In Re SPhinX, Ltd.
On July 31, 2006, Kenneth M. Krys and Christopher Stride (together, the “JOLs”), as Joint Official Liquidators of all but one of the above-captioned debtors and as Joint Provisional Liquidators of the remaining debtor, SPhinX Managed Futures Fund, SPC
1
(“SMFF”; with the other debtors, the “SPhinX Funds” or the “Debtors”), in the SPhinX Funds’ voluntary winding up proceedings under the supervision of the Grand Court of the Cayman Islands (the “Cayman Court”), filed petitions in this Court under chapter 15 of the Bankruptcy Code,
On the same day, the JOLs obtained an order (Bernstein, C.J.) scheduling and approving the form of notice of an expedited hearing on their petition for recognition of the Cayman Islands proceedings as “foreign main proceedings” under
On August 16, 2006, the Court held an evidentiary hearing on the Petition and the joint objection thereto of the Official Committee of Unsecured Creditors of Refco Inc., et al. (the “Refco Committee”) and Marc S. Kirschner (the “RCM Trustee”), as chapter 11 trustee for Refco Capital Markets, Ltd. (“RCM”), and issued a bench ruling granting the Petition in part, denying it in part and partially taking it under advisement.
More specifically, the Court held that the Cayman Islands proceedings should be recognized as foreign proceedings under
This memorandum of decision states in greater detail the rationale for concluding that the Cayman Islands proceedings are foreign nonmain proceedings under
Facts
A. The SPhinX Funds’ Business and Contacts with the Cayman Islands. Each of the SPhinX Funds is either a limited liability company or a segregated
The SPhinX Funds are hedge funds whose business consisted of buying and selling securities and commodities in a manner that tracked, under a license from Standard & Poor’s, certain S & P Hedge Fund Indexes. Transcript of hearing on the Petition dated August 16, 2006 (“Tr.”) at 34-5; Krys Decl. ¶ 7.
The SPhinX Funds were established as offshore entities apparently to attract non-U.S. and U.S. tax-exempt investors in the light of favorable Cayman Islands tax benefits and regulations. August 2002 Plus-Funds Due Diligence Review (“PlusFunds Review”) at 5, attached as Exhibit E to the Declaration of Christopher Stride dated August 15, 2006 (“Stride Decl.”); Declaration of Cherry Jane Bridges dated August 14, 2006 (“Bridges Deck”) ¶ 19. Although regulated in the Cayman Islands (with the SPCs subject to more regulation than the other SPhinX Funds), the SPhinX Funds did not conduct a trade or business in the Cayman Islands. Tr. at 34. 2 They had no employees and no physical offices in the Cayman Islands (or elsewhere, for that matter). Transcript of Deposition of Robert Aaron 32:11-32:15, February 23, 2006 (“Aaron Dep.”); Transcript of Deposition of Patrina Farquarson 29:22-29:23, 33:16-33:18, February 16, 2006 (“Farquarson Dep.”). 3
Indeed, except for corporate books and records (minute books and other statutory documents, not records of operations) required to be maintained under Cayman Islands law, the Debtors apparently have no assets in the Cayman Islands. Tr. at 32-3. At least the JOLs have not alleged the existence of any Cayman Islands assets, and they have acknowledged instead that “substantially all” of the Debtors’ assets are in the United States. Krys Decl. ¶ 10. At the hearing, Mr. Stride clarified that at least ninety percent of the SPhinX Funds’ approximately $500 million of assets are located in accounts in the United States. Tr. at 45.
From the SPhinX Funds’ inception, their hedge fund business was actually conducted under a fully discretionary investment management contract by Plus-Funds Group Inc. (“PlusFunds”), a Delaware corporation located in New York City, Tr. at 34-35, which also was responsible for creating the SPhinX Funds. (Aaron Dep. 56:20-57:3, 224:8-224:12; Farquarson Dep. 233:19-234:1, 53:6-53:8).
