MEMORANDUM OF DECISION ON PETITION FOR RECOGNITION AND RELATED RELIEF
INTRODUCTION
Before the Court are chapter 15 petitions filed by the joint liquidators (the “Liquidators” or “Petitioners”) of Millennium Global Emerging Credit Master Fund Limited and Millennium Global Emerging Credit Fund Limited (respectively, the “Master Fund” and “Feeder Fund” and collectively the “Funds”), seeking recognition of Bermuda liquidation proceedings as foreign main proceedings or, alternatively, foreign nonmain proceedings. 1 The Liquidators seek recognition in order to investigate the Funds’ financial affairs, conduct discovery related to potential causes of action against parties in the United States, and ultimately provide for a distribution of recovered property to creditors. Verified Petition of Foreign Representatives Michael W. Morrison, Charles Thresh and Richard Heis at ¶ 38, Dkt. No. 2 (“Verified Petition”). Recognition of the Bermuda proceedings is opposed by BCP Securities, LLC (“BCP” or “the Objectant”) on the ground that Bermuda is not the Funds’ center of main interests (“COMI”) or a place of nontransitory economic activity of the Funds. A separate objection by Glo-beOp Financial Services,* LLC was withdrawn after an agreement between the parties that if recognition were granted, the automatic stay would not prevent Glo-beOp from pursuing any claims it may have against the Funds outside the United States.
An evidentiary hearing regarding recognition was held on July 27, 2011, at which one of the Liquidators of the Funds, Michael Morrison, testified. By consent, the Petitioners’ case was presented by admitting into evidence the verified petitions, the declarations in support of the petitions filed by Morrison and the Funds’ Bermuda counsel, Robin J. Mayor, and the Offering Memorandum for the Feeder Fund (“Offering Memorandum”). Declaration of Robert K. Dakis, Ex. A., Dkt. No. 38. BCP cross-examined Morrison and introduced the confidential information memorandum of Millennium Global Emerging Credit Fund, L.P., a Delaware Limited Partnership (the “Delaware Fund”). Declaration of Marc D. Powers, Ex. 2, Dkt. No. 16. 2 The facts as summarized below are based on the record and were substantially undisputed.
At the conclusion of the hearing, the Court informed the parties that it would
FACTS
The Funds were incorporated in Bermuda for the purpose of creating an offshore investment fund that would invest in sovereign and corporate debt instruments from developing countries. Declaration of Michael Morrison (“Morrison Declaration”) at ¶ 4, Dkt. No. 4. The Feeder Fund was incorporated in Bermuda on October 12, 2006, and the Master Fund was incorporated in Bermuda on September 20, 2007. Id. at ¶¶ 12, 19. The Feeder Fund began operations in December 2006 as a Bermuda Institutional Scheme under the Bermuda Investment Funds Act of 2006. Id. at ¶¶ 12-14. The Master Fund was incorporated in order to create a master-feeder structure that could facilitate investment from certain classes of foreign investors, and it operated under the Bermuda Investment Funds Act as a private fund with fewer than 20 participants. Id. at ¶¶ 18-20. In fact, the Feeder Fund and the Delaware Fund were its only participants. At the time of the Master Fund’s incorporation, the Feeder Fund transferred substantially all its assets to it in exchange for a 97% ownership interest in the Master Fund, with the other 3% held by the Delaware Fund, and all the service agreements of the Feeder Fund were no-vated in favor of the Master Fund. Id.
The registered office of both Funds was in Bermuda at all times, at the address of their common administrator. As set forth in the Offering Memorandum, during the course of the Funds’ operations they had no employees other than their three directors, Michael Collins, James Keyes, and Deborah Sebire, who each served on the boards of directors of both Funds. Id. at ¶¶ 15, 19. Collins and Keyes are both residents of Bermuda, and Sebire is said to be a resident of the Bailiwick of Guernsey (Channel Islands). Id. Both funds retained the same administrator in Bermuda, Argonaut, Limited (“Argonaut”), a Bermuda company, as well as the same bank, Butterfield Trust (Bermuda) Limited, a subsidiary of Bank of NT Butterfield & Son Ltd. (“Butterfield Bank”). Id. The Funds had approximately BD$900,000 on deposit at Butterfield Bank at the time of the opening of the Liquidation in 2008. 3
The Master Fund had a “manager,” Millennium Asset Management Limited (the “Manager”), responsible for “management, administration, back office activities, marketing and investment activities”; it was said to be located in Guernsey.
Offering Memorandum
at 29. The Manager in turn appointed as investment manager Millennium Global Investments Limited, which was described as London-based.
Id.
at 30. The Funds maintained prime brokerage accounts with Credit Suisse Securities (Europe) Limited and Citigroup, Inc., through which the investment manager conducted securities transactions.
Transcript of Recognition Hearing, Held on July 27, 2011,
Dkt. No. 43 at 45;
Offering Memorandum
at 58. The Funds also conducted derivative and hedging transactions under standard ISDA contracts with various counterparties.
Morrison Declaration
at ¶ 23.
