630 B.R. 410
Bankr. D. Del.2021Background
- Bank of America, as administrative agent for the prepetition lenders, moved to dismiss three Singapore-related Chapter 11 petitions: Eagle Hospitality Real Estate Trust (EH-REIT) and two Singapore SPV debtors (EHT‑S1, EHT‑S2).
- EH-REIT is a Singapore real estate investment trust organized under the Securities and Futures Act, governed by a Trust Deed, managed (until removal by MAS) by a REIT Manager, and administered by DBS Trustee Ltd. as REIT Trustee; unitholders are non-U.S. investors.
- The Trust Deed contemplates business activity (borrowing, investments, voting in subsidiaries, distributions) and EH-REIT acted through its trustee to own assets, guarantee loans (including a Houston mortgage guaranty), and incur liabilities; EH-REIT and the Singapore SPVs are parties to a 2019 Credit Agreement.
- After the REIT Manager was removed and unitholder votes failed to appoint a replacement, the REIT Trustee obtained a Singapore High Court order authorizing it to take necessary actions for EH-REIT, including filing U.S. Chapter 11.
- The REIT Trustee filed EH-REIT’s Chapter 11 petition in the District of Delaware; Debtors sought DIP financing and a sale process. Agent argued EH-REIT is not a "business trust" eligible to be a Chapter 11 debtor and that the filings lacked good faith; it also sought abstention under §305.
- The bankruptcy court found (1) Singapore law, not federal common law, governs whether a foreign trust is a "business trust," (2) on Singapore law EH-REIT is a business trust and thus an eligible debtor, (3) the parent debtors’ filings were in good faith, and (4) abstention under §305 was not warranted.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether EH‑REIT is a "business trust" eligible to be a Chapter 11 debtor | Agent: EH‑REIT lacks legal personhood under Singapore law and therefore cannot be an eligible debtor | Debtors: EH‑REIT is a business trust under Singapore law (by statute and practice), carries on business through its trustee, and meets Business Trusts Act / SFA attributes | EH‑REIT is a business trust under Singapore law and thus an eligible Chapter 11 debtor |
| Governing law for trust status determination | Agent: federal common law should govern to ensure uniform bankruptcy eligibility | Debtors/Court: Butner principles require reliance on non‑bankruptcy (foreign) law unless Congress clearly directs otherwise | Court: apply Singapore law (not federal common law) to determine business‑trust status |
| Whether the parent debtors filed bankruptcy in good faith | Agent: filings serve no reorganization purpose, merely delay creditors and extract professionals’ fees | Debtors: filings are part of an integrated, value‑maximizing restructuring and sale process; subsidiaries are properly included | Court: filings were made in good faith; legitimate bankruptcy purpose exists |
| Whether the court should abstain or dismiss under 11 U.S.C. §305 | Agent: foreign‑formation and foreign interests support abstention | Debtors: Singapore court authorized the trustee to file U.S. proceedings; no parallel or hostile foreign insolvency exists | Court: §305 abstention denied; no extraordinary circumstances justify dismissal |
Key Cases Cited
- Butner v. United States, 440 U.S. 48 (1979) (property and entity interests are defined by nonbankruptcy law absent clear congressional directive)
- Tamecki v. Frank, 229 F.3d 205 (3d Cir. 2000) (burden on debtor to prove good faith when movant sufficiently impugns filing)
- SGL Carbon Corp. v. Palo, 200 F.3d 154 (3d Cir. 1999) (good‑faith filing requires legitimate reorganizational purpose and some level of financial distress)
- Heisley v. U.I.P. Engineered Prods. Corp., 831 F.2d 54 (4th Cir. 1987) (wholly‑owned subsidiaries may be included in parent’s Chapter 11 when needed for reorganization)
- In re Northshore Mainland Servs., Inc., 537 B.R. 192 (Bankr. D. Del. 2015) (factors for §305 abstention and analysis of parallel foreign proceedings)
- In re Dille Family Trust, 598 B.R. 179 (Bankr. W.D. Pa. 2019) (petitioner bears burden to establish debtor eligibility under section 109)