Bеfore the Court are the foreign representatives' petitions for recognition under Chapter 15 of the Bankruptcy Code of the Australian liquidation proceedings of debtors B.C.I. Finances Pty Limited, Binqld Finances Pty Limited, E.G.L. Development (Canberra) Pty Limited, and Ligon 268 Pty Limited (the "Debtors"). See Memorandum of Law in Support of Chapter 15 Petition (the "Recognition Motion") [ECF No. 9]. Recognition is objected to by Ligon 158 Pty Limited and Andrew Binetter (the "Objecting Parties"). See Objection to Verified Petitions for Recognition (the "Recognition Objection") [ECF No. 16]. For the reasons that follow, the Court grants recognition.
BACKGROUND
The Debtors were Australian companies that operated primarily as intercompany borrowing and lending entities within a group of companies controlled and operated by the Binetter family. See Decl. of Tobin P. Meagher ("Meagher Petition Decl.") ¶¶ 6, 7 [ECF No. 6]; see also Transcript of Hearing held on June 27, 2017 ("Hr'g Tr.") 62:17-22, 63:15-19 [ECF No. 25]. Andrew, Michael, Margaret, and Gary Binetter each held various director and management positions for the Debtors from as early as the mid-1990's. See App'x To Petition, Tab 1 (decision of Honourable Justice Gleeson of the Federal Court of Australia) ("Australian Decision") ¶¶ 19, 34-36, 46-47, 49, 59, 60 [ECF No. 2]. The Debtors were the subject of extended investigation by the Australian Taxation Office, and received significant tax assessments that they were unable to satisfy. See Hr'g Tr. 63:22-64:6; Australian Decision ¶ 2, 100. The audit also resulted in findings of "fraud or evasion" by the Commissioner of Taxation. Australian Decision ¶ 2. The Debtors are each in liquidation in Australia, are not operating, and have not traded for many years. See Decl. of Chris Ardagna in Support of Objection to Verified Petitions for Recognition ¶ 11 [ECF No. 16-2].
In August 2014, John Sheahan and Ian Russell Lock (together, the "Liquidators") were appointed as joint and several liquidators of the Debtors in the Australian liquidation proceedings. See Meagher Petition Decl. ¶¶ 1, 8. In January 2015, the Liquidators brought a proceеding in the Federal Court of Australia seeking compensation relating to the Debtors' tax assessments, claiming that the actions of the Debtors' directors that caused or contributed to those liabilities constituted a breach of various statutory and fiduciary duties (the "SAD5/2015 Action"). See Australian Decision at PDF 3, and ¶¶ 4-8. Respondents in the SAD5/2015 Action include Andrew Binetter, Michael Binetter, other members of the Binetter family, Milgerd Nominees Pty Limited, Erma
The Liquidators seek recognition of the Debtors' Australian liquidation proceedings as foreign main proceedings under Chapter 15 of the Bankruptcy Code in order to facilitate the administration of the Debtors' estates in Australia. Specifically, the Liquidators seek the assistance of this Court in gaining access to and/or conducting discovery of Andrew and Michael Binetter, and any Debtor assets, documents, or records they may have with them in the United States. See Hr'g Tr. 122:16-123:15; see also In re Platinum Partners Value Arbitrage Fund L.P. (In Official Liquidation), et al. ,
The Objecting Parties argue that the Debtors are not eligible for relief under Chapter 15 because they have not satisfied Section 109(a) of the Bankruptcy Code, which dictates that "only a person that resides оr has a domicile, a place of business, or property in the United States, or a municipality, may be a debtor under this title."
