grant "any . . . relief that may be available to a trustee" under the US Bankruptcy Code (Bankruptcy Code) other than relief pursuant to a trustee's avoiding powers (11 USC. § 1521).

Avoiding powers include a bankruptcy trustee's ability to, among other things, avoid preferential and fraudulent transfers as well as statutory liens. Avoiding powers often represent a significant source of recovery for a debtor's estate. Chapter 15 specifically grants a foreign representative standing to commence avoidance actions in a case under another chapter of the Bankruptcy Code, such as chapter 11 or chapter 7, on recognition of the foreign proceeding. However, chapter 15 precludes a foreign representative from utilising the Bankruptcy Code's avoidance powers within the context of the chapter 15 case (11 USC. §§ 1521, 1523).

The Joint Official Liquidators (Liquidators) of Condor Insurance, Limited (Condor Ltd), a Nevis-based insurer, filed a chapter 15 proceeding in the Bankruptcy Court for the Southern District of Mississippi. The Court recognised the Nevis liquidation proceeding and accepted the Liquidators' chapter 15 filing. The Liquidators then commenced a related adversary proceeding in the court against Condor Guaranty, Inc and other Condor Ltd affiliates and insiders (Affiliates (collectively)) alleging that Condor Ltd fraudulently transferred over US$313 million of assets to the Affiliates to keep those assets out of the hands of the Condor Ltd's creditors. The Liquidators relied on Nevis law as the basis for bringing their fraudulent transfer claims under chapter 15.

The Affiliates moved to dismiss the adversary proceeding, arguing that by specifically excluding the Bankruptcy Code's avoidance powers from the rights granted to a foreign representative in chapter 15 and by legislating that such powers could only be exercised by a foreign representative in a case under another chapter of the Bankruptcy Code, Congress intended that all avoidance actions, even if they arose under foreign law, be unavailable in a chapter 15 case. Because the Bankruptcy Code precludes foreign insurers like Condor Ltd from filing a case under chapter 7 or chapter 11, the Affiliates argued that the Liquidators' fraudulent transfer claims must fail.

The Bankruptcy Court agreed with the Affiliates and ordered that the adversary proceeding be dismissed. On appeal, the District Court for the Southern District of Mississippi reviewed the legislative history of chapter 15 and, based on that review and the language of chapter 15, upheld the Bankruptcy Court's opinion, finding that chapter 15 is "intended to exclude all of the avoidance powers specified, under either United States or foreign law, unless a Chapter 7 or 11 bankruptcy proceeding is instituted" (In re Condor Ltd., 411 B.R. 314, 319 (S.D. Miss. 2009)).

On appeal from the District Court, the Court of Appeals noted that chapter 15 "directs courts to 'consider its international origin, and the need to promote an application of th[e] chapter that is consistent with the application of similar statutes adopted by foreign jurisdictions' in interpreting its provisions" (Condor at *4; 11 USC. §1508). The Court of Appeals noted that the language of chapter 15 only specifically excludes foreign representatives from pursuing avoidance actions under the Bankruptcy Code and is silent as to the use of non-United States avoiding power laws in a chapter 15 proceeding. This silence, together with Congress's intent to promote consistent application of foreign laws in enacting chapter 15, led the Court of Appeals to find that "a court has authority to permit relief under foreign avoidance law under" chapter 15. Although no other court has ruled on the issue, the Bankruptcy Court for the Southern District of New York has noted in dicta that the District Court's reasoning in the Condor case "is open to question," indicating that courts in other jurisdictions may agree with the ultimate holding by the Court of Appeals in Condor II (In re Atlas Shipping A/S, 404 B.R. 726, 744 (Bankr. S.D.N.Y. 2009)).

The implications of Condor II for creditors in cross-border insolvency proceedings are significant. Although Condor Ltd was precluded from filing a chapter 7 or chapter 11 case because it was a foreign insurance company, the rule in Condor II may lead to foreign representatives in other insolvency proceedings analysing whether the Bankruptcy Code's avoidance powers, or avoidance powers of a foreign jurisdiction will be more advantageous to their estate and commencing avoidance adversary proceedings under chapter 7, 11, or 15 of the Bankruptcy Code depending on the result of their analysis - a practice colloquially referred to as "section shopping".

Unless another court disagrees with the Fifth Circuit, creditors analysing their potential recovery in a multi-jurisdictional insolvency or reorganisation may need to perform avoidance analyses under the avoidance laws of multiple jurisdictions to fully understand possible recoveries on their claims in the bankruptcy proceeding.