In Re: RCS Capital Development v.

PRECEDENTIAL

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
___________

No. 12-2808
___________

IN RE: ABC LEARNING CENTRES LIMITED,
n/k/a ZYX LEARNING CENTRES LIMITED;
A.B.C. USA HOLDINGS PTY LTD,
Debtors in Foreign Proceedings

RCS Capital Development, LLC.,
Appellant

_______________________

On Appeal from the United States District Court
for the District of Delaware
D.C. Civil Action No. 1-11-cv-00245
(Honorable Richard G. Andrews)
______________

ARGUED: March 5, 2013

Before: SCIRICA, JORDAN, and ROTH, Circuit Judges.

(Filed: August 27, 2013)

Carson T.H. Emmons, Esq.
Craig M. LaChance, Esq. [ARGUED]
Daryl M. Williams, Esq.
Baird, Williams & Greer
6225 North 24th Street
Suite 125
Phoenix, AZ 85016

Garvan F. McDaniel, Esq.
Bifferato Gentilotti
800 North King Street
Plaza Level
Wilmington, DE 19801

Counsel for Appellant

Ryan M. Bartley, Esq.
Young, Conaway, Stargatt & Taylor
1000 North King Street
Rodney Square
Wilmington, DE 19801

Howard Seife, Esq. [ARGUED]
Chadbourne & Parke
30 Rockefeller Plaza
New York, NY 10012

Counsel for Appellees

_________________

OPINION OF THE COURT
_________________

2
SCIRICA, Circuit Judge.

RCS Capital Development LLC appeals from an order
of recognition of an Australian insolvency proceeding under
Chapter 15 of the Bankruptcy Code, and an order staying
actions against the debtor, ABC Learning Centres, and its
property in the United States. We must determine whether the
Australian insolvency proceeding should be recognized as a
foreign main proceeding under Chapter 15 of the Bankruptcy
Code, and whether the debtor’s fully-encumbered property in
the United States is subject to the automatic stay under 11
U.S.C. § 1520.

I.

ABC Learning Centres Ltd. is a publicly-traded
Australian company that provided child care and educational
services in Australia, the United States and other countries
through its 38 subsidiaries. It conducted business in the
United States principally through its subsidiaries, ABC
Developmental Learning Centres (USA) Inc. (ABC
Delaware) and the Learning Care Group. In June 2008, RCS
Capital Development LLC contracted with ABC Delaware to
develop child care facilities in the United States, and ABC
guaranteed ABC Delaware’s loan obligations. RCS won a
$47 million verdict on a breach of contract claim against
ABC Delaware in Arizona state court on May 14, 2010. RCS
is a defendant to a Nevada lawsuit brought by ABC Learning
and ABC Delaware, seeking $30 million.

In November 2008 ABC’s directors entered into
Voluntary Administration in Australia, and appointed
administrators to determine whether ABC could be

3
restructured to address its insolvency, or whether it had to be
liquidated.1 Entering into Voluntary Administration breached
ABC’s loan agreements with its secured creditors. This
breach triggered the secured creditors’ rights to realize their
assets through the receivership process prescribed by
Australia’s Corporations Act. Corporations Act 2001
s 554E(3) (Austl.) (hereinafter “Corporations Act”). The
secured creditors exercised that right and appointed a
receiver. ABC was entirely leveraged, so the value of all its
assets was encumbered by its secured creditors’ charges.2

ABC’s directors voted to enter liquidation proceedings
on June 2, 2010, and appointed two of the administrators as
the liquidators to wind up the company. The receivership
continued through the commencement of liquidation
proceedings, and operated in tandem with the winding up.
ABC’s liquidators granted the receiver permission to manage
and operate ABC. A liquidator realizes assets for the benefit
of all the creditors, investigates charges claimed by the
secured creditors, takes an accounting and payment of the
value of assets the receiver realized beyond the amount of the
debenture, and distributes assets on a pro rata basis among
creditors of the same priority.

On May 26, 2010, the administrators-turned-
liquidators petitioned the Bankruptcy Court of Delaware as
ABC’s foreign representatives for recognition of the

1
Insolvency proceedings under Australia’s Corporations Act
of 2001 may commence by appointing an administrator to
determine the company’s solvency.
2
Under Australian law, a charge is a security interest in
property similar to a lien in the United States.

4
Australian insolvency proceedings under Chapter 15 of the
Bankruptcy Code. The petition was filed before the Arizona
verdict was rendered into judgment, and the immediate focus
of the stay was ABC’s suit against RCS in Nevada state court.
The Bankruptcy Court found the liquidation was a foreign
main proceeding that met the recognition requirements and
did not manifestly contravene U.S. public policy. The
Bankruptcy Court ordered recognition and an automatic stay
of actions against ABC and ABC’s property within the United
States’ jurisdiction. The Bankruptcy Court granted RCS’s
motion to lift the stay for the purpose of rendering its Arizona
verdict to judgment, and applying the judgment against the
Nevada action. The District Court of Delaware upheld the
Bankruptcy Court’s orders, noting that RCS was granted all
the relief it initially sought. RCS appeals from the District
Court’s order.