A hearing on the Recognition Motion was held on June 27, 2017 (the "Recognition Hearing"). See Hr'g Tr 1:16, 4:2-5. Subsequent to the Recognition Hearing and at the Court's request, the parties submitted additional briefing on the issue of the situs of the Fiduciary Duty Claims, including what law should resolve that question. See Debtors' Suppl. Br.; Objecting Parties' Suppl. Br. Extensive additional briefing was provided by the parties. See Declaration of Tobin P. Meagher ("Meagher Decl.") [ECF No. 27] (supporting Australian legal analysis in Debtors' Suppl. Br.); Limited Response to Supplemental Memorandum by Petitioners and Request to Re-Open Recognition Hearing at 6 ("Objecting Parties' Limited Response") [ECF No. 33] (challenging Debtors' Australian legal analysis and the sufficiency of the record on Australian law); Declaration of Chris Ardagna in Support of Objection to Verified Petitions for Recognition ("Ardagna Decl.") ¶¶ 7, 12-13 [ECF No. 33-1] (supporting the Objecting Parties' Australian legal analysis); Reply of Petitioners to Limited Response [ECF No. 35]; Declaration of Tobin P. Meagher in Support of Reply ("Meagher Reply Decl.") [ECF No. 36].
DISCUSSION
"Chapter 15 and the Model Law are designed to optimize disposition of international insolvencies by facilitating appropriate access to the court system of a host country (the United States, in the case of Chapter 15) by a representative of an insolvency proceeding pending in a foreign country." In re Bear Stearns High-Grade Structured Credit Strategies Master Fund, Ltd. ,
A foreign main proceeding "shall be recognized ... if it is pending in the country where the debtor has the center of its main interests," which is commonly referred to as a debtor's "COMI."
Under Section 109(a) of the Bankruptcy Code, "only a person that resides or has a domicile, a place of business, or property in the United States ... may be a debtor under this title."
A. The Retainer Account Satisfies Section 109(a)
The Court concludes that the retainer account constitutes property of the Debtors that satisfies Section 109(a) of the Bankruptcy Code. Indeed, it is well established that "[a] debtor's funds held in a retainer account in the possession of counsel to a foreign representative constitute property of the debtor in the United States and satisfy the eligibility requirements of section 109." In re Poymanov ,
As a general matter, courts that have construed the "property" requirement in Section 109"with respect to foreign corporations and individuals have found the eligibility requirement satisfied by even a minimal amount of property located in the United States." In re Aerovias Nacionales de Colombia S.A. ,
This approach is also consistent with how cases have interpreted Section 109 for foreign companies outside of the Chapter 15 context. See
Despite the weight of authority, the Objecting Parties nonetheless contend that the $1,250 retainers were deposited with Debtors' U.S. counsel "in order to manufacture eligibility under section 109...." Recognition Objection ¶ 11. Accordingly, the Objecting Parties urge the Court to refuse to countenance such "manipulation and gamesmanship" and find that the retainers do not satisfy the requirements of Section 109. Id. ¶ 28; see also id. ¶ 30 (asking this Court to depart from the existing case law on this issue and "not follow Octaviar and its progeny.").
The court in Octaviar rejected a similar argument. There, the objecting party argued that the retainer "was an improper or bad faith attempt to 'manufacture eligibility' to file for recognition under chapter 15 ...." Octaviar ,
Likewise, the Court here finds that the $1,250 retainers constitute property for purposes of Section 109 eligibility, and rejects the Objecting Parties' argument of bad faith. The Court's conclusion is guided by the plain meaning of Section 109(a), as well as precedent in this jurisdiction and elsewhere finding retainers to constitute eligible property under that Section. Preventing a "foreign debtor from establishing eligibility to support needed chapter 15 relief will contravene the purposes of the statute to provide legal certainty, maximize value, protect creditors and other parties in interests аnd rescue financially troubled businesses." In re Suntech ,
In asking the Court to find that the Debtors' technical compliance with Section 109 is insufficient, the Objecting Parties rely on In re Patriot Coal Corp. ,
B. The Fiduciary Duty Claims also Satisfy Section 109(a)
The Court also concludes that the Debtors' Fiduciary Duty Claims against Andrew and Michael Binetter constitute property in the United States to satisfy Section 109(a). It is undisputed that these claims are property of the Debtors. See Hr'g Tr. 23:7-11. But the parties disagree on where these claims are loсated for purposes of Section 109(a), and even what law to apply in determining that location. See Hr'g Tr. 24:4-6 (stating the dispute centers on the situs of the property).
