The Extraterritorial Reach of Avoidance Actions: Still Up in the Air

A recent case from Chicago's bankruptcy court in the Florsheim Group bankruptcy, (2005 WL 2461145) (Bankr. N.D. Ill., 9/30/05), examines the extraterritorial reach of preference actions, in this case against a Taiwanese company that voluntarily contracted with the debtor to deliver goods in the United States, but otherwise had no connection with the US. With the parties wisely stipulating to the relevant facts, resolving certain defenses, and agreeing to the amount of judgment if the debtor should prevail, three related issues remained for resolution by the Court:

© Steve Jakubowski 2005

1) whether the preferential transfers occurred in the United States or abroad;


2) if the transfers occurred abroad, whether Congress intended §§ 547 and 550 of the Bankruptcy Code to apply extraterritorially; and

3) in any event, whether principles of international comity weigh against applying § 547 to the transfers.

After careful review, the court concluded that the preferential transfers occurred primarily in the United States, and that it therefore didn't have to consider the most interesting question--that is, whether Congress intended to apply § 547 extraterritorially. The court concluded that principles of international comity don't apply either since there was no parallel proceeding in any other country that competed with the bankruptcy case, and entered judgment in favor of the debtor in the amount agreed between the parties.

This case is a quick and worthwhile read for those of you involved in preference litigation that raises extraterritoriality concerns.


Steven Jakubowski