474 B.R. 88
S.D.N.Y.2012Background
- Feeder Fund and Master Fund are Bermudan offshore investment funds with a common three-member Board of Directors.
- Feeder transferred substantial assets to the Master Fund in exchange for a 97% ownership, with novation of service agreements to the Master Fund.
- In 2008 the funds suffered severe cash-flow problems, defaulting on margin calls from Credit Suisse, leading Bermuda Court to wind up the funds.
- The Bermuda Court appointed the Foreign Representatives as liquidators in 2009 to investigate the funds’ financial affairs.
- The Foreign Representatives sought formal discovery from U.S. entities; informal discovery failed, prompting a Chapter 15 petition in the U.S. to recognize Bermuda proceedings.
- Bankruptcy Court recognized Bermuda proceedings as a foreign main proceeding and held that § 108 applies to Chapter 15; BCP appealed both rulings.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| COMI location between Bermuda and the UK | BCP asserts UK COMI given day-to-day management in the UK and investors' contacts. | Foreign Representatives contend Bermuda COMI supported by headquarter location and governing law. | Bermuda COMI supported; UK factors insufficient to override. |
| Timing of COMI determination under Chapter 15 | COMI should be determined at the petition date. | COMI should be determined as of liquidation commencement per the court’s analysis. | Court’s conclusion about Bermuda COMI stands; timing not fatal to ruling. |
| Public policy impact of limiting London arbitration testimony | Restriction violated US public policy favoring openness. | Public policy narrowly construed; evidence was irrelevant to the issue of recognition. | Public policy exception denied; decision affirmed. |
| Applicability of Section 108 relief in Chapter 15 | Section 108 relief should be unavailable due to disclosure issues. | No abuse of comity; no disclosure violation; §108 applies. | §108 relief applicable; appeal rejected. |
Key Cases Cited
- In re SPhinX, Ltd., 371 B.R. 10 (S.D.N.Y. 2007) (COMI factors must be objective and ascertainable)
- In re Millennium, 458 B.R. 63 (S.D.N.Y. 2011) (COMI analysis and Chapter 15 context for foreign main proceeding)
- Bear Stearns High-Grade Structured Credit Strategies Master Fund, Ltd., 389 B.R. 325 (S.D.N.Y. 2008) (S.D.N.Y. framework for COMI/foreign proceeding recognition)
- In re Ran, 607 F.3d 1017 (5th Cir. 2010) (COMI ascertainability and creditor expectations)
- In re SPhinX, 351 B.R. 103 (Bankr.S.D.N.Y. 2006) (factors for COMI and consideration of third-party expectations)
- Zervos v. Verizon N.Y., Inc., 252 F.3d 163 (2d Cir. 2001) (third-party ascertainability in COMI analysis)
- In re Orion Pictures Corp., 21 F.3d 24 (2d Cir. 1994) (public access to court records; caveats for nondisclosure)
- Hertz Corp. v. Friend, No official reporter provided in text (2010) (headquarters concept; not cited with official reporter here)