See also
PlusFunds Review; Offering Memorandum for shares of SPhinX Ltd., dated July 1, 2003, a copy of which is attached as Exhibit B to the Stride Decl. (“Offering Memorandum”), at 2, 16 (stating that PlusFunds “sponsors, and acts as investment manager to,” each of the SPhinX Funds). PlusFunds is a debtor in this Court, Chapter 11 Case No. 06-10402(JMP). Like the SPhinX Funds, PlusFunds is in a liquidation posture, in the process of winding up, among other things, its investment management contract with the SPhinX Funds, which was expected to be completed by August 31, 2006. Stride Decl. ¶ 33. Most, if not all, of the account managers retained by Plus-
As noted above, the SPhinX Funds’ investment strategy was closely tied to a license with Standard & Poor’s, a division of McGraw-Hill Companies, Inc., a U.S. company, which permitted the account managers to track certain S & P Hedge Fund Indexes. Id. at 35. Corporate administration of the SPhinX Funds, including net asset value calculation, also was conducted primarily in the United States, out of the Somerset, New Jersey office of Derivatives Portfolio Management, Ltd. (“DPM”), id. at 29-30, although investor subscriptions were received in the Cayman Islands for review by DPM personnel, apparently for purposes of compliance with Cayman Islands anti-money laundering requirements. Id. The SPhinX Funds’ auditors were PriceWaterhouseCoopers, an international accounting firm, with a Cayman Islands address listed in the Offering Memorandum, Stride Decl. ¶ 19, which apparently was a requirement of Cayman Islands law. Tr. at 37. It is not clear how much work the auditors actually performed in the Cayman Islands; Price-WaterhouseCoopers resigned effective July 31, 2006. Stride Decl. ¶ 19.
None of the Debtors’ directors resided in the Cayman Islands, and Mr. Stride was not aware of any board meeting that took place there. Tr. at 31-32. The Debtors’ boards consisted of Irish, 5 Bahamian and U.S. residents.
The investors in the SPhinX Funds are located throughout the world; by dollar amount only approximately fourteen percent are located in the U.S. Stride Decl. ¶ 25. The JOLs do not state the percentage of the SPhinX Funds’ Cayman Islands investors. Four of the nine members of the Debtors’ Liquidation Committee, elected under the Companies Law, are U.S. based; one is Cayman Islands based. Stride Decl. II26.
With the exception of RCM, whose preference claim, discussed below, would apparently make it the SPhinX Funds’ largest creditor (assuming that the prior settlement of that claim were unwound), there appear to be few other material creditors. It is far from clear whether, under U.S. law, the investors in the SPhinX Funds would be viewed, in such
B. Background of the Cayman Islands Proceedings and the Petition. RCM and affiliates that did business under the name “Refco” filed chapter 11 petitions in this Court on October 17, 2005. RCM is a Bermuda company that provided its client/account holders, generally institutional investors, banks, hedge funds and wealthy individuals, with foreign exchange and securities trading and execution services. RCM also is in liquidation, the RCM Trustee having been appointed on April 13, 2006. Before that appointment, the Refco Committee, on behalf of RCM’s estate, commenced an adversary proceeding against certain of the SPhinX Funds, alleging that on the eve of RCM’s chapter 11 filing PlusFunds obtained an approximately $312 million preference from RCM on the SPhinX Funds’ behalf. The Refco Committee also sought an attachment of SPhinX Funds assets under New York CPLR § 6201, which the Court granted and on a modified basis maintained over several weeks pending the expedited trial of the preference proceeding. On the first day of trial, the parties announced a settlement in open court, which was subsequently memorialized in a stipulation and proposed order executed by the SPhinX Funds (the “RCM Settlement”), and the settlement funds were paid into escrow.
Under sections 102(1) and 363(b) of the Bankruptcy Code and Bankruptcy Rule 9019, RCM’s entry into the RCM Settlement was subject to the requirement of notice to parties in interest in RCM’s chapter 11 case and the opportunity for a hearing. The Refco Committee filed such a motion, and certain investors in the SPhinX Funds objected to it on the basis that the RCM Settlement was too favorable to RCM.
Perhaps not trusting entirely in the merits of this objection, 6 not long before the hearing on RCM’s motion a subset of those investors caused involuntary winding up proceedings under the Companies Law to be commenced in the Cayman Islands against two of the SPhinX Funds — SMFF and SPhinX Strategy Fund Ltd. Then, on the morning of the hearing on the merits of RCM’s entry into the settlement, the Joint Provisional Liquidators who had been proposed by the investors and appointed in the Cayman Islands proceedings (the “JPLs”) notified the Court of the existence of the foreign proceedings, as well as the fact that they had commenced chapter 15 cases in this Court, and sought an adjournment of the hearing to permit them to evaluate the RCM Settlement.