II.3

Congress created Chapter 15 of the Bankruptcy Code
in Title VIII of the Bankruptcy Abuse Prevention and
Consumer Protection Act of 2005. 11 U.S.C. § 1501 et seq.
Under Chapter 15, U.S. bankruptcy courts must recognize a
foreign insolvency proceeding when it is “a collective judicial

3
The Bankruptcy Court had jurisdiction under 11 U.S.C. §
105. The District Court had jurisdiction over the appeal from
the Bankruptcy Court’s final order under 28 U.S.C. § 158(a).
We have jurisdiction over this appeal from the final order of
the district court under 28 U.S.C. § 158(d). We review the
legal standards applied by the district court and the
bankruptcy court de novo. In re DeSeno, 17 F.3d 642, 643 (3d
Cir. 1994).

5
or administrative proceeding in a foreign country . . . under a
law relating to insolvency or adjustment of debt in which
proceeding the assets and affairs of the debtor are subject to
control or supervision by a foreign court, for the purpose of
reorganization or liquidation.” 11 U.S.C. § 101(23); id.
§ 1517(a).4 The statute requires recognition when the foreign
proceeding meets the requirements of section 1502. Id. §
1517(a). “Upon recognition of a foreign [main] proceeding . .
. sections 361 and 362 apply with respect to the debtor and
the property of the debtor that is within the territorial
jurisdiction of the United States.” Id. § 1520(a)(1). Section
362 stays “the enforcement, against the debtor or against
property of the estate, of a judgment obtained before the
commencement of the case under this title.” Id. § 362(a)(2).

Congress enacted Chapter 15 to provide effective
mechanisms for dealing with cases of cross-border insolvency
with the following objectives:

(1) cooperation between . . . courts of the
United States, . . . and the courts and other
competent authorities of foreign countries
involved in cross-border insolvency cases;
(2) greater legal certainty for trade and
investment;

4
A foreign representative must petition for recognition,
which shall be granted where the proceeding is pending in the
country where the debtor has the center of its main interests
(main) or where it has an establishment (nonmain), the
foreign representative is a person or body, and where the
petition meets § 1515 filing requirements. 11 U.S.C. §
1517(a).

6
 (3) fair and efficient administration of cross-
border insolvencies that protects the interests
of all creditors, and other interested entities,
including the debtor;
(4) protection and maximization of the value of
the debtor’s assets; and
(5) facilitation of the rescue of financially
troubled businesses, thereby protecting
investment and preserving employment.

11 U.S.C. § 1501; see also UNCITRAL Model Law on
Cross-Border Insolvency preamble (stating nearly identical
purposes). “Title VIII is intended to provide greater legal
certainty for trade and investment as well as to provide for the
fair and efficient administration of cross-border insolvencies,
which protects the interests of creditors and other interested
parties, including the debtor. In addition, it serves to protect
and maximize the value of the debtor’s assets.” H.R. Rep. No.
109–31(I), at 105 reprinted in 2005 U.S.C.C.A.N. 88, 169
(2005). The statute adopts, nearly in its entirety, the Model
Law on Cross-Border Insolvency promulgated in 1997 by the
United Nations Commission on International Trade Law
(UNCITRAL). Id.

UNCITRAL developed the Model Law on
Transnational Insolvency in response to the challenges of
multinational bankruptcies where multiple insolvency
regimes lacked effective mechanisms for coordination.
Multiple systems limited the ability of any one bankruptcy
regime to protect assets against dissipation, and allowed
creditors to skip ahead of their priority by seizing assets in
foreign jurisdictions. The UNCITRAL Legislative Guide

7
explains the Model Law was designed to address

inadequate and inharmonious legal approaches,
which hamper the rescue of financially troubled
businesses, are not conducive to a fair and
efficient administration of cross-border
insolvencies, impede the protection of the assets
of the insolvent debtor against dissipation and
hinder maximization of the value of those
assets. Moreover, the absence of predictability
in the handling of cross-border insolvency cases
impedes capital flow and is a disincentive to
cross-border investment. . . . Fraud by insolvent
debtors, in particular by concealing assets or
transferring them to foreign jurisdictions, is an
increasing problem, in terms of both its
frequency and its magnitude.

U.N. Comm’n on Int’l Trade Law, UNCITRAL Legislative
Guide on Insolvency Law, at 310, U.N. Sales No. E.05.V.10
(2005). Both the United States and Australia have adopted the
Model Law.