4
The Offering Materials indicate that subscriptions of investors would be
The liquidation of the Funds commenced as a result of their inability to meet a margin call of the Master Fund’s prime broker, Credit Suisse, on October 6, 2008. Morrison Declaration at ¶ 25-26. A default notice was issued by Credit Suisse on October 16, 2008, and on the same day the directors petitioned the Bermuda Court for an order directing the wind-up of the Funds. Id. The Bermuda Court’s order commencing the liquidation divested the directors of all authority over the Funds and caused the appointment of Michael W. Morrison, Charles Thresh, and Richard Heis, all of KPMG Advisory Ltd. or KPMG LLP, as provisional liquidators with full managerial authority over the Funds. Id. The provisional liquidators were appointed as joint liquidators of the Master Fund on March 5, 2009 and of the Feeder Fund on April 16, 2009. Committees of inspection, which appear to be similar to the creditors’ committee in a chapter 11 case, were formed by the Bermuda Court in both foreign proceedings. Id. at ¶¶ 28-30. 5
As of the commencement of the liquidation, subscriptions to the Funds totaled $390 million, and the Liquidators estimate that as of September 30, 2008 the value of the Funds’ portfolio was $738,209,753. Id. at ¶¶ 17, 35. However, subsequent to the closure of the prime brokerage accounts, the Funds’ prime brokers asserted that there was a $170 million deficiency owed by the Funds. Id. Although the prime brokers ultimately asserted claims against the Funds, there was an initial return of cash totaling $21.85 million, of which $10 million was allocated to the Feeder Fund and $11.85 million to the Master Fund. Id. at 32. Approximately three years later, the Funds now have on hand close to $7 million held by the Feeder Fund and $7.5 million held by the Master Fund. Id. at 40. Morrison testified that expenses to date have been exclusively for administration of the estates, including the fees of the Liquidators and for counsel in Bermuda, the United Kingdom, and the United States, and that all expenses have been subject to oversight by the committees of inspection and the Bermuda Court.
As a consequence of the decline in value of the Funds’ portfolio, the Liquidators
The Objectant is one of the parties that was designated by the Liquidators in the Verified Petition as potentially affected by provisional relief, admittedly as a target of the Liquidators’ investigation. On cross-examination of Morrison, the Objectant established that the administration of the Funds’ liquidation proceedings in Bermuda has cost approximately $9 million to date, including about $5 million spent outside of Bermuda, predominantly on fees for counsel in the United Kingdom and United States. Transcript of Recognition Hearing at 58. Morrison testified that the litigation that is currently pending or which may be commenced, all against parties outside of Bermuda, is likely to be the most valuable asset of the estates. Id. at 24-28. It was also established that: (i) the Funds’ investment manager was located in London and had an exclusive contractual right to invest the Funds’ portfolio; (ii) the Funds’ asset valuation agent, GlobeOp, operates out of multiple locations including the United States, the United Kingdom, and India; (iii) a majority of the Funds’ investors were located outside Bermuda; (iv) substantially all of the Funds’ assets were invested outside of Bermuda or committed to contracts (including derivatives such as swaps) with counterparties outside of Bermuda; (v) directors’ meetings were customarily held with Collins and Keyes present in Bermuda and Sebire participating by telephone from Guernsey; (vi) meetings with the Funds’ service providers prior to the liquidation were frequently held by telephone or in London; (vii) meetings with creditors required by Bermuda law as part of the liquidation have routinely been held in London for the convenience of creditors; (viii) claims have been submitted in the Bermuda liquidation but only for voting purposes, with no distributions having yet occurred; and (ix) none of the members of the Funds’ committees of inspection is located in Bermuda. Id. at 19-92. Morrison testified on redirect that all subscriptions and all requests for l'edemptions from the Funds were required to be directed to the Funds’ administrator, Argonaut, in Bermuda, and that the investment manager in London was subject to dismissal by the Funds’ directors, located in Bermuda and Guernsey. Id. at 92-96.
The Objectant argued at the conclusion of the hearing that the Funds’ COMI should be determined to be the United Kingdom based on the location of the investment manager, the location of many creditors and creditors’ meetings, the location of the prime broker, Credit Suisse, and the fact that litigation is allegedly pending in London. The Petitioners argued that the record supported the conclusion that the Funds’ COMI was in Bermuda prior to the commencement of the liquidation and had remained there or, in the alternative, had become lodged in Bermuda due to the control exercised by the Liquidators there and the fact that creditors look to the Bermuda proceedings for recoveries. Alternatively, the Petitioners argued that the Funds had an “establishment” in Bermuda and the foreign proceedings are entitled to recognition as foreign nonmain proceedings.
DISCUSSION
The principal issue in dispute with respect to this application for recognition
Main and Nonmain Recognition: “Center of Main Interests” and “Establishment”
The requirement that a court determine the COMI of the debtor in a foreign proceeding is an integral element of the recognition procedures adopted as part of chapter 15, the U.S. version of the Model Law on Cross-Border Insolvency (“Model Law”) drafted by the United Nations Commission on International Trade Law (UN-CITRAL). 6 Among other things, chapter 15 allows the representative of a foreign insolvency estate to file a petition in the U.S. bankruptcy court and seek an order of recognition, after which certain relief may come into effect automatically and additional relief can be granted by the court. As relevant to this proceeding, the foreign representatives seek an order of recognition, and they have also made it clear that if a recognition order is entered, they will seek discovery from U.S. entities, including BCP, to investigate possible claims. 7
Chapter 15 contemplates a short and relatively simple petition for recognition, accompanied by proof of the existence of the foreign proceeding, and it specifically avoids giving the court the degree of discretion at the outset of a case that was required under former § 304, where the court had to consider issues such as “comity” and the interests of creditors in the United States before an order was entered.