1. Australian Law Governs the Situs of the Fiduciary Duty Claims
As the parties acknowledge, the nature or scope of a debtor's interest in property is determined by "local" or "state" law. See Debtors' Suppl. Br. at 2-3; Objecting Parties' Suppl. Br. ¶ 5; see also In re Koreag, Controle et Revision S.A. ,
Determining which state's law to apply here requires reference to applicable choice of law principles. See In re Koreag ,
No party has convincingly identified-and the Court is unaware of-any overriding federal interest here in determining the situs of the Australian Fiduciary Duty Claims. Accordingly, New York state choice-of-law rules apply. See In re Cinque Terre ,
Correspondingly, the Court rejects the Objecting Parties' contention that New York substantive law should govern. The Objecting Parties have not provided an explicit justification for this choice. See Objecting Parties' Suppl. Br. ¶¶ 4-7 (arguing that non-bankruptcy law determines the nature of a debtor's property interest, but not explaining why New York law is the appropriate non-bankruptcy choice). Instead, they simply assert without much explanation that New York's rules on the situs of judgments and intangible property should dictate this Court's conclusions. See Objecting Parties' Suppl. Br. ¶¶ 8-27. But the Objecting Parties do rely heavily on a factual comparison of this case to Fairfield Sentry -which applied New York law to determine the situs of a claim-to imply that Fairfield Sentry supports the same result here. See Objecting Parties' Suppl. Br. ¶¶ 16-27 (citing In re Fairfield Sentry Ltd. ,
It appears that the Binetters' only connection to New York is their current residence. But this is not enough to justify use of New York law here given the much stronger connections to Australia. See Soviet Pan Am Travel Effort v. Travel Comm., Inc. ,
[i] the Liquidators were appointed by an Australian court; [ii] the Liquidators are deemed to have custody and control over the assets at issue; [iii] the Liquidators conduct the business of administering the Debtors' assets in Australia; and [iv] any proceeds will be administered in Australia pursuant to Australian insolvency law to primarily foreign creditors.
Objecting Parties' Suppl. Br. ¶ 21.
2. The Record Regarding Australian Law Comports with Rule 44.1
The parties also disagree regarding the sufficiency and propriety of the record concerning Australian law. The Objecting Parties specifically request that "[s]hould this Court determine that it must refer to Australian law, ... the Court reopen the evidentiary hearing to allow for cross-examination of [Debtors' Australian law expert] and rebuttal." Objecting Parties' Limited Response at 6. But the Court has alrеady accepted dueling declarations from both sides' experts, and declines to re-open the record on Australian law. Instead, the
Indeed, the record here is consistent with Federal Rule of Civil Procedure 44.1, which governs determinations of foreign law. That Rule provides:
A party who intends to raise an issue about a foreign country's law must give notice by a pleading or other writing. In determining foreign law, the court may consider any relevant material or source, including testimony, whether or not submitted by a party or admissible under the Federal Rules of Evidence. The court's determination must be treated as a ruling on a question of law.
Fed. R. Civ. P. 44.1. By that Rule, the Court is empowered to make determinations regarding foreign law, and grаnted discretion to decide on its own informed judgment what materials to consider in doing so. Here, the Liquidators first raised their contention that the Fiduciary Duty Claims satisfy Section 109(a) in their initial reply. See Reply ¶¶ 8-10. After the Recognition Hearing, the Court requested supplemental briefing from both parties specifically on that issue. The Liquidators set forth their argument for the application of Australian law in that briefing and submitted a supporting declaration from their Australian law expert, Mr. Meagher. See Debtors' Suppl. Br. at 9-14; Meagher Decl. The Court subsequently authorized the Objecting Parties to submit a supplemental response accompanied by a counter-declaration to address the details of any applicable Australian law. See Objecting Parties' Limited Response; Ardagna Decl. The Liquidators submitted a final reply accompаnied by a reply declaration from their Australian law expert. See Reply of Petitioners to Limited Response [ECF No. 35]; Meagher Reply Decl. The Court is satisfied that the parties have been given a sufficient opportunity to be heard on the issue of foreign law.