The American Law Institute’s Global Principles for
Cooperation in International Insolvency Cases elaborates “the
overriding objective [is to] enable[] courts and insolvency
administrators to operate effectively and efficiently in
international insolvency cases with the goals of maximizing
the value of the debtor’s global assets, preserving where
appropriate the debtors’ business, and furthering the just
administration of the proceeding.” American Law Institute,
Global Principles for Cooperation in Int’l Insolvency Cases

8
1.1 (2012).5 “[T]he emphasis must be on ensuring that the
insolvency administrator, appointed in that proceeding, is
accorded every possible assistance to take control of all assets
of the debtor that are located in other jurisdictions.” Id. at
cmt. to Global Principle 24. Chapter 15 creates an ancillary
proceeding in the United States to provide support to the
foreign insolvency administrator. Jay Lawrence Westbrook,
Chapter 15 at Last, 79 Am. Bankr. L.J. 713, 726 (2005). The
goal is to direct creditors and assets to the foreign main
proceeding for orderly and fair distribution of assets, avoiding
the seizure of assets by creditors operating outside the
jurisdiction of the foreign main proceeding.

The Model Law reflects a universalism approach to
transnational insolvency. It treats the multinational
bankruptcy as a single process in the foreign main
proceeding, with other courts assisting in that single
proceeding. Westbrook, supra, at 715. In contrast, under a
territorialism approach a debtor must initiate insolvency
actions in each country where its property is found. Id. This
approach is the so-called “grab rule” where each country
seizes assets and distributes them according to each country’s
insolvency proceedings. Id.; see also Andrew T. Guzman,
International Bankruptcy: In Defense of Universalism, 98
Mich. L. Rev. 2177, 2179 (2000).

Chapter 15 embraces the universalism approach. The
ancillary nature of Chapter 15 proceedings “emphasizes the

5
The ALI principles “provide authority for resolution of a
number of issues not fully addressed by Chapter 15 or
addressed only in part.” Jay Lawrence Westbrook, Chapter
15 at Last, 79 Am. Bankr. L.J. 713, 714 (2005).

9
United States policy in favor of a general rule” that our courts
“act . . . in aid of the main proceedings, in preference to a
system of full bankruptcies . . . in each state where assets are
found.” H.R. Rep. No. 109–31(I), at 109 (2005) reprinted in
2005 U.S.C.C.A.N. 88, 171. Congress rejected the
territorialism approach, the “system of full bankruptcies,” in
favor of aiding one main proceeding. Id. “The purpose is to
maximize assistance to the foreign court conducting the main
proceeding.” In re Fairfield Sentry Ltd. Litig., 458 B.R. 665,
678-79 (S.D.N.Y. 2011) (citing In re Condor Ins. Ltd., 601
F.3d 319, 329 (5th Cir. 2010)). “Thus, a Chapter 15 court in
the United States acts as an adjunct or arm of a foreign
bankruptcy court where the main proceedings are conducted.”
Id.

Chapter 15 supplanted Section 304 of the Bankruptcy
Code, which authorized courts to stay U.S. actions against
companies or property subject to a foreign insolvency
proceeding. 11 U.S.C. § 304 (2000) (repealed by Pub. L. 109-
8. Title VIII, § 802(d)(3) (2005)). Section 304 relief was
largely discretionary. See In re Treco, 240 F.3d 148, 155 (2d
Cir. 2001) (explaining that Section 304 “by its terms requires
an exercise of judicial discretion”). Chapter 15 improved
predictability by mandating recognition when a foreign
proceeding meets Section 1517 recognition requirements.
Leif M. Clark, Ancillary and Other Cross-Border Insolvency
Cases Under Chapter 15 of the Bankruptcy Code 10-11
(2008). Before the Model Law, many countries did not assist
U.S. insolvency proceedings, even though the United States
opened its courts to foreign representatives. In re Condor
Ins., Ltd., 601 F.3d 319, 321-22 (5th Cir. 2010). One of the
reasons Congress changed so little of the wording in the
Model Law was to endorse it wholesale, and encourage wide

10
adoption by other nations. Westbrook, supra, at 719.
Mandatory recognition when an insolvency proceeding meets
the criteria fosters comity and predictability, and benefits
bankruptcy proceedings in the United States that seek to
administer property located in foreign countries that have
adopted the Model Law.

Chapter 15 also encourages communication and
cooperation with foreign courts, and authorizes our courts to
communicate directly with foreign courts. 11 U.S.C. § 1525.
Foreign representatives can access U.S. courts to request
enforcement of orders of the foreign proceeding and to stay
actions against foreign debtors’ property in the United States.
Id. §§ 1509, 1520, 1521. Chapter 15 ancillary proceedings
bring people and property beyond the foreign main
proceeding’s jurisdiction into the foreign main proceeding
through the exercise of the United States’ jurisdiction.

A.

In Australia a company’s directors may determine the
company is insolvent and initiate liquidation proceedings.
Corporations Act s 436A. Here, ABC went into Voluntary
Administration, where the appointed administrators
determined whether the company was salvageable. Id. s
438A. In this case, the administrators decided ABC should be
liquidated, and two of the administrators became the
liquidators, responsible for collecting and distributing the
company’s assets to the company’s creditors. Id. ss 478, 556;
Australian Sec. & Invest. Comm’n., Liquidation: A Guide for
Creditors 2 (2012) available at www.asic.gov.au. Only
unsecured creditors are barred from initiating or continuing
legal proceedings against the company. Corporations Act s

11
471B-C. Secured creditors have their own proceeding where
they may appoint a receiver to realize the secured assets, and
distribute the proceeds to satisfy the debts that the property
secured. Id. s 420.