8
In the words of one decision, chapter 15 imposes a fairly rigid procedural structure for recognition of a foreign proceeding but then affords the court “substantial discretion and flexibility” in fash
Notwithstanding the goal of a simplified procedure for obtaining an order of recognition, the process has been complicated by the introduction into the Model Law and chapter 15 of the COMI concept. The court is directed to recognize the foreign proceeding “(1) as a foreign main proceeding if it is pending in the country where the debtor has the center of its main interests; or (2) 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). “Establishment” is defined in § 1502(2) as “any place of operations where the debtor carries out a nontransitory economic activity.” The statute does not expressly deal with a proceeding from a foreign country that satisfies neither of these requirements, i.e., a proceeding that is not or was not the debtor’s “center of main interests” or a place where the debtor has or had an “establishment.” Id. BCP draws the implication that in such circumstances the foreign representative is completely shut out of the U.S. judicial system and can obtain no substantive relief whatsoever. 11
Neither the Model Law nor chapter 15 defines the term “COMI.” Article 16(3) of the Model Law provides that, “In the absence of proof to the contrary, the debtor’s registered office, or habitual residence in the case of an individual, is presumed to be the center of the debtor’s main interests.” The U.S. adopted the principle in § 1516(c), which is identical but uses the phrase, “in the absence of evidence to the contrary.” 12 An insolvency proceeding from the debtor’s COMI is designated the main proceeding, and any other case filed in a nation where the debtor has an “establishment” is designated as a nonmain proceeding.
These deceptively simple terms have engendered considerable litigation. Although most cases have not involved a COMI issue,
13
disputes to date have includ
In determining the COMI of these Funds or the existence of an “establishment,” it is necessary to separate two issues: (i) the appropriate date at which to make the determination; and (ii) the factors to be considered in making the determination. We start with the question of the date at which the determination should be made.
The Date at Which to Determine COMI or the Existence of an Establishment
As the Liquidators point out, the few cases on point (both business and individual) have determined the COMI of an entity and whether an establishment exists as of the date of the filing of the chapter 15 petition.
See In re Ran,
In fact, a meandering and never-ending inquiry into a debtor’s past interests could lead to a denial of recognition in a country where a debtor’s interests are truly centered, merely because he conducted past activities in a country at some point well before the petition for recognition was sought.
Id.
Similar language and approach is set forth in the
Betcorp
decision, on which
Ran
relies.
In re Ran,
This construction is clear if one simply translates the arcane term “center of main interests” into plain English. The Court observed in
In re Tri-Continental Exchange Ltd.,
Chapter 15 was drafted to follow the Model Law as closely as possible, with the idea of encouraging other countries to do the same. One example is use of the phrase “center of main interests,” which could have been replaced by “principal place of business” as a phrase more familiar to American judges and lawyers. The drafters of Chapter 15 believed, however, that such a crucial jurisdictional test should be uniform....
Tri-Continental,
If the term “principal place of business” is substituted for “center of main interests,” it is obvious that the date for determining an entity’s place of business refers to the business of the entity before it was placed into liquidation. A debtor does not continue to have a principal place of business after liquidation is ordered and the business stops operating. As the Court recognized in
Fairfield Sentry,
as a result of the opening of liquidation proceedings,
Prior to the adoption of chapter 15, the Bankruptcy Code required the Court to consider the “principal place of business” or “principal assets” of a debtor in determining whether to recognize a foreign proceeding under § 304. The concept appeared in the definition of “foreign proceeding” in § 101(23), which, prior to the adoption of chapter 15, defined “foreign proceeding” to mean:
a proceeding ... in a foreign country in which the debtor’s ... principal place of business or principal assets were located at the commencement of the proceeding, but which is convened for the purpose of liquidation or debt adjustment ... or reorganization.
11 U.S.C. § 101(23) (1990) (amended by Pub. Law No. 109-8 (2005)). Section 101(23) thus made it clear that the determination as to “principal place of business” was to be made as of “the commencement of the proceeding,” ie., the foreign proceeding. The Model Law simplified and shortened the definition and distinguished between “main” and “nonmain” proceedings, but there is no indication in chapter 15 or the legislative history that Congress intended to change the prior bankruptcy practice of looking to the date on which foreign proceedings were first commenced. 23
The Model Law is explained in a Guide to Enactment, also drafted by UNCI-TRAL and intended for the use of countries considering adoption of the Model Law. There is no substantive analysis of the COMI concept in the UNCITRAL Guide to Enactment, merely an observation that the term “corresponds to the formulation in article 3 of the European Union Convention on Insolvency Proceedings, thus building on the emerging harmonization as regards the notion of a ‘main’ proceeding.”
24
In fact, the COMI concept and the terms “center of main interests” and “establishment” were both imported into the Model Law from the European Insolvency Regulation (“EU Regulation”), which requires members of the European Union to recognize and give effect to insolvency proceedings commenced in other nations of the Union.
25
Similarly, the drafters of the EU Regulation had the date of opening of insolvency proceedings in mind when they coined the term “establishment.” It is important to note that in the EU Regulation the requirement of an “establishment” is a limitation on the right of any creditor or other entity to open an insolvency proceeding regarding a debtor. Since the EU Regulation does not prevent the opening of an insolvency case in one nation merely because a case is pending in another EU jurisdiction (including at the COMI), the requirement that there be an establishment constitutes a prohibition on the opening of a proceeding in a jurisdiction where the debtor was not “established.” EU Regulation, Art. 3(2). Thus, in the European Union, there cannot be an anomaly such as the Objectant proposes in the instant case — a proceeding that has lasted for three years but is not entitled to any recognition. In the European context, a case can only be opened in a jurisdiction where the debtor has an establishment.
Both the
Ran
and
Betcorp
cases argue that it would be bad policy to establish a
Use of chapter 15 petition date as the date for determining recognition also leads to the possibility of forum shopping, as it gives
prima facie
recognition to a change of residence between the date of opening proceedings in the foreign nation and the chapter 15 petition date. The
Ran
court considered this issue and found that the there was a failure of proof that the individual debtor there had absconded. It pointedly said, “A similar case brought immediately after the party’s arrival in the United States following a long period of domicile in the county [country] where the bankruptcy is pending would likely lead to a different result.”