This Court denied the request, however, on the basis that the hearing was not for the purpose of considering the RCM Settlement from the perspective of the SPhinX Funds but, rather, from the perspective of RCM’s estate and creditors, and that the Court lacked jurisdiction to
The Cayman Islands winding up petition against SPhinX Strategy Fund Ltd. was then dismissed and the winding up petition against SMFF was “adjourned generally.” Stride Decl. ¶ 8. Also, the JPLs withdrew their chapter 15 petitions, no activity having taken place in those cases after the Court’s approval of the RCM Settlement.
Certain of the SPhinX Fund investors appealed the Court’s June 9, 2006 order approving RCM’s entry into and performance of the RCM Settlement. It is important to recognize that the pendancy of such appeals, regardless of their merits, effectively postpones the date that the RCM Settlement becomes effective, notwithstanding the SPhinX Funds’ prior payment of the settlement proceeds into escrow. This is because the RCM Settlement provides that “[i]f this Stipulation and Order, or any portion thereof, is not approved by the Bankruptcy Court or if it is overturned or modified on appeal, this Stipulation and Order shall be of no further force and effect____” RCM Settlement ¶ 6. As a result, delay of the appeals effectively constitutes success on appeal without consideration of the merits. Moreover, the RCM Trustee and the Refco Committee have persuasively asserted that delay of the effectiveness of the RCM Settlement materially adversely affects their ability to reach a global resolution of the Refco chapter 11 cases, thus conferring significant strategic leverage on the party causing delay.
Certain investors apparently having obtained control of the SPhinX Funds, on June 30, 2006 the SPhinX Funds were put into voluntary liquidation, and the shareholders appointed Messrs. Krys and Stride as joint voluntary liquidators. Stride Decl. ¶ 6. On July 4, 2006, the SPhinX Funds, with the exception of SMFF, filed voluntary winding up petitions in the present Cayman Islands proceedings.
Id.
¶ 7. Although the Cayman Court did not enter winding up orders officially appointing the JOLs until July 28, 2006 (and on August 8 with respect to SMFF), Messrs. Krys and Stride appeared through counsel in their capacity as joint voluntary liquidators at a July 18, 2006 scheduling conference before the District Court on the RCM Settlement appeals and agreed to file the SPhinX Funds’ appellee brief by August 23, 2006.
7
See
Nevertheless, on July 31, 2006, the JOLs also sought from this Court a temporary restraining order under section 1519(a) of the Bankruptcy Code that would enjoin further activity in the appeals. 8 They made essentially the same argument that the JPLs had made at the RCM Settlement hearing, asserting that they needed to investigate whether the RCM Settlement was improper from the SPhinX Funds’ perspective, see Transcript of hearing on Application for Temporary Restraining Order dated July 31, 2006 (“TRO Tr.”) at 7-10, 27-31, with the same result. Chief Bankruptcy Judge Bernstein denied the motion, stating as follows:
The only issue that has really been raised 9 ... is this appeal ... which is subject to Judge Berman’s scheduling order, and the proceeds of that settlement and, as I understand it, nothing is going to happen before August 16th 10 with respect to that anyway.
It’s not so clear to me that these debtors have anything to do with this appeal at this point or that the automatic stay which would be triggered by an order of [main proceeding] recognition would affect that appeal. As I understand it the [SPhinX Funds] were parties to and proponents of the settlement. The appeal was being prosecuted or is being prosecuted by certain investors and the [SPhinX Funds] never themselves appealed from the order, nor could they, I suppose____
But really it sounds to me like this is an end run around Judge Drain’s order of settlement and also Judge Berman’s scheduling order. With respect to the former, it sounds to me like your problem is with the settlement and the allegation that whoever entered into the settlement or authorized the settlement on behalf of SphinX breached their fiduciary duties. And that’s an entirely separate question, I think, as to whether the settlement is fair and reasonable to [ROM’s] estate. Everything you’ve told me convinces me it is fair and reasonable and I disagree with you that the bankruptcy court is supposed to determine the capacity of the non-debtor party that entered into the settlement or whether it’s fair and reasonable from the non-debtor’s point of view. That’s precisely what it’s not supposed to determine, I think....