Receivership can function in tandem with liquidation.
Id. s 420C(1). Secured creditors may elect to surrender the
secured assets to the liquidator, and receive distribution
through the liquidation proceeding, or appoint a receiver to
realize the assets. Id. s 554E(3). The receiver represents the
interest of secured creditors, whereas the liquidator represents
the interests of all the creditors. Id. s 420. The receiver’s only
duty to unsecured creditors is to sell the assets for a fair price.
Id. s 420A. But the receiver does not operate entirely
independently from the liquidator. The liquidator has
authority to review the appointment of the receiver, and
monitor the progress of the receivership. Australian Sec. &
Invest. Comm’n., Receivership: A Guide for Creditors 4
(2008) available at www.asic.gov.au [hereinafter
Receivership]. The receiver must pay to the company any
amount realized above the amount of debt owed to the
secured creditors.6 Id. at 2; Corporations Act s 441EA. The
liquidator investigates the charges claimed by secured
creditors, and may challenge asserted charges. Receivership,
supra, at 4. The liquidator may also grant permission to the
receiver to operate and manage the company while the
liquidator proceeds with winding up the company.
Corporations Act s 420C(1)(a).

6
The receiver may also prove to the liquidator it could not
realize the value of all the secured creditors’ charges through
the secured assets, and seek the remainder from the
liquidation process. Corporations Act s 554E(4).

12
 B.

Under Chapter 15 “an order recognizing a foreign
proceeding shall be entered if . . . such foreign proceeding for
which recognition is sought is a foreign main proceeding” and
the petition meets the administrative requirements of Section
1515. 11 U.S.C. § 1517(a). “‘[F]oreign main proceeding’
means a foreign proceeding pending in the country where the
debtor has the center of its main interests.” Id. § 1502(4).

The term “foreign proceeding” means a
collective judicial or administrative proceeding
in a foreign country, including an interim
proceeding, under a law relating to insolvency
or adjustment of debt in which proceeding the
assets and affairs of the debtor are subject to
control or supervision by a foreign court, for the
purpose of reorganization or liquidation.

Id. § 101(23). This definition can be broken down into seven
elements: (i) a proceeding; (ii) that is either judicial or
administrative; (iii) that is collective in nature; (iv) that is in a
foreign country; (v) that is authorized or conducted under a
law related to insolvency or the adjustment of debts; (vi) in
which the debtor’s assets and affairs are subject to the control
or supervision of a foreign court; and (vii) which proceeding
is for the purpose of reorganization or liquidation.

The Bankruptcy Court in this case thoroughly
evaluated these elements and found they were met. RCS does
not challenge that ABC has met the Section 1515
administrative requirements, nor that the liquidation is an

13
administrative proceeding in a foreign country for the purpose
of liquidation, authorized under a law which relates to
insolvency, and is subject to the supervision or control of
Australian courts. The only other U.S. court that has
considered Australian liquidation found it was a foreign main
proceeding. In re Betcorp Ltd., 400 B.R. 266, 285 (Bankr. D.
Nev. 2009).

The Bankruptcy Court recognized the liquidation
proceeding as the foreign main proceeding. RCS
acknowledges that the liquidation is a collective proceeding,
because the liquidator must consider the rights of all the
creditors in distributing assets, and must distribute assets
according to priorities on a pro rata basis. In this case, the
practical effect of the receivership leaves little for the
liquidator to administer, aside from investigating the charges
claimed by the secured creditors.

RCS contends that only the receivership benefits from
Chapter 15 recognition, so that only the receivership was
effectively granted Chapter 15 recognition. The receivership
is not a collective proceeding, because the receiver only
represents the interests of the secured creditors. At oral
argument, RCS conceded that an Australian liquidation
proceeding operating parallel to a receivership could be
granted Chapter 15 recognition “in a case where the secured
creditors only have a portion of the assets.” Oral Argument at
29:24, Mar. 5, 2013. Nevertheless, RCS asserts the
receivership dominates the liquidation proceeding in this case
because ABC’s assets are entirely leveraged, leaving nothing
for the liquidator to distribute to the unsecured creditors. But
that does not affect the collective nature of the Australian
liquidation proceeding. Instead, it turns on the particular facts

14
of ABC’s debts.