As the facts of the
Ran
case bear out, the construction of the term COMI that avoids the use of chapter 15 as a shield by absconding debtors looks to the time period on or about the commencement of the foreign case whose recognition is sought. In
Ran,
if the liquidator were guilty of
To determine the COMI of the Funds at the commencement of the liquidation in 2008, it is necessary, once again, to consider the “plain words of the statute.” The term COMI is not defined in either the Model Law or in chapter 15. Section 1516, entitled “Presumptions concerning recognition,” provides in subsection (c) that, “In the absence of evidence to the contrary, the debtor’s registered office, or habitual residence in the case of an individual, is presumed to be the center of the debtor’s main interests.” This establishes a rebuttable presumption that the COMI is at the debtor’s registered office.
Tri-Continental,
In all civil actions and proceedings not otherwise provided for by Act of Congress or by these rules, a presumption imposes on the party against whom it is directed the burden of going forward with evidence to rebut or meet the presumption, but does not shift to such party the burden of proof in the sense of the risk of nonpersuasion, which remains throughout the trial upon the party on whom it was originally cast.
Fed.R.Evid. 301. “Courts and commentators are in general agreement that proffered evidence is ‘sufficient’ to rebut a presumption as long as the evidence could support a reasonable jury finding of ‘the nonexistence of the presumed fact.’ ”
ITC Ltd. v. Punchgini, Inc.,
In determining the COMI of a foreign debtor, cases have examined a number of factors, including:
the location of the debtor’s headquarters; the location of those who actually manage the debtor (which, conceivably could be the headquarters of a holding company); the location of the debtor’s primary assets; the location of the majority of the debtor’s creditors or of a majority of the creditors who would be affected by the case; and/or the jurisdiction whose law would apply to most disputes.
In re SPhinX,
In this case, many of the factors that the courts have used in the COMI determination point toward Bermuda, and others point in various directions. Starting with those that point toward Bermuda, two of the Funds’ three directors were located in Bermuda, and the directors had the right to replace all of the Funds’ other agents, as well as the right to determine whether to place the Funds into an insolvency proceeding. Bermuda was also the location of the Funds’ bank, their custodian, and their auditors. On the other hand, the day-to-day management of the Funds’ investments did not take place in Bermuda. As the Offering Memorandum disclosed, the directors appointed as manager for the Funds an entity described as “Millennium Asset Management Limited, a Guernsey company.” The manager had “responsibility for the Fund’s management, administration, back-office activities, marketing and investment activities, all of which are subject to the overall control of the Directors.” The Offering Memorandum further disclosed that the “manager” had appointed as “investment manager” a “London-based investment management company regulated by the Financial Services Authority of the United Kingdom” and also “registered with the SEC as an investment advisor.” There is no evidence that any of the Funds’ investors or other creditors resided in Bermuda, and the Funds did not invest in property in Bermuda.
A simple tally of the foregoing factors demonstrates that more point toward Bermuda than elsewhere. On the record of this case, this supports the finding that the COMI was Bermuda. In addition, there are two further reasons for finding that the Funds’ COMI was in Bermuda as of the date of the wind-up order.
Most important, in the case at bar, the only center of main interests reasonably “ascertainable by third parties” was Bermuda. The Offering Memorandum for the Feeder Fund offered shares in “A Bermuda Exempted Company (Mutual Fund), classified as an Institutional Fund under the Investment Funds Act 2006 of Bermuda.” The Offering Memorandum made it clear that the Funds were located in Bermuda and subject to the control of a Ber
Moreover, because the formation of the funds in Bermuda was clearly disclosed in the Offering Memorandum, investors could have reasonably expected that Bermuda was likely to be the venue of any proceeding to wind up or liquidate the Funds. Under Bermuda law, a Bermuda company is subject to being wound up, voluntarily or involuntarily, in a proceeding in Bermuda.
31
It would have been pure speculation that the Funds would be liquidated or wound up in any other jurisdiction. One of the authors of the Model Law and of chapter 15 has suggested that the COMI determination should be affected by the likelihood that the COMI jurisdiction would have an acceptable substantive law.
32
Although there are decisions that rigidly assert that equitable factors should play no role at the recognition phase of a chapter 15 case,
33
it would seem that a determination relative to recognition and to the “center of main interests” of an enterprise should take into account the existence of a fair and impartial judicial system and a sophisticated body of law, as aspects of the
bona fides
of the proceedings.
34
It bears noting, therefore, that Bermuda has a sophisticated, fair and impartial legal system that has been recog
In addition to the fact that Bermuda was the only COMI reasonably ascertainable by third parties, there is insufficient evidence in this case that establishes the COMI in a location other than Bermuda. There was a manager, ostensibly in Guernsey, but even the Objectant does not contend that the Funds’ COMI was Guernsey. The Funds’ investment manager was said to be “London-based,” but there is very little evidence of record as to where the investment manager actually was located; as a practical matter an investment manager can be anywhere he or she has access to a computer terminal to make a trade and to follow the market. 36 The Funds’ assets were securities issued in “emerging countries,” probably represented by book entries in ledgers throughout the world. The location of the prime broker for the Funds, identified as Credit Suisse Securities (Europe) Limited, was disclosed in at least some of the offering materials as London, but testimony indicated that Citigroup, Inc. was also used as a prime broker, suggesting that at least some of the Funds’ investments were subject to control from New York. Furthermore, there is evidence that the location of the prime broker could vary; a footnote in the Offering Memorandum states, “To the extent that assets of the Master Fund are treated as ‘plan assets’ under ERISA, the prime broker will be located in the United States.” The record does not disclose where the Funds’ investors were located, except that some were in the United Kingdom, some were in the United States, and some were themselves located in offshore jurisdictions. The evidence did disclose that post-liquidation meetings have been held in London for the convenience of creditors, but there is no evidence that the Funds’ creditors were closely identified with any one jurisdiction.