If you have a problem with a scheduling order, that should really be referred to the district court judge that entered the order and say exactly what you said to me, that you’ve just been appointed on Friday, you have to take a position, there are questions about whether or not you even, at this point can take a position. It sounds to me like you oppose the settlement, so you don’t have to convince me that you can’t take a position that you oppose the settlement and support the appeal at this point, but I’ll leave that up to you. But for the reasons I’ve stated, I will deny the TRO.
TRO Tr. at 34-35.
The JOLs later requested District Judge Berman to stay the pending appeals, but he directed in the August 9 Mem. Endorsement that there would be “no suspension of the briefing schedule at this time.”
Discussion
A. Jurisdiction and Venue. This Court has jurisdiction over the Petition under
B. Recognition of the Foreign Proceedings.
1. Guiding Principles. Congress enacted chapter 15 of the Bankruptcy Code as part of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub.L. No. 109-8, 119 Stat. 23. Unique to the Bankruptcy Code, it contains a statement of purpose: “[t]he purpose of this chapter is to incorporate the Model Law on Cross-Border Insolvency
11
so as to provide effective mechanisms for dealing with cases of cross-border insolvency,” with the express objectives of cooperation between United States courts, trustees, examiners, debtors and debtors in possession and the courts and other competent authorities of foreign countries; greater legal certainty for trade and investment; fair and efficient administration of cross-border insolvencies that protects the interests of all creditors and other interested entities, including the debtor; the protection and maximization of the debtor’s assets; and the facilitation of the rescue of financially troubled businesses.
Although chapter 15 replaced section 304 of the Bankruptcy Code, which previously governed cases ancillary to foreign proceedings, chapter 15 maintains — and in some respects enhances — the “maximum flexibility,”
In re Brierley,
This flexibility is evident not only in the policy statement in
Flexibility also is inherent in the various forms of relief that the court may grant, upon a proper showing, to a foreign representative.
See, e.g.,
Chapter 15 also provides flexibility by acknowledging the possibility of a concurrent plenary case under other chapters of the Bankruptcy Code while a foreign proceeding is pending, permitting a foreign representative in a recognized foreign proceeding to commence (
Finally, chapter 15 demonstrates its flexibility in provisions that permit the court to condition relief (
Therefore, in cases where the court is asked under chapter 15 to reconcile conflicting claims to primacy between or among proceedings, including the matter presently before the Court, the interests of the debtor’s estate, creditors and other parties, absent evidence that they support a “primary” proceeding for an improper purpose, should generally be a significant and perhaps deciding factor. See generally
In re Aerovias Nacionales de Colombia S.A.,
This is not to say, of course, that chapter 15 will eliminate all conflicts between the domestic court and foreign jurisdictions. As noted in
Underwood v. Hilliard (In re Rimsat, Ltd.),
2. Recognition. The first step to obtaining relief under chapter 15 (with the exception of interim relief under
Although the court has the power to grant, under appropriate circumstances, extensive relief whether the foreign proceeding is recognized as “main” or “non-main,” recognition of the proceeding as a “foreign main proceeding” under
In addition to this relief and perhaps a surprisingly small number of other distinctions between foreign main and non-main proceedings specifically set forth in chapter 15,
17
recognition of a foreign main
The Refco Committee and the RCM Trustee do not invest much energy disputing the JOLs satisfaction of chapter 15’s requirements for recognition under
The real dispute concerns whether the Cayman Islands proceedings should be recognized as foreign main proceedings under Bankruptcy Code
On the issue of recognition of foreign proceedings as “main” or “nonmain,” the Bankruptcy Code provides considerable but not complete direction. “A ‘foreign main proceeding’ means a foreign proceeding pending in the country where the debt- or has its center of main interests” (“COMI”).
Pursuant to the introductory clause to Bankruptcy Code 1516(c), however, that presumption may be rebutted. The legislative history makes it clear, moreover, that “[t]he ultimate burden as to each element [of recognition] is on the foreign representative, although the court is entitled to shift the burden to the extent indicated in
The Bankruptcy Code does not state the type of evidence required to rebut the presumption that the COMI is the debtor’s place of registration or incorporation. Various factors, singly or combined, could be relevant to such a determination: 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.
