Why Chapter 11 restructurings may reshape creditor dynamics beyond U.S. borders
Recent discussions suggest that Swedish and other European companies are exploring the possibility of filing for Chapter 11 bankruptcy in the United States. While such proceedings can be costly, complex and on occasion on the aggressive side, their implications for creditors—especially those outside the U.S.—highlight the increasing globalisation of financial and legal systems.
Chapter 11: A Strategic Move for Global Companies
Chapter 11 offers financially distressed companies a legal framework to reorganise and protect their assets under the supervision of U.S. courts. For businesses choosing this route, it provides tools such as automatic stays and the ability to renegotiate debt obligations. While Chapter 11 is typically associated with U.S.-based firms, it has become an increasingly attractive option for international companies seeking global solutions to local challenges.
This may appear surprising, given that U.S. court decisions are generally not legally enforceable in Sweden or other European countries. However, as demonstrated by the recent case of Scandinavian Airlines (SAS), which successfully completed a Chapter 11 process, this approach can still be highly impactful. Despite the high costs and the necessity of running a parallel Swedish business reorganisation, the Chapter 11 process proved successful for SAS from its perspective, marking a landmark transaction for a Scandinavian company.
The USD Clearing Market: A Global Lever
Most creditors in such cases are non-U.S. institutions, and, as noted, they are generally under no legal obligation to comply with U.S. court decisions in their own jurisdictions. However, the global reliance on USD clearing systems and access to U.S. financial markets creates significant indirect pressure. Non-compliance with Chapter 11 rulings could jeopardise a creditor’s access to the USD market, posing substantial operational and financial risks.
What This Means for Non-U.S. Banks
European and other non-U.S. banks frequently find themselves adhering to U.S. bankruptcy court directives—not due to enforceability, but as a result of the commercial realities of global finance. Chapter 11 thus serves as more than a restructuring tool for debtors; it also reshapes creditor dynamics by forcing non-U.S. institutions to align with U.S. legal frameworks.
Similarly, U.S. sanctions operate in a comparable manner, whereby European companies, although not legally compelled to comply, do so out of commercial necessity to maintain market access and avoid exclusion.
Rumour or Reality?
While discussions of potential Chapter 11 filings remain speculative in many cases, even the possibility of such a move underscores the interconnected nature of global financial systems. The adoption of Chapter 11 by an international company could signal broader trends, particularly for firms with limited U.S. operations but significant global exposure.
A Precedent for the Future?
The increasing use of Chapter 11 by non-U.S. companies could set a precedent for how cross-border financial challenges are managed. As businesses and their creditors navigate these complex frameworks, the influence of U.S. insolvency laws continues to expand, creating a delicate balance between local legal principles and global market realities.