On this record, the proof does not establish an alternative COMI. Since every entity has a center of main interests,
In re Chiang,
The Objectant relies heavily on
In re Bear Stearns High-Grade Structured Credit Strategies Master Fund, Ltd.,
The Bear Stearns facts can be distinguished from those of the instant case. In Bear Steams, the fund had no presence in the Caymans other than a letterbox; in this case, the Funds have extensive contacts with Bermuda. In Bear Steams, representatives of a feeder fund operating out of the United States appeared and supported denial of the petition, on the theory that there needed to be an investigation of the U.S. fund, which would be impeded by proceedings in the Caymans. There are no such allegations in this case, and the only objection comes from the target of proposed discovery. In Bear Stearns, it was possible to determine an alternative COMI because the fund there was wholly identified with and controlled by a brokerage firm located in New York, whose name it bore. In the cases at bar, there is no jurisdiction other than Bermuda that can be fairly construed as the center of main interests.
In any event, the policy concerns that apparently drove the decision in
Bear Stearns
are not present in this case. Recognition of these Bermuda proceedings would be consistent with the principal purpose of establishing a COMI requirement — to provide a basis for centralizing insolvency proceedings relating to an enterprise in one forum.
39
The drafters of
Indeed, it is relevant that those courts and commentators who have advocated denial of main recognition to cases from tax havens have assumed that the foreign representative would not be shut out of the U.S. judicial system altogether.
41
Yet the developing case law is to the contrary. Section 1509(b) provides that if the bankruptcy court grants recognition, the foreign representative may sue and be sued “in a court in the United States.” Section 1511(a) similarly provides that “upon recognition,” a foreign representative may commence a voluntary case, if the foreign proceeding is a foreign main proceeding, or an involuntary case. The clear implication of failure to obtain any recognition, borne out by the case law, is that without an order of recognition the foreign representative cannot be heard in any court in the United States.
42
Any exclusionary
It has been suggested that laxity in the application of the COMI principle or in recognition of cases from tax havens would encourage companies to register and then file in an “outlier” jurisdiction whose law is unduly favorable to debtors and disadvantageous to creditor interests.
43
Hedge or mutual funds such as these foreign debtors are not holding companies of major enterprises located elsewhere attempting to justify a filing in Bermuda. In any event, a court has ample power to protect creditors in recognized chapter 15 cases. For example, recognition of a case as a foreign main proceeding does not require that the COMI’s law be applied to a specific dispute.
See In re Maxwell Comm’n Corp.,
In conclusion, based on the record, assuming that the evidence is sufficient to rebut the § 1516(c) presumption, the Liquidators satisfied their burden of establishing that the COMI of the Funds was in Bermuda as of the commencement of the liquidation in 2008. The foreign proceedings are entitled to recognition as foreign main proceedings.
The Presence of an “Establishment” in Bermuda at the Commencement of the Liquidation
Similarly, even if the Funds did not have their COMI in Bermuda at the outset of the liquidation there and were not entitled to “main” recognition, the Funds would be entitled to recognition as foreign nonmain proceedings. As noted above, a foreign nonmain proceeding is defined as a foreign proceeding “pending in a country where the debtor has an establishment.” 11 U.S.C. § 1502(5). Establishment is defined as “any place of operations where the debtor carries out a nontransitory economic activity.” 11 U.S.C. § 1502(2). The definition is a slightly shorter version of the definition in the Model Law, which adds, at the end, the words, “with human means and goods or services.” Model Law, Art. 2(f). There is no substantive analysis of the term “estab
There is relatively little U.S. authority construing the term “establishment” as it is used in chapter 15. In
Bear Stearns,
Notwithstanding the paucity of U.S. authority, there are U.K. cases that have construed the same term “establishment” as used in the U.K. version of the Model Law and the EU Regulation. 49 The English courts have found that the presence of an asset together with minimal management of the asset can constitute an “establishment.” In Shierson v. Vlieland-Boddy, [2005] EWCA Civ. 974, [2005] W.L.R. 3966 (2005) (hereinafter “Shierson”), the individual debtor had moved from England to Spain a substantial period of time prior to the opening of insolvency proceedings. However, there was evidence that the corporate owner of certain property that he had mortgaged while resident in England was his nominee, and that he managed the property individually or through an agent. The Court concluded that nonmain proceedings could be opened against him.
In the Shierson case, the English judges relied heavily on a report by Miguel Virgos and Etienne Schmit on a draft “European Convention on Insolvency” (the “Virgos-Schmit Report”) that was a predecessor of the EU Regulation and that first used the terms “center of main interests” and “establishment.” 50 In the Virgos-Schmit Report, the term establishment is explained as follows:
“[Ejstablishment” is understood to mean a place of operations through which the debtor carries out an economic activityon a non-transitory basis, and where he uses human resources and goods ... A purely occasional place of operations cannot be classified as an “establishment.” A certain stability is required.
