543 B.R. 498
Bankr. S.D.N.Y.2016Background
- Chapter 15 case filed by foreign representative Liquidator for Creative Finance and Cosmorex (Debtors) seeking recognition of BVI proceedings; Marex opposes recognition and seeks dismissal under section 305 for bad faith.
- Court addresses two novel issues: whether COMI changed to support recognition as a foreign main proceeding and whether bad faith can deprive recognition or trigger dismissal.
- Court finds COMI did not shift to the BVI due to minimal, nonmaterial activity by the Liquidator pre- and post-filing, orchestrated by Debtors’ principals.
- Establishment in the BVI also fails; Debtors had no nontransitory economic activity or local seat in the BVI.
- Court views bad faith as present but holds it is not dispositive to recognition; discusses potential remedies under other Code provisions.
- Recognition denied for both foreign main and foreign nonmain classifications; Marex’s cross-motion for dismissal is moot.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether BVI proceeding is a foreign main or non-main proceeding | Marex contends COMI moved to BVI and establishment exists | Liquidator argues COMI remained in Spain/Dubai/England; no establishment in BVI | BVI COMI not established; neither main nor non-main |
| Whether the Liquidator’s minimal activity demonstrates COMI change | Marex asserts lack of activity shows COMI manipulation | Liquidator claims minimal statutory duties; no meaningful COMI shift | No change in COMI; recognition denied |
| Whether Section 1506 public policy exception applies | Debtors’ bad faith could trigger public policy denial | Public policy exception is narrow and not warranted here | Section 1506 not invoked; relies on Section 1517 compliance |
| Remedies for bad faith in Chapter 15 context | Bad faith suggests dismissal or stronger relief | Remedies exist under other Code provisions; no need for 305 here | Bad faith acknowledged but does not alter recognition denial; potential stay-relief mechanisms noted |
Key Cases Cited
- Fairfield Sentry Ltd. v. Morning Mist Holdings Ltd. (In re Fairfield Sentry Ltd.), 714 F.3d 127 (2d Cir. 2013) (COMI determination and manipulation concerns in Chapter 15)
- In re SPhinX, Ltd., 351 B.R. 103 (S.D.N.Y. 2006) (COMI factors and recognition standards in international cases)
- In re Bear Stearns High-Grade Structured Credit Strategies Master Fund, Ltd., 374 B.R. 122 (S.D.N.Y. 2007) (analysis of foreign main recognition in letterbox jurisdictions)
- In re Basis Yield Alpha Fund (Master), 381 B.R. 37, 381 B.R. 37 (S.D.N.Y. 2008) (discussion of COMI and establishment concepts in Chapter 15)
- In re British American Insurance Co., 425 B.R. 884, 425 B.R. 884 (Bankr. S.D. Fla. 2010) (recognition and establishment in the Bahamas; establishment concept analysis)