Chapter 15 makes no exceptions when a debtor’s
assets are fully leveraged. Subject to the public policy
exception, Chapter 15 recognition must be ordered when a
court finds the requisite criteria are met,7 replacing the
Section 304 list of guiding principles.8 We do not find any

7

Subject to section 1506, after notice and a
hearing, an order recognizing a foreign
proceeding shall be entered if--
(1) such foreign proceeding for which
recognition is sought is a foreign main
proceeding or foreign nonmain proceeding
within the meaning of section 1502;
(2) the foreign representative applying for
recognition is a person or body; and
(3) the petition meets the requirements of
section 1515.
11 U.S.C. §1517(a).
8

In determining whether to grant relief under
subsection (b) of this section, the court shall be
guided by what will best assure an economical
and expeditious administration of such estate,
consistent with--
(1) just treatment of all holders of claims
against or interests in such estate;
(2) protection of claim holders in the United
States against prejudice and inconvenience in
the processing of claims in such foreign
proceeding;

15
exception to recognition based on the debtor’s debt to value
ratio at the time of insolvency. Moreover, we find such an
exception could contravene the stated purposes of Chapter 15
and the mandatory language of Chapter 15 recognition.

C.

“Nothing in [Chapter 15] prevents the court from
refusing to take an action governed by this chapter if the
action would be manifestly contrary to the public policy of
the United States.” 11 U.S.C. § 1506. RCS contends we
should not recognize the liquidation proceeding or uphold the
stay, because the receivership would gain all the benefits of
the ordered relief, and because it is a non-collective
proceeding which contravenes our public policy in favor of
collective insolvency proceedings.

The public policy exception has been narrowly
construed, because the “word ‘manifestly’ in international
usage restricts the public policy exception to the most
fundamental policies of the United States.” H.R. Rep. No.

(3) prevention of preferential or fraudulent
dispositions of property of such estate;
(4) distribution of proceeds of such estate
substantially in accordance with the order
prescribed by this title;
(5) comity; and
(6) if appropriate, the provision of an
opportunity for a fresh start for the individual
that such foreign proceeding concerns.
11 U.S.C. § 304 (2000) repealed by Pub. L. 109-8. Title VIII,
§ 802(d)(3) (2005).

16
109–31(I), at 109 (2005) reprinted in U.S.C.C.A.N. 88, 172;
see also In re Ephedra Prods. Liab. Litig., 349 B.R. 333, 336
(S.D.N.Y. 2006) (explaining why the exception is a narrow
one). “The purpose of the expression ‘manifestly’, . . . is to
emphasize that public policy exceptions should be interpreted
restrictively and that [the exception] is only intended to be
invoked under exceptional circumstances concerning matters
of fundamental importance for the enacting State.” U.N.
Comm’n on Int’l Trade Law, Guide to Enactment of the
UNCITRAL Model Law on Cross–Border Insolvency, ¶ 89,
U.N. Doc A/CN.9/442 (1997).

The public policy exception applies “where the
procedural fairness of the foreign proceeding is in doubt or
cannot be cured by the adoption of additional protections” or
where recognition “would impinge severely a U.S.
constitutional or statutory right.” In re Qimonda AG Bankr.
Litig., 433 B.R. 547, 570 (E.D. Va. 2010). An Israeli
insolvency proceeding was found to be manifestly contrary to
public policy in In re Gold & Honey, Ltd., because the
receivership initiated in Israel after Chapter 11 proceeding
began in the U.S. seized the debtor’s assets, violating the
bankruptcy court’s stay order. 410 B.R. 357, 371-72 (Bankr.
E.D.N.Y. 2009). This conduct hindered two fundamental
policy objectives of the automatic stay: “preventing one
creditor from obtaining an advantage over other creditors, and
providing for the efficient and orderly distribution of a
debtor’s assets to all creditors in accordance with their
relative priorities.” Id. at 372 (discussing “serious
ramifications” if future creditors followed suit and seized
assets under a United States court’s jurisdiction in violation of
its orders). In In re Ephedra Prods. a Canadian insolvency
proceeding was challenged under the public policy exception

17
because it did not afford a right to a jury trial. 349 B.R. at
335. Despite our constitutional right to a jury, Canada’s lack
of a right to a jury trial did not contravene a fundamental
policy because the Canada proceedings afforded substantive
and procedural due process protections, and “nothing more is
required by § 1506 or any other law.” Id. at 337.

The collective proceeding requirement reflects U.S.
policy “‘to provide an orderly liquidation procedure under
which all creditors are treated equally.’” In re
Schimmelpenninck, 183 F.3d 347, 351 (5th Cir. 1999) (quoting
H.R. Rep. No. 95-595, 1st Sess., at 340 (1977)) (“Ultimately,
the interests of all creditors, foreign and domestic, are to be put
on a level playing field, with like-situated claimants being
treated equally.”). It is undisputed that the Australian
liquidation proceeding is a collective proceeding. The
liquidator must distribute assets on a pro-rata basis to creditors
of the same priority. Secured creditors are entitled to recover
the full value of their debts by realizing the value of the assets
securing those debts and submitting an accounting to the
liquidator.