Virgos-Schmit Report at ¶ 71. The report places emphasis on several factors that contribute to identifying an establishment: the economic impact of the debtor’s operations on the market, the maintenance of a “minimum level of organization” for a period of time, and the objective appearance to creditors whether the debtor has a local presence. Id. In the Shierson case, the judges accepted the analysis in the Virgos-Schmit Report, finding that an establishment means economic activities carried out with “a minimum level of organization. A purely occasional place of operations cannot be classified as an ‘establishment.’ A certain stability is required.” Shierson at ¶ 66. On the other hand, the judges held that there is no minimum period for such activity, as “the negative formula (‘non-transitory’) aims to avoid minimum time requirements.” Id. As noted above, evidence of some management of an asset through a nominee was sufficient to constitute an establishment.
Based on available authority and giving the operative words of the statute then-fair meaning, the Funds carried out non-transitory economic activity sufficient to constitute an “establishment” in Bermuda, entitling their Liquidators to recognition of the Bermuda proceedings as nonmain proceedings. In contrast to the Fund in Bear Steams, where the only cash migrated to the Caymans after the liquidation proceedings were opened, the Funds accepted and processed investors’ cash deposits in Bermuda, kept some or all of their books of account in Bermuda, and were subject to the control of directors, a majority of whom were located in Bermuda. Examining the factors in the Virgos-Schmit Report, the Funds maintained a “minimum level of organization” in Bermuda—registered offices and a local board of directors—in a manner that was stable and apparent to third-parties, as disclosed in the Offering Memorandum. There is no question that the Funds’ investment activities were controlled from outside Bermuda, but to deem the services of the investment manager as controlling would improperly consolidate the Funds with a third party that is not in an insolvency proceeding. Moreover, the location of a professional advisor such as an investment manager—who could be hired or fired at the discretion of the Funds’ directors— should not override what on an objective analysis was the Funds’ maintenance of a local presence. Since the term “nontransi-tory” is used in the sense of having stability rather than being constant and ongoing, and since there is no minimum time period required, the front-end costs incurred in setting up a fund, including fees paid to retain local counsel and commitment of capital to local banks, should also be considered “economic activities” of a fund, so long as the actions are taken in good faith.
Obviously, before a court grants a foreign proceeding nonmain recognition, it must be satisfied that the main proceeding is—or ought to be—in another known location. In this case, the Court is convinced that the Funds’ COMI was in Bermuda. However, assuming arguendo that it was not, and that the Funds are not entitled to main recognition, they had an “establishment” in Bermuda at the time the liquidation was opened there and would be entitled to nonmain recognition.
COMI and “Establishment” Determined as of the Date of the Chapter 15 Petition
Even if the date for determining a foreign debtor’s COMI and the existence of an “establishment” were not the date of the opening of the proceedings for which
[T]he Debtors effectively ceased doing business more than 18 months before their Petition and 7 months before the BVI Liquidation Proceedings commenced ... the Debtors’ activities for an extended period of time have been conducted only in connection with winding up the Debtors’ business. Under these circumstances, it is appropriate for the Court to consider this extended period in determining COMI. The Court finds that the facts now extant provide a sufficient basis for finding that the Debtors’ COMI for the purpose of recognition as a main proceeding is in the BVI, and not elsewhere.
Fairfield Sentry,
Accepting this approach, and determining COMI as of the date of the petition for recognition, the center of main interests of the Funds would still be Bermuda, where they have been in liquidation and under the control of the Liquidators since 2008. Assuming
arguendo
that the Funds had “interests” on the date the chapter 15 petition was filed, they would consist of the process of collecting assets, closing out contracts, and (hopefully) paying creditors as well as the Liquidators and their counsel. BCP made an effort to show at the hearing that some of the activities in connection with the liquidation have taken place outside of Bermuda. For example, of the $9 million spent to date on the administration of the insolvency cases, only about $4 million has been paid to the Liquidators in Bermuda and much of the remainder to counsel in the United Kingdom, who have been pursuing contract rights in that jurisdiction. The
Fairfield Sentry
Court properly rejected the proposition that the location of “contingent and disputed litigation claims” could form the basis for a COMI determination.
In conclusion, assuming that the date for determining whether the foreign proceedings should be recognized as main cases is the date of the filing of the chapter 15 petition, the Funds’ center of main interests is Bermuda.
Based on the foregoing, the Liquidators are entitled to an order recognizing the foreign proceedings as foreign main proceedings. Alternatively, the foreign proceedings would be entitled to recognition as foreign nonmain proceedings. In addition, the Liquidators seek an order of the Court confirming that § 108 of the Bankruptcy Code applies in this chapter 15 case. Section 108 provides for an extension of certain limitation periods if the period has not expired under applicable nonbankruptcy law before the date of the filing of the petition.
Section 108(a) of the Bankruptcy Code provides that chapter 1 (which includes § 108) applies in a case under chapter 15, and § 101(42) of the Bankruptcy Code, as amended in 2010, provides that the term “petition” includes a petition filed under chapter 15. Section 1521(a)(7) further provides that the court may grant a foreign representative in a chapter 15 case any additional relief in a case available to a trustee appointed under other chapters of the Bankruptcy Code (with exceptions not relevant here). Construing the clear language of the statute, the Court in a second
Fairfield Sentry
decision found that a foreign representative in a chapter 15 case was entitled to the extensions of the time periods provided for in § 108.
See In re Fairfield Sentry,
The Liquidators are directed to settle an order consistent with this decision.
Notes
. A "foreign main proceeding” is defined in § 1502(4) of the Bankruptcy Code as "a foreign proceeding pending in the country where the debtor has the center of its main interests.” A "foreign nonmain proceeding” is defined in § 1502(5) as "a foreign proceeding, other than a foreign main proceeding, pending in a country where the debtor has an establishment.”
