Morning Mist Holdings Ltd. v. Krys
714 F.3d 127
| 2d Cir. | 2013Background
- Morning Mist Holdings Limited and Lomeli appeal a district court affirmation of a bankruptcy court ruling recognizing Fairfield Sentry Limited's liquidation in the British Virgin Islands as a foreign main proceeding under 11 U.S.C. § 1517.
- Sentry was organized in the British Virgin Islands and, before Madoff’s arrest, invested roughly 95% of its assets ($7+ billion) with BLMIS, with administration centered in the BVI.
- Sentry’s board and governance included New York-based investment manager Fairfield Greenwich Group, while the board’s independent directors resided in New York, Oslo, and Geneva.
- Upon Madoff’s arrest in December 2008, Sentry halted redemptions, began winding down, and shifted focus to litigation and asset preservation in anticipation of liquidation.
- In 2009, the BVI liquidators were appointed; in 2010 a Chapter 15 petition for recognition of the BVI liquidation was filed in the SDNY Bankruptcy Court.
- The bankruptcy court found COMI in the BVI for purposes of recognition as a main proceeding, triggering automatic stay under § 1520; Morning Mist challenged the ruling on appeal.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| What is the proper COMI time frame for Chapter 15 recognition? | Morning Mist: consider full operational history to locate COMI. | Liquidator: COMI as of Chapter 15 petition filing; examine to prevent manipulation. | COMI determined at petition time, with look-back for bad-faith manipulation. |
| What factors are relevant to locating COMI under Chapter 15? | Sentry’s liquidation activities are irrelevant to COMI. | Liquidation/administrative activities are objective, ascertainable indicators of COMI. | A broad, nonexclusive set of factors may be considered, including liquidation activities; presumption favors registered office but is rebuttable. |
| Does §1506 public policy override recognition of the BVI liquidation? | Recognition would be contrary to U.S. public policy due to secrecy of BVI proceedings. | Confidentiality does not manifestly offend U.S. public policy. | Public policy exception is narrow; not manifestly contrary here. |
Key Cases Cited
- In re SPhinX, Ltd., 351 B.R. 103 (Bankr. S.D.N.Y. 2006) (nonexclusive COMI factors; guidance from bankruptcy court)
- In re Millennium Global Emerging Credit Master Fund Ltd., 458 B.R. 63 (Bankr. S.D.N.Y. 2011) (illustrates COMI timing; principal place of business discussion)
- In re Betcorp Ltd., 400 B.R. 266 (Bankr. D. Nev. 2009) (COMI timing considerations)
- In re Eurofood IFSC Ltd., 2006 E.C.R. I-3813 (E.U. C.J. 2006) (regularity and ascertainability of COMI (EU context))
- In re Ran, 607 F.3d 1017 (5th Cir. 2010) (COMI determined at petition filing; contrast with look-back)
- In re Vitro S.A.B. de C.V., 701 F.3d 1031 (5th Cir. 2012) (public policy and cross-border insolvency considerations)
- In re AroChem Corp., 176 F.3d 610 (2d Cir. 1999) (timing in bankruptcy provisions; interpretive aids)
- In re Enron Corp., 419 F.3d 115 (2d Cir. 2005) (independent review of bankruptcy court findings)
- In re Stanford International Bank Ltd., 2010 EWCA Civ 137 (England & Wales) (foreign COMI considerations; public-domain factors)