Rather than contravene public policy, recognition
advances the policies that animate the collective proceeding
requirement. RCS seeks to attach assets before the secured
creditors can realize them. Without Chapter 15 recognition,
RCS could skip ahead of the priorities of the secured creditors.
At oral argument, RCS contended this was fair to the other
unsecured creditors, because they too could bring suits in the
United States to attach ABC’s assets. Oral Argument at 29:54,
Mar. 5, 2013. RCS’s approach would eviscerate the orderly
liquidation proceeding, and ignores all priority of debts.
Efficient, orderly and fair distribution are not only the policies

18
behind the collective proceeding requirement, but are some of
the “chief purpose[s] of the bankruptcy laws.” H.R. Rep. 95-
595 1st Sess., at 345 (1977), reprinted in 1978 U.S.C.C.A.N.
5963, 6006 n.380; Katchen v. Landy, 382 U.S. 323, 328
(1966). Without bankruptcy proceedings, creditors would race
to the courthouse to collect from a troubled entity, depleting
assets and enabling some creditors to collect fully on the debts
and others not at all, and with no regard for priority.
Accordingly, it would contravene our policy “to provide an
orderly liquidation procedure under which all creditors are
treated equally” if RCS could evade collecting its debt through
the Australian liquidation proceeding.

Moreover, we are unconvinced the Australian
insolvency proceeding conflicts with our own rules. The
United States Bankruptcy Code prioritizes secured creditors, as
does Australia’s Corporations Act. 4 Collier on Bankruptcy ¶
506.02 (16th ed. 2013). Several courts have refused to turn
over assets under Section 304 to foreign insolvency
proceedings that did not prioritize secured creditors. In re
Treco, 240 F.3d 148, 159-60 (2d Cir. 2001) (refusing to turn
over assets to a Bahamian liquidation proceeding because it
prioritized administrative expenses over secured creditors, and
summarizing other cases denying turnover because the foreign
proceeding failed to sufficiently protect prioritized secured
interests). The sole difference here is that Australian law
allows secured creditors to realize the full value of their debts,
and tender the excess to the company, whereas secured
creditors in the United States must generally turn over assets
and seek distribution from the bankruptcy estate.

The Dutch bankruptcy system also exempts secured
creditors from surrendering their interests to the liquidation

19
process. In re Schimmelpenninck, 183 F.3d at 352. The Court
of Appeals for the Fifth Circuit reviewed the Dutch
proceedings under the precursor to Chapter 15, Section 304.
Id. at 351. To enjoin actions against a foreign debtor’s
property, Section 304 required the estate to be distributed in
manner substantially similar to Chapter 11 preferences. Id. at
365. The Fifth Circuit found the Dutch proceeding distributed
assets in a manner “substantially in accordance with Title 11”
even though it allowed a secured creditor who “holds either a
mortgage or a pledge encumbering that asset [to] exercise his
rights irrespective of the authority of the Curator.” Id.
(“Dutch bankruptcy law clearly is not repugnant to Title 11 . .
. .”). The court further found if the unsecured creditor was
permitted to bring suit he would “unjustly gain a first-
come/first-served preference, [and] the remaining creditors . .
. would suffer a concomitant disadvantage” which “would
oppugn the very equitable foundation on which bankruptcy is
built.” Id. at 351-52.

Australia’s Corporations Act prioritizes secured
creditors with a mechanism similar to the Dutch bankruptcy
regime, both allowing independent enforcement of secured
interests outside the insolvency proceeding. Despite the
different method chosen to create the priority, the Fifth Circuit
found the Dutch proceeding was not “repugnant to [U.S.] laws
and policies.” Id. at 365 (finding “sufficient congruity between
Dutch and American bankruptcy laws to eschew such
repugnance”). The Australian legislators selected a different
method to prioritize secured creditors. Rather than manifestly
contravene our policy, Australian law established a different
way to achieve similar goals. Recognition of the Australian
liquidation proceeding does not manifestly contravene public
policy. On the contrary, allowing RCS to use U.S. courts to

20
circumvent the Australian liquidation proceedings would
undermine the core bankruptcy policies of ordered proceedings
and equal treatment.

D.

Upon recognition of the foreign main proceeding, the
automatic stay under Section 362 applies to multinational
bankruptcies “with respect to the debtor and the property of
the debtor that is within the territorial jurisdiction of the
United States.” 11 U.S.C. § 1520(a). Section 362 provides for
an automatic stay of actions “against the debtor or against
property of the estate.” 11 U.S.C. § 362(a).9 RCS seeks to
enforce its state court verdict against ABC property located in
the United States. RCS contends the secured creditors, not
ABC, effectively own the property because the property is
entirely leveraged, and the receiver has the right to use and
dispose of those assets at its discretion. But the secured
creditors’ equitable interest in the property does not resolve
the question of ABC’s equitable interests.

RCS contends ABC’s assets in the United States are
not “property of the debtor” because ABC only holds bare
legal title to those assets. This argument is based on the
premise that ABC does not hold any equitable interest in its
encumbered property because it is entirely leveraged.

9
Although the stay is generally automatic, a court may
modify, terminate or condition the stay on request of a party.
11 U.S.C. §362(d). In this case, the Bankruptcy Court
modified the stay to allow RCS to bring its verdict to
judgment.