. The Delaware Fund was incorporated in Delaware to facilitate investments by qualified residents of the United States. It is not a debtor in these proceedings, and the Liquidators have not been appointed and do not seek relief with respect to that entity.
. The Bermuda dollar is equivalent to the U.S. dollar. Any amounts set forth hereafter referring to Bermuda Dollars will be shown as simply $.
. Among the derivative counterparties listed in the verified petition are Banco Santander Hispano and Central SA, Barclays Bank Pic, BNP Paribas, UBS AG, Citigroup Global Markets Ltd., Citibank NA, Credit Suisse, Bayer-ische Hypo-und Vereinsbank AG, Morgan Stanley & Co International Pic, Standard
. The members of the Master Fund Committee of Inspection are the Hampshire County Council and Credit Suisse Securities (Europe) Limited. The members of the Feeder Fund Committee of Inspection are the Hampshire County Council, SG Hambros Bankers Trust (Bahamas) Limited, and Citco Global Holdings NV as custodian for entities controlled by Liongate Capital Management.
.U.N. Sales No. E.99V.3 (1999) (as published with Guide to Enactment), available at http:// www.uncitral.org/pdf7english/texts/insolven/ insolvency-e.pdf. Chapter 15 was adopted, effective October 17, 2005, replacing § 304 of the Bankruptcy Code, which was repealed. The Model Law is the product of efforts to harmonize the law of international insolvency and has been adopted by approximately 18 nations, in addition to the United States. The United States adopted the Model Law with very few changes.
. A further issue relating to the relief sought by the Liquidators concerns the application of § 108 of the Bankruptcy Code. That issue is dealt with below. The right to obtain a discovery order after recognition is afforded by § 1521(a)(4). The Liquidators initially sought preliminary relief of an emergency nature under § 1519, but that was denied.
. See
In re Treco,
.
In re Bear Stearns High-Grade Structured Credit Strategies Master Fund, Ltd.,
. Guide to Enactment, ¶ 124. The Guide’s reference to public policy is to a provision that in the United States is codified as § 1506, providing for a court to deny relief in a chapter 15 case if "the action would be manifestly contrary to the public policy of the United States.” This is a very narrow exception.
In re Toft,
. See further discussion below at n. 42.
. The legislative history explains that the wording was changed "to make it clearer using United States terminology that the ultimate burden [of proof] is on the foreign representative.” H.R.Rep. No. 109-31 at 112-13 (2005). One court has stated that this creates a rebuttable presumption for purposes of U.S. evidentiary principles.
In re Tri-Continental Exchange Ltd.,
.
See
Jay Lawrence Westbrook,
The Model Law in the United States: COMI and Groups
(2010),
available at
http://www.iiiglobal.org/
.
In re Gold & Honey, Ltd.,
.
In re Betcorp Ltd.,
.
Tri-Continental,
.
In re Chiang,
.
Lavie v. Ran (In re Ran),
.
Betcorp
in turn relied on a lower court decision in
Ran.
. See also the chapter 15 legislative history, stating that there is a "United States policy in favor of a general rule that countries other than the home country of the debtor, where a main proceeding would be brought, should usually act through ancillary proceedings in aid of the main proceedings....” H.R. Rep. 109-31, Pt. 1, 107-108 (2005) (commentary relating to § 1504).
. See also Jay Lawrence Westbrook, Locating the Eye, supra n. 9, at 1020 ("COMI is similar to standards like 'principal place of business,’ 'chief executive office,' or 'real seat’ that one finds in many statutes in the United States and elsewhere.”).
.Christoph G. Paulus, Global Insolvency Law and the Role of Multinational Institutions, 32 Brook. J. Int'l L. 755, n. 18 (2006-2007); Terence C. Halliday, Legitimacy, Technology, and Leverage: The Building Blocks of Insolvency Architecture in the Decade Past and the Decade Ahead, 32 Brook. J. Int’l L. 1081, 1094 (2007); UNCITRAL Legislative Guide on Insolvency Law, U.N. Pub. Sales. No. E.05.V.10 (2005), available at http://www. uncitral.org/pdpenglisb/texts/insolven/05-80722_Ebook.pdf (last accessed Aug. 19, 2011).
. There is no legislative history on the issue. Mark Lightner, Determining the Center of Main Interests Under Chapter 15, 18 J. Bankr. L. & Prac. 5, n. 76 (2009).
. Model Law, Guide to Enactment at ¶ 31.
. Article 3 of the EU Regulation provides, "The courts of the Member State within the territory of which the centre of a debtor's main interests is situated shall have jurisdiction to open insolvency proceedings.” European Insolvency Regulation, Council Reg. (EC) No. 1346/2000 of 29 May 2000 at Art. 3, ¶ 1.
See MG Probud Gdynia, sp.zo.o,
2010 ECJ
. The
Betcorp
decision recognizes that the English cases interpreting the EU Regulation "seem to select a time linked to the commencement or service of the relevant insolvency proceeding.”
. In re Ran involved an individual who had amassed debts in Israel, moved to the United States and established residence in Texas. Since an individual was involved, the key part of the COMI definition was the debtor's "habitual residence,” rather than "principal place of business,” and the facts demonstrated that Ran had moved to Texas many years before the chapter 15 case was filed. Using the date of the filing of the chapter 15 petition as the determinative date, the Court concluded that the use of the present tense in the definition of COMI required it to find that Ran’s COMI was in Texas. As a consequence, it would appear that the foreign estate representatives were barred from obtaining any relief before any court in the United States, no matter what the nature of Ran's derelictions in Israel. Chapter 15, which was designed to foster cooperation with foreign proceedings, was applied so as to bar any cross-border recognition. For a case similar to Ran, see Williams v. Simpson, HC HAM CIV 2010-419-1174 [October 12, 2010] (N.Z.), available at http://jdo.justice.govt.n2/jdo/Get JudgmenV?judgmentID = 179987. In Williams v. Simpson, however, the New Zealand Court was able to recognize the English proceeding under § 426 of the Insolvency Act 1986, which authorizes the recognition of insolvency decrees from a "relevant jurisdiction” (ordinarily a member of the Commonwealth). Otherwise, the result might have been to prevent an English estate administrator from any relief in New Zealand and possibly to allow the debtor, who had apparently moved from England to New Zealand, to retain some or all of the millions of dollars in gold that was found buried in his basement.