Case law affirms the sufficiency of the record here. A similar scenario was handled by the court in In re Daebo Int'l Shipping Co., Ltd. ,
3. The Fiduciаry Duty Claims are Located in New York Under Australian Law
Having found that Australian law applies, the Court turns to the parties' opposing expert declarations and submissions to determine what the substantive law of Australia says about the location of the Fiduciary Duty Claims. When considering such foreign law expert declarations, it "is not the credibility of the experts that is at issue, it is the persuasive force of the opinions they expressed." Norwest Fin., Inc. v. Fernandez ,
For the reasons below, the Court agrees with the Debtors' expert that Australian law provides that the Fiduciary Duty Claims are located in New York where the Binetters reside. The Liquidators submitted two declarations on the issue from their expert on Australian law. See Meagher Decl.; Meagher Reply Decl. Mr. Meagher first concludes that the Fiduciary Duty Claims against Andrew and Michael Binetter constitute property of the Debtors. See Meagher Decl. ¶ 12. Mr. Meagher also concludes that Australian courts classify "a claim for breach of fiduciary duty ... in terms of property, as a chose in action ...." Meagher Decl. ¶ 13. The Objecting Parties' expert does not dispute either of these conclusions (see Ardagna Decl. ¶¶ 7, 12-13), both of which the Court finds persuasive and adopts.
Mr. Meagher proceeds to opine about the situs of the chose in action at issue here. He starts with the "general principle of Australian law that a debt, which is a specific type of chose in action, is generally situated where the debtor resides ...." Meaghеr Decl. ¶ 15. He notes that "two Australian cases have considered the situs of a chose in action (though not specifically a claim for breach of fiduciary duty) and both decisions affirmed a decision of the English High Court of Justice in Jabbour v. Custodian of Absentee's Property of State of Israel [1954] 1 All ER 145 (Jabbour )."
The Objecting Parties offer a competing view. Their expert, Mr. Ardagna, counters that "[w]hile the general proposition applicable to a debt[,] that it is situated where the debtor resides ... may extend to other choses in action[,] ... this is a general proposition only." Ardagna Decl. ¶ 13. Mr. Ardagna has also been unable to identify any Australian case law that specifically addresses the situs of a chose in action for a breach оf fiduciary duty. See id. ¶ 19. Mr. Ardagna also notes that if applied "at the time the breaches occurred," "the principles established in the cases to which Mr. Meagher refers ... would deliver the result that, in relation to Andrew and Michael, the situs of the Claims was in Australia." Ardagna Decl. ¶ 24. Therefore, "[w]hether the situs of the Claims ... has changed as a result of [the Binetters] taking up residence in the United States is a matter for speculation." Id. ¶ 25. Specifically, "the Australian Courts might ... craft a more particularized standard if the question of situs of breach of fiduciary duty is ever decided there ...." Objecting Parties' Limited Response ¶ 16 (citing Ardagna Decl. ¶¶ 14-18).
Because of the possibility that an Australian Court might find an exception for breach of fiduciary duty claims to the general rule for choses in action, the Objecting Parties contend that this Court should find the available material on Australian law insufficient, and should instead apply New York state law. Id. ¶ 19.