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 We find ABC does retain equitable interest in its
encumbered property. First, the receiver must repay any
amount of the realized assets in excess of the value of the
charges to ABC. Corporations Act s 554H. Second, ABC
retains the right to redeem the encumbered property. Id. s
554F. Third, the liquidator may challenge the charges the
receiver claims on company assets, and if the charges were
found invalid, ABC would retain the encumbered property.
Recievership, supra at 4. Since ABC retains equitable
interests in its property, it is “property of the debtor” and is
subject to the automatic stay under Section 1520(a).

1.

“The Bankruptcy Code does not define ‘property of
the debtor.’” Begier v. I.R.S., 496 U.S. 53, 58 (1990). Outside
of the Chapter 15 context, the Supreme Court has looked to
Section 541 defining “property of the estate” to interpret
“property of the debtor.” Id. (“[T]he term ‘property of the
debtor’ . . . is best understood as that property that would
have been part of the estate had it not been transferred before
the commencement of bankruptcy proceedings.”). But under
Chapter 15 a court does not create a separate bankruptcy
estate. In re Condor Ins. Ltd., 601 F.3d 319, 327 (5th Cir.
2010). Chapter 15 provides for an ancillary proceeding so the
foreign representative does not need to file a new bankruptcy
action in the United States. Id. at 320-21 (citing Clark, supra,
at 35). Accordingly, courts interpreting Chapter 15 have not
found Section 541 relevant to defining “property of the
debtor.” In re Qimonda AG, 482 B.R. 879, 887 (Bankr. E.D.
Va. 2012) (“Upon recognition of a foreign main proceeding,
an estate is not created, as Section 541 of the Bankruptcy
Code is not among the enumerated Sections of the

22
Bankruptcy Code that become operative upon recognition
under Section 1520.”); In re Lee, 472 B.R. 156, 178 (Bankr.
D. Mass. 2012) (“[N]either section 541(a) nor 541(c)(1) are
applicable to a determination of property of the Hong Kong
bankruptcy estates, and the determination of property of the
estates must be made under Hong Kong law.”); In re Atlas
Shipping A/S, 404 B.R. 726, 739 (Bankr. S.D.N.Y. 2009)
(“The statute refers to ‘property of the debtor’ to distinguish it
from the ‘property of the estate’ that is created under
§ 541(a).”). On these facts, we need not decide whether
Section 541 defines “property of the debtor.” Here, ABC’s
property rights under Australia’s Corporations Act would
inform an application of Section 541(d). Under Australian
law ABC holds several equitable interests in the property.
Accordingly, even if we applied Section 541 to define
“property of the debtor,” Section 541(d) would not exclude
ABC’s property in the United States from a bankruptcy
estate.

2.

RCS contends ABC’s assets in the United States are
not property of the debtor because Section 541 defining
“property of the estate” excludes assets in which the debtor
holds empty title alone and no equity. RCS asserts ABC
holds bare legal title alone because the full value of the assets
are leveraged, and the receiver may use or dispose of the
assets at will for the benefit of the secured creditors.10

10
The Bankruptcy Court’s Stay Order appears to apply to the
receiver as well. In order to realize ABC assets in the United
States, the receiver must go through the liquidator as the
foreign representative.

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 Section 541 defines “property of the estate” as “all
legal or equitable interests of the debtor in property as of the
commencement of the case.” 11 U.S.C. § 541. Section 541(d)
excludes property in which the debtor only holds legal title
from the debtor’s estate. 11 U.S.C. § 541(d). Section 541(d)
provides:

Property in which the debtor holds, as of the
commencement of the case, only legal title and
not an equitable interest, such as a mortgage
secured by real property, or an interest in such
a mortgage, sold by the debtor but as to which
the debtor retains legal title to service or
supervise the servicing of such mortgage or
interest, becomes property of the estate under
subsection (a)(1) or (2) of this section only to
the extent of the debtor’s legal title to such
property, but not to the extent of any equitable
interest in such property that the debtor does
not hold.

11 U.S.C. § 541(d). This provision stands for the
unremarkable proposition that property rights the debtor does
not have do not become part of the bankruptcy estate. See
Matter of Cont’l Airlines, Inc., 134 B.R. 536, 541 (Bankr. D.
Del. 1991); 124 Cong.Rec. H11096 (daily ed. Sept. 28, 1978)
(statement of Congressman Edwards) (“To the extent that
such an interest is limited in the hands of the debtor, it is
equally limited in the hands of the estate. . . .”). It pertains to
property such as secondary mortgages and assets the debtor
holds in trust for a non-debtor. 5 Collier on Bankruptcy ¶
541.29; City of Farrell v. Sharon Steel Corp., 41 F.3d 92, 96

24
(3d Cir. 1994) (finding the debtor held employee income tax
withholdings in a trust, and it was not property of the estate);
Cont’l Airlines, Inc., 134 B.R. at 541-42 (“Section 541(d) was
enacted to protect the secondary mortgage market but has
been read expansively to include express and constructive
trusts as well.” (citation omitted)). Section 541(d) “reiterates
the general principle that where the debtor holds bare legal
title without any equitable interest, . . . the estate acquires
bare legal title without any equitable interest in the property.”
124 Cong. Rec. 33999 (1978) (remarks of Sen. DeConcini).

