Defining the Foreign Sovereign Immunity Act – Kyrgyzstan case setting the precedent for future Chapter 11 cases

International LawBankruptcy is getting more and more complex as new national and international business laws are created. Bankruptcy cases, otherwise known as Chapter 11 cases in the United States, become increasingly difficult when the debtee works to remove any ability for the debtor to rectify or contest the situation in any way – which is what has happened overseas between Kyrgyzstan and the Kumtor Gold Company.

This case presents significant implications and questions for the greater world stage about the limitations and exceptions of the FSIA; otherwise known as the Foreign Sovereign Immunity Act.

In 1976, the Foreign Sovereign Immunity Act was passed – regulating the steps that must be taken before a suit can be opened against a foreign sovereign. These steps apply specifically to international or foreign debt collection and management.

This allows most situations in which foreign sovereigns can encounter litigation to be nullified on foreign soil unless it violates any number of strict exceptions. An example of this outlined by the FSIA would include an intentional waiver of rights from the foreign entity, or damages incurred if the foreign state was a co-conspirator of a terror plot.

Earlier this year, Kumtor Gold Co. (ancillary company of Centerra Gold, Inc.) had to close one of the largest gold mines in the jurisdiction of the company – something made possible by Kyrgyzstan passing a labor law that would allow the seizure of such entities in the case of employee injury, safety risk, or exploitation.

The Kyrgyzstan government continued to limit options for Kumtor Gold Co., using the local governmental court system to fight for a motion that would prohibit Kumtor from recouping any financial losses – as some companies do under Chapter 11 cases when bankruptcy has been filed and subsequently granted.

At this point in the case, Kyrgyzstan was passing the rulings via the Foreign Sovereign Immunity Act, further adding to the injunction that the case would not be tried in the U.S. court system.

As this was going on, in an effort to regain critical legal footing, Kumtor proceeded to attempt to file what is known to be an adversary action with the New York bankruptcy court system. This would be essentially granting them a separate lawsuit against the Kyrgyrz government due to the swift actions granted by their own governmental court system – and allow the case to be temporarily halted until a further ruling could be made.

The presiding Judge on the case, U.S. Bankruptcy Judge Lisa G. Beckerman advised that while there may be legal standing in Kumtor’s attempt to file an adversary action, the requirements to do so properly were not fulfilled. More specifically, according to Law360, she had advised that the proper notice was not given to the Kyrgyrz government for Kumtor’s adversary action to be granted.

Judge Beckerman did grant Kumtor’s request for monetary sanctions on the grounds that they were immediately unable to contest the efforts of Kyrgyzstan’s government-sanctioned seizure on the mine and related assets.

This point in the case is what led to contention among the Kyrgyzstan government, and what leads to ultimately a bigger question for Chapter 11 cases across the globe: At what point is immunity via the Foreign Sovereign Immunity Act (FSIA) revoked? Is there any legal basis for blatant instances of swift and harsh governmental action within their own jurisdiction?

These answers matter – not just for the Kyrgyzstan government and Kumtor, but also for every party who has filed and will file a bankruptcy case to create a smoother legal pathway to resolution in the future.

While it is unfortunate that Kumtor suffered the loss of a high-value financial asset through its largest local mine, there are no obvious exceptions to the Foreign Sovereign Immunity Act that could apply in order for a ruling made by an international court (the U.S. court in this case) to overturn the ruling of the Kyrgyzstan court system. Without the aforementioned exceptions to the FSIA, there is no clear path that would allow the ruling to dictate what the foreign entity does in its own jurisdiction.