In re Gerova Financial Group, Ltd.
MEMORANDUM OF OPINION
Bеfore the Court are chapter 15 petitions filed by the joint liquidators (the “Liquidators”) of Gerova Financial Group, Ltd. (“GFG”) and Gerova Holdings Ltd. (“GHL”, and together with GFG, “Gero-va”), debtors in foreign proceedings pending before the Supreme Court of Bermuda (the “Bermuda Proceedings”). The Liquidators seek recognition of the Bermuda Proceedings as foreign main proceedings under 11 U.S.C. § 1517 principally to obtain discovery relating to Gerova’s financial affairs and to recover on any claims against or any assets of Gerova that are located within the territorial jurisdiction of the United States. See Verified Petition of Foreign Representatives at ¶¶ 61(c)(iii)-(iv), Dkt. No. 2 (“Petition”). Recognition is opposed by three of Gerova’s creditors, CAC Group, Inc., Gion Funding Settlements, Inc. and Greybox Funding Settlements, Inc. (collectively, the “Objectors”). For the foregoing reasons, the Liquidators’ request for recognition of the Bermuda Proceedings is granted.
Background
The facts as summarized below are based on the record and were substantially undisputed.
Gerova was an investment company that was originally formed to invest in Asian assets. After none of its potential acquisitions in Asia was completed, the company pursued a different business plan involving the acquisition of illiquid hedge fund assets, which it planned to use as capital for insurance regulatory purposes. At the time of its liquidation, Gerova may have held three principal groups of assets: (1) an 81 % interest in an entity called Amal-phis Group, Inc., which owns an insurance company in Barbados called Allied Provident, Inc.; (2) interests in (i) loans that financed the purchase of life insurance policies, (ii) real estate, and (in) working capital for U.S. law firms representing plaintiffs in personal injury suits, all acquired from Stillwater Capital Partners; and (3) interests in a group of investment funds called Wimbledon, managed by Weston Capital Management, LLC.
Both the Gerova entities were registered as limited liability companies in Bermuda pursuant to the Bermuda Companies Act 1981, their registered offices were located in Hamilton, Bermuda, and they had at least one full-time employee in office space rented in Bermuda (the “Cumberland House Office”). Supp. Bed., at ¶ 5, 7. Gerova’s directors held at least some board meetings in Bermuda and at least one of Gerova’s board members was Bermuda-based. Id. at ¶¶ 6-7. Gerova’s corporate books and records were maintained in Bermuda and are now in the possession of the Liquidators in Bermuda. Id. at ¶ 8. Gerova also maintained bank accounts in Bermuda at least until May 2011 at HSBC Bank Bermuda Limited. Id. at ¶ 10.
When Gerova prepared to issue a private placement of securities, it did so subject to the regulatory authority of the Bermuda Monetary Authority. Id. at ¶ 12. Gerova’s Bermuda address was listed on various filings with the U.S. Securities and Exchange Commission. Id. at ¶ 11. After a U.S. securities analyst published a report claiming that Gerova was in effect a “Ponzi scheme,” the funds were sued in several securities suits in the United States.
Gerova ceased all business by May 2011. Hearing Transcript, at 37:15-18. A few months later, on October 7, 2011, three creditors petitionеd the Supreme Court of Bermuda (“the Bermuda Court”) to commence winding-up proceedings for GFG and applied for the appointment of liquidators. Thresh Declaration, at ¶ 42. The Bermuda Court adjourned the winding-up proceedings at GFG’s request, as GFG asserted that the debts of the petitioning creditors were disputed.
The July 20 and August 20 Orders of the Bermuda Court empower Gerova’s Liquidators, among other things, (a) to ascertain the assets of Gerova and take all steps necessary to secure them wherever they may be situated, and (b) where necessary and/or appropriate, to seek recognition by and the assistance of courts in the United States and elsewhere. Id. at ¶ 51(a)-(b). The Liquidators filed the instant chapter 15 petition on August 24, 2012, seeking recognition of the Bermuda Proceedings as foreign main proceedings or, in the alternative, as foreign nonmain proceedings under 11 U.S.C. § 1517. The Objectors opposed recognition as to foreign main status — though not as to foreign nonmain status — on the following principal grounds: (1) the relief is, in their view, “unnecessary” — opposed by a significant percentage of Gerova’s creditors and not merited from a cost-benefit perspective, and (2) the order commencing the Bermuda Proceeding is subject to appeal. It is asserted that these and other aspects of the Bermuda Proceedings make its recognition “manifestly contrary to the public policy of the United States” under 11 U.S.C. § 1506.
A hearing regarding recognition was held on September 24, 2012. At the conclusion of the hearing, the Court issued an oral ruling granting the petition for recognition of the Bermuda Proceedings as foreign main proceedings and stated that this written decision would follow. An order was entered on October 11, 2012. Dkt. No. 29.