RCS further contends that under Australia’s
Corporation’s Act ABC does not hold any equitable interest
in its fully-leveraged property. The only authority RCS cites
for this proposition is a treatise on Australian insolvency law,
stating “[t]he major practical effect of [debt] crystallization is
that the debenture holder is given equitable interest in the
property secured, which revokes the company’s power to deal
with such assets in the ordinary course of business.” Michael
Murray, Australian Insolvency Management Pract. ¶ 65-500
(CCH). A floating charge crystallizes and becomes a fixed
charge upon default or appointment of a receiver.11 In this
case there is no question the receiver has the power to operate
and manage ABC, and to use and dispose of its encumbered
assets. The question is whether the receiver’s control over the
assets divests ABC of all equitable interests in them.

11
A floating charge is a debt secured by interchangeable
property, such as stocks that may be purchased or sold
frequently. A fixed charge encumbers a specific item of
property. In this case the secured creditors already held fixed
charges in addition to the floating charges that crystallized
when ABC went into Voluntary Administration.

25
 Although the full value of ABC’s assets are leveraged,
ABC nevertheless holds several important equitable interests
in its property. First, it has the right to surplus proceeds from
the sale of the encumbered assets. In United States v. Whiting
Pools the Supreme Court held assets the IRS seized to
enforce its lien were part of the debtor’s estate. 462 U.S. 198,
210 (1983). The IRS was authorized to seize and sell property
belonging to the debtor to satisfy the lien imposed on that
property, and took physical possession of the assets before the
debtor filed for bankruptcy. Id. at 211. The Court held the
property was property of the estate, in part, because the IRS
was obligated to return to the debtor any proceeds from the
sale that exceeded the value of the lien. Id. In Whiting it was
unlikely there would be any surplus because the debt owed to
the IRS was $92,000, but the liquidation value of the property
seized was only $35,000. Id. at 200. Even though the IRS
held an equitable interest in and a right to possess the
property, “[o]wnership of the property is transferred only
when the property is sold to a bona fide purchaser at a tax
sale.” Id. at 211.

The same obligation to pay any surplus from the sale
of assets exists under Australia’s Corporations Act. The
receiver must pay to the company any proceeds from the sale
of assets that exceed the value of the charge. Recievership,
supra, at 2; Corporations Act s 441EA. Although both parties
agree there will be no surplus from the sale of the assets, that
same circumstance did not change the Supreme Court’s
analysis in Whiting Pools. Since the IRS’s lien and control
over the debtor’s assets were insufficient to deprive the debtor
of all equitable interests in Whiting Pools, the same would
appear to be true of the charges and control over ABC’s

26
assets before they are sold. Since the receiver did not sell
ABC’s assets in the United States, under U.S. bankruptcy
law, the assets would be property of the estate and subject to
the automatic stay under Section 362.12

Second, ABC retains the right of redemption under
Australia’s Corporations Act. Corporations Act s 554F(2)
(“The liquidator may, at any time, redeem the security interest
on payment to the creditor of the amount of the creditor’s
estimate of its value.”). U.S. bankruptcy courts consistently
recognize the right of redemption as an equitable interest in
property, which must be turned over to the debtor’s estate. In
re Moffett, 356 F.3d 518, 521-22 (4th Cir. 2004); Charles R.
Hall Motors, Inc. v. Lewis, 137 F.3d 1280, 1284-85 (11th Cir.
1998); 5 Collier on Bankruptcy ¶ 541.05. We also find ABC’s
right of redemption is an equitable interest. Accordingly,
Section 541(d) does not exclude ABC’s property in the
United States from “property of the debtor” because ABC
holds more than bare legal title to the property. Since ABC’s
assets in the United States are “property of the debtor” they
are subject to the automatic stay under 11 U.S.C. § 1520.

III.

RCS could not enforce its judgment against ABC
under either the U.S. or Australian insolvency regimes. RCS

12
We note that this comparison is somewhat strained because
secured creditors must surrender the assets securing their
debts under U.S. bankruptcy law, but not under Australia’s
Corporations Act. This illustrates one of the challenges of
using Section 541 to define “property of the debtor” in the
Chapter 15 context.

27
is an unsecured creditor. Under Australia’s Corporation’s Act,
an unsecured creditor must recover its judgment against ABC
through the liquidation proceeding. Under the U.S.
Bankruptcy Code an unsecured creditor must seek to recover
a judgment through the bankruptcy estate. Allowing an
unsecured creditor to recover a judgment under these
circumstances would require a hodgepodge of United States
and Australian bankruptcy law. This is one of the outcomes
Chapter 15 was designed to prevent by recognizing foreign
main proceedings in United States courts.

For the foregoing reasons we will affirm the District
Court’s order affirming the Bankruptcy Court’s order
recognizing the Australian liquidation proceeding as a foreign
main proceeding, and accompanying orders.

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