603 B.R. 271
Bankr. S.D.N.Y.2019Background
- Ascot Fund Ltd. (Cayman Islands) was a Cayman feeder fund that invested substantially all assets in Ascot Partners L.P. (Delaware), which invested with Bernard L. Madoff Investment Securities (BLMIS). When Madoff's fraud surfaced in 2008, investors lost their investments.
- Ascot Fund suspended redemptions after December 2008 and thereafter primarily participated in litigation (Merkin and Picard actions) related to losses from BLMIS.
- In 2012 the New York Attorney General settled with Merkin ($410 million); Ascot Fund shareholders (not the fund itself) participated in that Merkin Settlement. In 2018 the SIPA trustee (Picard) settled claims with Ascot Partners, yielding substantial allowed customer recoveries for Ascot Partners.
- A dispute arose over the methodology for distributing Ascot Partners’ recovery to Ascot Fund and then to Ascot Fund shareholders. A major investor (Contrarian / Objector hfc Limited) sued in New York seeking a declaration and receiver, attempting to bypass a Cayman liquidation forum.
- Ascot Fund’s board initiated a voluntary liquidation in the Cayman Islands and appointed Joint Voluntary Liquidators (JVLs), who later became Joint Official Liquidators (JOLs) under Cayman court supervision. The JOLs filed a Chapter 15 petition seeking recognition of the Cayman Proceeding as a foreign main proceeding.
- The Southern District of New York Bankruptcy Court held a one-day trial and resolved the sole contested issue: whether Ascot Fund’s COMI (center of main interests) was in the Cayman Islands, warranting recognition as a foreign main proceeding.
Issues
| Issue | Plaintiff's Argument (Petitioner/JOLs) | Defendant's Argument (Objector/hfc) | Held |
|---|---|---|---|
| Whether the Cayman liquidation is a "foreign main proceeding" (COMI location) | COMI is in the Cayman Islands: registered office, directors and management based there; liquidation and governing documents point to Cayman law and forum; shareholders expected Cayman law | COMI is effectively in New York: most substantive post-2008 activity (litigation, settlements) centered in New York; Ascot Fund "soft wind-down" piggybacked on Receiver; Cayman activities are ministerial | Court recognized Cayman Proceeding as a foreign main proceeding; presumption in favor of registered office not rebutted; COMI in Cayman Islands |
| Whether the Chapter 15 petition was improperly filed to manipulate forum or obtain stay | JOLs filed to protect collective Cayman process against Objector’s preemptive New York suit and to allow all shareholders to be heard | Objector argued petition was forum shopping and aimed at thwarting New York litigation and earning fees | Court found no improper COMI manipulation; filing responded to Objector’s preemptive tactics and was legitimate |
| Whether Ascot Fund is eligible under §109(a) and petition meets §1517/1515 requirements | Ascot Fund has U.S. property (limited partner interest in Ascot Partners; retainer; claims), JOLs were properly appointed; Appointment Order provided evidence required by §1515 | Objector did not contest eligibility or technical §1515 compliance | Court held Ascot Fund eligible and procedural requirements satisfied; Petitioner recognized as foreign representative |
| Whether creditors’ location and assets weigh against COMI in Cayman | Shareholders are global but governing documents, subscription agreements, and submission to Cayman jurisdiction show expectation of Cayman law; management and registered office in Cayman | Major asset (Ascot Partners interest / recoveries) situated in U.S. (Delaware/New York) and many substantive actions occurred in New York | Court considered asset location adverse but found overall factors (registered office, governance, governing law, creditors’ expectations, JOLs’ presence) favored Cayman COMI |
Key Cases Cited
- Fairfield Sentry Ltd. v. Krys, 714 F.3d 127 (2d Cir. 2013) (COMI inquiry focuses on where debtor conducts its regular business and is ascertainable by third parties)
- Krys v. Farnum Place, LLC (In re Fairfield Sentry Ltd.), 768 F.3d 239 (2d Cir. 2014) (location of a customer’s SIPA claim tied to trustee’s domicile)
- SPhinX, Ltd., 351 B.R. 103 (Bankr. S.D.N.Y. 2006) (COMI analysis and circumstances where Cayman COMI may be rejected)
- In re Bear Stearns High-Grade Structured Credit Strategies Master Fund, Ltd., 374 B.R. 122 (Bankr. S.D.N.Y. 2007) (denying Cayman main recognition where only adhesive connection was registration)
- Drawbridge Special Opportunities Fund LP v. Barnet (In re Barnet), 737 F.3d 238 (2d Cir. 2013) (§109(a) eligibility for Chapter 15 debtors)
- In re Ocean Rig UDW Inc., 570 B.R. 687 (Bankr. S.D.N.Y. 2017) (Cayman liquidation proceedings recognized as foreign proceedings in Chapter 15 context)
- In re Millennium Global Emerging Credit Master Fund Ltd., 474 B.R. 88 (S.D.N.Y. 2011) (creditors’ expectations and relevant COMI considerations)