485 B.R. 498
Bankr. S.D.N.Y.2013Background
- In Oct 2012, Eden Rock and Absolute Petitioners filed an involuntary Chapter 11 against Stillwater Asset Backed Offshore Fund Ltd. (Stillwater).
- An emergency motion for the immediate appointment of a trustee was denied; later, Stillwater contested the petition.
- Stillwater transferred its assets to Gerova in Jan 2010; petitioners received a DIK via Certificates and Share Transfer Forms.
- Stillwater merged with Gerova; Gerova remained unresponsive to information about the transferred investments.
- Mediation regarding Stillwater-Gerova issues was ongoing; Bermuda court had recognized Gerova main proceedings and an unwinding was contemplated.
- The court evaluated whether the petitioning creditors’ claims were subject to a bona fide dispute and whether abstention was appropriate.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Bona fide dispute bar under §303(h)(1) and §303(b)(1) | Petitioners argue no bona fide dispute as debts were not subject to dispute. | Debtor contends distributions in kind created disputes as to liability/amount. | No bona fide dispute; debts not satisfied by DIK under Cayman/US law. |
| Abstention or dismissal under §305(a)(1) | Court should abstain to permit out-of-court workout. | Abstention warranted given mediation and foreign proceedings. | Abstention not warranted; mediation insufficient to justify dismissal. |
| Sanctions/damages for filing the petition | N/A | N/A | Sanctions not warranted; petition granted without sanctions. |
Key Cases Cited
- In re BDC 56 LLC, 330 F.3d 111 (2d Cir. 2003) (jectivity standard for bona fide dispute; determine existence, not merits of dispute)
- In re Busick, 831 F.2d 745 (7th Cir. 1987) (objective basis for disputes; consideration of legal/ factual disputes)
- In re Rimell, 946 F.2d 1363 (8th Cir. 1991) (limited analysis of legal issues; hearing allowed)
- In re Paper I Partners, L.P., 283 B.R. 661 (Bankr.S.D.N.Y. 2002) (rejection of promissory security as payment; bona fide dispute not created by illiquid securities)
- In re VitaminSpice, 472 B.R. 282 (Bankr.E.D. Pa. 2012) (ongoing litigation not alone defeat of petition for involuntary bankruptcy)
- In re Red Rock Rig 101, Ltd., 397 B.R. 545 (10th Cir. BAP 2008) (no judgment required for standing to file involuntary petition)
- In re AMC Invest ors, LLC, 406 B.R. 478 (Bankr.D. Del. 2009) (judgment not prerequisite for standing to file)
- In re Globo Comunicacoes e Participacoes S.A., 317 B.R. 235 (S.D.N.Y. 2004) (abstention considerations for foreign entities in restructuring)