As discussed above, the flexibility inherent in chapter 15 strongly suggests, however, that the Court should not apply such factors mechanically. Instead, they should be viewed in light of chapter 15’s emphasis on protecting the reasonable interests of parties in interest pursuant to fair procedures and the maximization of the debtor’s value. Because their money is ultimately at stake, one generally should defer, therefore, to the creditors’ acquiescence in or support of a proposed COMI. It is reasonable to assume that the debtor and its creditors (and shareholders, if they have an economic stake in the proceeding) can, absent an improper purpose, best determine how to maximize the efficiency of a liquidation or reorganization and, ultimately, the value of the debtor, assuming also, of course, that chapter 15 requires the court to protect the legitimate interests of dissenters (even to the extent of enabling the modification of a recognition order under Bankruptcy Code
There appear to be no published cases involving a dispute over COMI under chapter 15. But that is not the end of the inquiry; in keeping with its international context, chapter 15 directs courts also to obtain guidance from the application of similar statutes by foreign jurisdictions: “[i]n interpreting this chapter, the court shall consider its international origin, and the need to promote an application of this chapter that is consistent with the application of similar statutes adopted by foreign jurisdictions.”
is highlighted by the 13th recital of the [EC] Regulation, 20 which states that 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.’
The definition shows that the center of main interests must be identified by reference to criteria that are both objective and ascertainable by third parties.... It follows that, in determining the center of the main interests of a debtor company, the simple presumption laid down by the [European] Community legislature in favour of the registered office of that company can be rebutted only if factors which are both objective and ascertainable by third parties enable it to be established that an actual situation exists which is different from that which locating it at that registered office is deemed to reflect.
That could be so in particular in the case of a ‘letterbox’ company not carrying out any business in the territory of the Member State in which its registered office is situated.
Bondi v. Bank of America, N.A. (In re Eurofood IFSC Ltd.),
Case 341/04, slip op. at 6, 2006 E.C.R. —,
In the
Eurofood
case, however, the European Court of Justice, based on the question certified to it, assumed that the only evidence offered to rebut the place-of-reregistered-office presumption was that management for the holding company that owned the debtor made decisions on the debtor’s behalf in the alternative proposed COMI. The court assumed that the debtor was not a mere “letterbox” company that was not carrying out any real business in the location of its registered office; instead, it assumed that the debtor “regularly administered its interests, in a manner ascertainable by third parties and in respect of its own corporate identity, in the Member State where its registered office is situated.”
Id.,
slip op. at 5-6. The COMI registered office presumption therefore was not rebutted on the facts of the question certified.
Id.,
slip op. at 6.
Euro-
In light of the foregoing principles, important objective factors point to the SPhinX Funds’ COMI being located outside of the Cayman Islands. As far as the administration of the Debtors’ interests is concerned, the SPhinX Funds’ hedge fund business was conducted by PlusFunds outside of the Cayman Islands, as were most of the SPhinX Funds’ back-office operations, by DPM. The only business done in the Cayman Islands apparently was limited to those steps necessary to maintain the SPhinX Funds in good standing as registered Cayman Islands companies and certain SPhinX Funds as SPCs. There were no employees or managers in the Cayman Islands, and the Debtors’ boards, which contained no Cayman Islands residents, never met in the Cayman Islands.
Pragmatic considerations affecting the Debtors’ cases also point to a COMI outside of the Cayman Islands. With the exception of corporate minute books and similar records, the JOLs have not identified any assets located in the Cayman Islands; thus the JOLs and the Cayman Court would have to seek assistance from other courts (primarily this Court because most of the assets are in the U.S.) to realize on the SPhinX Funds’ assets that will go to pay creditors and investors.