. 11 U.S.C. § 1501(a)(1);
see In re Atlas Shipping
A/S,
. ¶ 13 of the EU Regulation provides, "The 'centre of main interests’ should correspond to the place where the debtor conducts the administration of his interests on a regular basis and is therefore ascertainable by third parties.” In its principal decision construing the EU Regulation,
Bondi v. Bank of Am. N.A. (In re Eurofood IFSC Ltd.),
Case 341/04, 2006 E.C.R. I-3813, 2006 ECG Celex Lexis 777,
. At closing argument of the hearing on the recognition motion, counsel for the Objectant candidly admitted, in response to a question from the Court as where he would place the Funds' COMI, that he had not been certain before the hearing where it was (except that it was not in Bermuda), but that after the hearing he thought it was in the United Kingdom. Transcript of Recognition Hearing at 110. It is submitted that the U.K. could not have been reasonably ascertainable as the debtors’ COMI if it took a hearing in court, the testimony of two witnesses and multiple documents before counsel for the Objectant could even specify the U.K. as the alleged COMI.
. Bermuda Companies Act 1981, Part XIII; see Dianna P. Kempe, Foreign and Multinational Business Insolvency in Bermuda, 1997 Ann. Surv. Bankr. L. 26 (1997).
. Westbrook,
Locating the Eye, supra,
n. 9 at 1020, cited in
In re Betcorp,
.
In re Loy,
.The absence of a fair and impartial judicial system in a given jurisdiction would presumably result in a denial of recognition under § 1506 of chapter 15, which provides that "Nothing 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.”
See In re Toft,
. The Objectant argued that most of the derivative contracts entered into on behalf of the Funds were made in London. It may be that these contracts were governed by English law (the record does not show), but it does not follow that English law would apply to most disputes or that it could not be applied by the courts of Bermuda, a British overseas territory. To the extent that the Offering Memorandum disclosed anything about a governing law, its discussion of "Legal Risks” in the section entitled “Certain Risk Factors” is primarily focused on the risks of obtaining legal redress in the third-world countries in which it was contemplated that the Fund's investments would be concentrated. It was disclosed, however, that “it may be difficult to obtain and enforce a judgment in a court outside of Bermuda.”
. Four principals of the investment manager are identified, one of whom is identified as "Swiss and British,” one as British, and two without a stated nationality.
.
Bear Stearns (District Court, aff'g),
.
See Reserve Int'l Liquidity Fund Ltd. v. Caxton Int’l Ltd.,
No. 09 Civ. 9021(PGG),
.Jay Lawrence Westbrook,
A Global Solution to Multinational Default,
98 Mich. L. Rev. 2276, 2279 (2000);
Locating the Eye, supra
n. 9, at 1019;
see also Cambridge Gas Trans. Corp. v. Official Comm. of Unsecured Creditors of Navigator Holdings Plc,
[2007] 1 A.C. 508, [2006] W.L.R. 689, [2006] UKPC 26,
. The hope for cooperation is probably the reason for the oblique reference to “the emerging harmonization” as regards the notion of a main proceeding referred to in ¶ 31 of the Guide to Enactment.
. For example, in
Bear Stearns,
although the Court cited contrary authority, it assumed that the foreign representative could bring an involuntary plenary case in the U.S. against the debtor under § 303(b)(4) and that nonrecognition of the foreign proceeding would not leave the foreign representative there without the ability to obtain some relief in the U.S. courts.
.See Reserve Int'l Fund v. Caxton,
No. 09 Civ. 9021,
.Jay Lawrence Westbrook, Locating the Eye, supra n. 9, at 1031.
. In
Reserve Int’l v. Caxton,
.
Tri-Continental,
. 11 U.S.C. § 1520(c);
see In re Tradex Swiss AG,
. An influential early case under § 304 was
In re Culmer,
where the Court recognized a proceeding filed in the Bahamas by an offshore subsidiary of the notorious Banco Am-brosiano, and remitted assets for distribution in the proceeding there on the ground that the liquidation was fair and entitled to comity.
In re Culmer (Banco Ambrosiano Overseas Limited),
. This holding was affirmed without substantive discussion.
. Interpretation of the EU Regulation is persuasive because the English courts have held that the same terms in the EU Regulation and the Model Law should be given the same construction.
In re Stanford Int’l Bank, Ltd. (In Receivership),
[2010] EWCA Civ. 137, 3 W.L.R. 941,
.Miguel Virgos & Etienne Schmit, Report on the Convention on Insolvency Proceedings, ¶ 75, available at http://globalinsolvency.com/ articles/virgos-schmit-report-convention-insolvency-proceedings-now-re. The Report is viewed as persuasive with regard to interpretation of the EU Regulation. Shierson at ¶ 47. The EU definition of establishment is identical to that in the Model Law and the Model Law as adopted in the United Kingdom.
. In
In re Ernst & Young, Inc.,
. There is no concern in this case, as there was in
In re Bancredit Cayman Ltd. (In Liquidation),