But the Court rejects the Objecting Parties' arguments that there must be perfect clarity before applying foreign law. In reaching this conclusion, the Court is mindful that "foreign law should be argued and briefed like the domestic law." Curtis v. Beatrice Foods Co. ,
Furthermore, Mr. Meagher and the cases he cites demonstrate the generalized principle behind Jabbour that the location of a chose in action turns on considerations of enforcement. See Meagher Reply Decl. ¶¶ 4-15 (citing APTL v. APTL ¶¶ 31-33 (finding the situs of a share in a company to be located where the company is incorporated because of considerations relating to enforcement); Ocean Marine ¶¶ 65-71 (explicitly quoting Jabbour to apply the rule that a chose in action is located where "prоperly recoverable" in the context of a claim for a debt due on a deed) ). The Objecting Parties' expert does not present any reason-much less a persuasive one-why the same concerns about enforcement of a chose in action generally would not lead to exactly the same rule for a fiduciary duty claim. Indeed, such an inference is logical and does not require particularly nuanced or subtle legal reasoning. C.f. Wultz v. Bank of China Ltd. ,
Indeed, courts have typically found proof of foreign law to be insufficient under Rule 44.1 only where there was a complete failure to raise the issue or present any supporting material. See, e.g., MSF Holding Ltd. ,
The cases relied upon by the Objecting Parties do not support their posture. These cases reject foreign law only where there has been a similar total failure to argue foreign law or present supporting material, or otherwise resolve the issue of foreign law on other bases. See Objecting Parties' Limited Response ¶ 18 (citing Mut. Serv. Ins. Co. v. Frit Indus., Inc. ,
Finally, in support of finding a New York situs for the Fiduciary Duty Claims, the Liquidators also rely on the proposition that "as a general matter, where a court has both subject matter and personal jurisdiction, the claim subject to the litigation is present in that court." Debtors' Suppl. Br. at 3-4 (quoting Octaviar ,
CONCLUSION
For all the reasons set forth above, the Court grants the Recognition Petition. The Liquidators are directed to settle a proposed order on seven days' notice. The proposed order must be submitted by filing a notice of the proposed order on the Case Management/Electronic Case Filing docket, with a copy of the proposed order
Notes
At today's exchange rate this converts to more than USD $15 million.
The Liquidators also commenced a second proceeding based on substantially the same subject matter as the SAD5/2015 Action, but against the various third party entities whom they allege contributed to the tax fraud (the "NSD1600/2015 Action"). See Hr'g Tr. 73:20-74:8. As of summer 2017, this proceeding remained in progress. See id. 74:9-15.
The parties acknowledge that Andrew Binetter is an Australian citizen (see Recognition Objection ¶ 6; Reply of Petitioners to Objection ("Reply") ¶ 2 [ECF No. 18] ), and the Objecting Parties have not disputed the Liquidators' assertion that Michael Binetter is as well (see Supplemental Memorandum by Petitioners in Further Support of Verified Petitions for Recognition ("Debtors' Suppl. Br.") at 10 [ECF No. 26] ).
A foreign representative is "a person or body, including a person or body appointed on an interim basis, authorized in a foreign proceeding to administer the reorganization or the liquidation of the debtor's assets or affairs or to act as a representative of such foreign proceeding."
But see 8 Collier on Bankruptcy ¶ 1501.03 (16th 2018) (criticizing approach in Barnet ); see also In re Avanti Commc'ns Grp. PLC ,
Notably, even if federal choice-of-law rules applied, the result would be the same. See In re Koreag ,
The Objecting Parties also rely heavily on Fairfield Sentry to argue that Section 1502(8) of the Bankruptcy Code dictates application of non-bankruptcy law when determining the situs of intangible property. See Objecting Parties' Suppl. Br. ¶¶ 22-23 (quoting In re Fairfield Sentry Ltd. ,
In reaching these conclusions, Mr. Meagher explains that resolution of the issue "under Australian law depends оn the context in which the question is posed." Meagher Decl. ¶ 7. "As the Foreign Debtors are Australian companies in liquidation, the relevant legal framework is that which governs their liquidation, namely, the Corporations Act."
While the Objecting Parties do not cite Rule 44.1, they presumably rely upon it. Under Rule 44.1, "where parties fail to raise the issue of the applicability of a foreign law to a particular issue, a district court may choose to apply the law of the state in which it sits." MSF Holding Ltd. v. Fiduciary Tr. Co. Int'l ,