Discussion
Chapter 15 of the Bankruptcy Code governs the recognition by U.S. courts of foreign proceedings. Section 101(23) of the Bankruptcy Code defines a foreign proceeding as “a collective judicial or administrative proceeding in a foreign country ... under a law relating to insolvency ... in which ... the assets and affairs of the debtor are subject to control or supervision by a foreign court for the purpose of reorganization or liquidation.” 11 U.S.C. § 101(23). Section 1517(b) provides that a foreign proceeding “shall be recognized” as a “foreign main proceeding” if “it is pending in the country where the debtor has the center of its main interests;” or as a “foreign nonmain proceeding” if “the debtor has an establishment within the meaning of section 1502 in the foreign country where the proceeding is pending.” 11 U.S.C. § 1517(b).
Gerova’s COMI
Although chapter 15 does not define the term COMI, § 1516 of the Bankruptcy Code establishes a presumption that a corporate debtor’s COMI is its registered office “[i]n the absence of evidence to the contrary.” 11 U.S.C. § 1516(c). Where evidence is presented to the contrary, the court cannot rely solely upon the presumption but rather must consider all of the relevant facts. Fairfield Sentry,
In this case, there is no dispute that the Bermuda Proceedings are foreign proceedings within the meaning of the Bankruptcy Code, that the Liquidators are foreign representatives, and that Gerova had an establishment in Bermuda sufficient for foreign nonmain recognition. The only question under § 1517 is whether Bermuda is or was Gerova’s COMI for purposes of foreign main recognition. At the time of the filing of the Bermuda Proceedings, Bermuda was the situs of Gero-va’s registered office, which creates a re-buttable presumption that Bermuda is Gerova’s COMI in the absence of evidence to the contrary. 11 U.S.C. § 1516(c). There is virtually no evidence of record “to the contrary.” Bermuda is or was the location of Gerova’s only known physical оffice, the location of its only known employee, the place of at least some of its board members and meetings, the location of its corporate books and records, and the place where litigation adversaries served or attempted to serve process. GFC’s Form 6-K dated May 20, 2010 stated that its principal executive offices were located c/o GHC at Cumberland House, Hamilton, Bermuda and stated that it had “established new headquarters for its insurance operatiоns in Hamilton, Bermuda. The new offices are the global headquarters for GEROVA Holdings, Ltd., and for its insurance subsidiaries.” Ex. F to Thresh Decl.
Investors in the U.S. and elsewhere were thus clearly informed that Gerova’s principal situs was in Bermuda and on this record Bermuda was the only jurisdiction reasonably “ascertainable to third parties,” an important factor in the COMI determination. See Millennium,
As in many cases, it is relevant to consider the operative date for analyzing COMI — whether as of the date of the commencement of the Bermuda Proceedings or as of the chapter 15 petition date. There is a split of authority as to the relevant date. This Court previously held in Millennium Global that the appropriate date on which to determine COMI is the date the foreign proceeding commenced.
Chapter 15 Belief as “Unnecessary” and Contrary to U.S. Public Policy
In opposing foreign main recognition, the Objectors’ principal contention is that recognition is “manifestly contrary to the public policy of the United States” within the meaning of § 1506 because recognition is “unnecessary” at this time and because it has been sought by one creditor only and entails needless expense in contravention of the wishes of “most of’ Gero-va’s creditors.
The foregoing is not to state that considerations of creditor interests are not relevant to the maintenаnce of any insolvency proceeding. Section 805 of the Bankruptcy Code provides that any bankruptcy case can be dismissed or the court can abstain where “the interests of creditors and the debtor would be better served by dismissal or suspension.” 11 U.S.C. § 305(a)(1). Congress had in mind a workout that was supported by the overwhelming majority of creditors and where the bankruptcy petition was filed only by a recalcitrant minority seeking special treatment. Alan N. Resnick & Henry J. Sommer, 2 Collier on Bankruptcy ¶ 305.02[2][a] (16th ed. 2012). However, in the chapter 15 contеxt, § 305(a)(2) rather than § 305(a)(1) will ordinarily be the more relevant subsection. Section 305(a)(2) provides that after a foreign proceeding has been recognized, dis
The Objectors also argue that recognition is not “ripe” because the Bermuda Court’s Order winding-up Gerova is currently on appeal. Again, the Objectors cite no authority for the proposition that a foreign proceeding should not be recognized when the order commencing that proceeding is subject to appeal. That requirement cannot be found in the plain language of § 1517. Nor can it be found in § 1515(b)(1), which requires a petitioner to submit “a certified copy of the decision commencing such foreign proceeding” but does not require the decision to be final or non-appealable. Where Congress has elected not to impose such a requirement on recognition, there is no basis for the Court to do so here. See Conn. Nat’l Bank v. Germain,
The Objectors’ final contention is that recognition of the Bermuda Proceedings would be manifestly contrary to U.S. public policy because the Bermuda Court (1) allowed Gerova to be wound up involuntarily on the petition of a single creditor; and (2) gave Gerova the opportunity pay the claim of that petitioning creditor to avoid an involuntary liquidation.
Section 1506’s public policy exception, however, is narrowly drafted and must be narrowly construed. In re Ephedra Prods. Liab. Litig.,
In the United States, § 303(b)(1) of the Bankruptcy Code requires that an involuntary bankruptcy petition filed in the United States must be suрported by three or more creditors when, as here, there are more than 12 creditors in total. The three-creditor requirement, first found in the Bankruptcy Act of 1898, reflects a U.S. policy that a debtor not be forced into insolvency proceedings readily and that bankruptcy not ordinarily be used as a debt collection device available to a single creditor. See In re Gibraltor Amusements, Ltd.,
The Objectors also fail to explain what, if any, public policy is implicated by the fact that the Bеrmuda Court allowed Gero-va to attempt to avoid liquidation proceedings by paying the claim of the petitioning creditor, Maxim. Under U.S. law, a debt- or’s post-petition payment of the claim of a petitioning creditor is not prohibited, even though such payment does not defeat the involuntary case and the case cannot be dismissed without notice and a hearing. See 11 U.S.C. § 303(j); Bartmann v. Maverick Tube Corp.,
Conclusion
For the foregoing reasons, the Liquidators’ petition is granted. The Bermuda Proceedings are recognized as foreign main proceedings, and as noted above, an appropriate order has been entered.
Notes
. In support of their petition, the Liquidators rely principally on the Supplemental Declaration of Charles Thresh as Foreign Representative ("Supp. Decl.”), Dkt. No. 26, admitted into evidence at the hearing held on July 27, 2011.
. Gerova’s acquisition of the second and third asset grouрs may have been unwound prior to Gerova’s liquidation.
. The Court does not adopt these allegations, but only presents them for background.
. Under Bermuda insolvency law, "the Court shall not give a hearing to a winding up petition presented by a contingent or prospective creditor until such security for costs has been given as the Court thinks reasonable and until a prima facie case for winding up has been established to the satisfaction of the Court....” Bermuda Companies Act 1981, § 163(l)(c).
. The Judge in Bermuda was its new chiеf justice, appointed in 2012, Ian Kawaley, an eminent authority on cross-border insolvency issues and co-editor of Cross-Frontier Insolvency of Insurance Companies (2001), as well as co-author of Cross-Border Judicial Cooperation in Offhsore Litigation (2009).
. Section 1502(2) of the Bankruptcy Code defines "establishment” as "any place of operations where the debtor carries out a nontran-sitoiy economic activity.”
. The District Court's decision on appeal,
. The European Insolvency Regulation, which requires members of the European Union C'EU”) to recognize insolvency proceedings commenced in other EU nations, was the first major legislation to employ the term COMI. Millennium Global,
. See In re Tri-Continental Exchange Ltd..,
.The report of the Working Group is U.N. Doc. A/CN.9/742 dated 8 May 2012. It refers to ¶ 128C of the Working Paper, U.N. Doc. A/CN.9/WG.V/WP.107 (аvailable at http:// daccess-ddsny .un.org/doc/UNDOC/LTD/V 12/ 558/97/PDF/V1255897.pdf?OpenElement), which states that use of the date of the com
.See In re Ran,
. Section 1506 provides that "[n]othing in this chapter prevents the court from refusing to take an action governed by this chapter if the action would be manifestly contrary to the public policy of the United States.” 11 U.S.C. § 1506.
. The Objectors also contend in their Memorandum that there are no funds available to the Liquidators to support their efforts. Opposition at p. 2, fn. 1. This is hardly an argument against recognition. The Liquidators’ willingness to carry out their duties, notwithstanding the possible risk of non-payment is, if anything, evidence of their professionalism.
. It is recognized that § 305(a)(1) has been applied in connection with a U.S. involuntary proceeding brought against a foreign debtor contrary to the wishes of its court-appointed representative. In re Compania de Alimentos Fargo, S.A.,
. See Susan Block-Lieb, Why Creditors File So New Involuntary Petitions and Why The Number Is Not Too Small, 57 Brook. L.Rev. 803, 817 n. 73 (1991).
. The Commission Report recommended, among other things, that "A creditor or creditors who have aggregate claims of $2,500 be able to file an involuntary petition for liquidation of the debtor, and one or more creditors having claims of $10,000 or more be able to file a petition seeking reorganization of the debtor.” Report of the Commission on the Bankruptcy Laws of the United States, H.R. Doc. No. 93-137, 93d. Cong., 1st Sess., pt. I, at v-xix (1973).