See In re Rimsat, Ltd.,
On the other hand, the JOLs note that no party in interest besides the Refco Committee and the RCM Trustee has objected to the Petition, which clearly sought recognition of the Cayman Islands proceedings as foreign main proceedings. Further, they point out that those proceedings are voluntary, and that no one else has been appointed to wind up the Debtors’ affairs. The objectors criticized the circularity of this
logic
— ie., the Cayman Islands must be the Debtors’ COMI because that is where the JOLs were appointed — -but, given the disarray and immanent liquidation of the Debtors’ manager, PlusFunds, and the fact that the SPhinX Funds are not continuing in business,
someone
needs to manage the Debtors’ winding up. And the Court notes that no one, including the objectors, has questioned the JOLs’ ability to wind up the Debtors or that the Cayman Court would supervise the foreign proceedings fairly. See
In re Nat’l Warranty Ins. Risk Retention Group v. Bullmore,
In addition, the JOLs have argued that Cayman Islands law has specific winding up requirements at least with respect to the SPCs, Tr. at 51, although the JOLs’ Cayman Islands counsel also acknowledged that she was not aware of any prohibition on any Debtor being the subject of insolvency proceedings outside of the Cayman Islands. Tr. at 57-8. The JOLs also point out that the SPhinX Funds clearly held themselves out in their Offering Memorandum as offshore, Cayman Islands entities. As with the prior argument regarding Cayman Islands’ regulatory interests, however, this point has force primarily in relation to the legitimate interests of the SPhinX Funds’ investors, not creditors whose claims may not have been incurred with a focus on the Debtors’ offshore status.
But for one additional consideration, discussed below, upon the assumption that the Cayman Islands proceedings will primarily involve the investors, who, again,
However, a primary basis for the Petition, and the investors’ tacit consent to the Cayman Islands proceedings as foreign main proceedings, is improper: that is, it has the purpose of frustrating the RCM Settlement by obtaining a stay of the appeals upon the invocation of Bankruptcy Code section 362(a) that would go into effect under
In any event, the strategy taints the JOLs’ request and the investors’ consent to it, giving the clear appearance of improper forum shopping.
In re Rimsat, Ltd.,
This leaves whether, in light of the foregoing, the Court should, after having granted recognition under Bankruptcy Code
Under either approach, the Court would be able to grant the JOLs the same significant relief upon a proper showing, given the Court’s view that Congress separated the concept of “recognition” under Bankruptcy Code
This raises a second question: can there be a foreign nonmain proceeding when there is no other pending proceeding? (There is now, of course, no other plenary proceeding for these Debtors, and there never may be one.) However, nothing in chapter 15 provides that there cannot be a “nonmain” proceeding unless there is a “main” proceeding. Moreover, given all of the SPhinX Funds’ contacts elsewhere, a plenary proceeding could easily be filed outside of the Cayman Islands, by or against the Debtors. Such a proceedings — although now just a hypothetical or “shadow” proceeding — would quite conceivably qualify as a main proceeding given the Debtors’ lack of contacts with the Cayman Islands. Indeed, it is only in the absence of such an alternative proceeding that it would make sense, with the exception of the JOLs’ litigation strategy discussed above, to treat the Cayman Islands proceedings as main proceedings. Thus it would run contrary to logic as well as the statute’s plain language and purpose to force the court to recognize a foreign proceeding as a “main” proceeding simply because it was the only proceeding currently pending.
Given all of the reasons for not finding the SPhinX Funds’ COMI in the Cayman Islands — and the lack of legitimate prejudice to the JOLs, given their access to broad relief upon recognition of the Cayman Islands proceedings as foreign non-main proceedings — the JOLs’ Petition for recognition of the Cayman Islands proceedings as foreign main proceedings is denied. The proceedings are recognized as foreign nonmain proceedings, subject to later modification under
Notes
. The Grand Court of the Cayman Islands later appointed the JOLs as Joint Official Liquidators of SMFF.
. The SPhinX Funds were prohibited, as "exempted companies” from engaging in business in the Cayman Islands except in furtherance of their business carried on outside of the Cayman Islands. Companies Law (2004 Revision) of the Cayman Islands (“Companies Law”) § 193; see also Bridges Decl. ¶ 20.
. Mr. Aaron and Ms. Farquarson were directors of the SPhinX Funds at the time of their depositions.
. Mr. Stride’s estimate that at least ninety percent of the SPhinX Funds’ assets are located in the United States was based on his identification of the non-U.S. investment managers retained by PlusFunds and his understanding that they were responsible for managing approximately $40 million of the SPhinX Funds’ approximately $500 million of assets. Tr. at 21, 44. He did not determine whether any of the assets managed by those advisors actually are located outside of the United States, simply assuming that they were located abroad. Id. The JOLs’ counsel stated, however, that it was more efficient for the Debtors to maintain their accounts in the U.S., although they were free, under Cayman Islands law, to remove them from the United States, and the SPhinX Funds’ asset custodian was identified as Deutsche Bank Trust Company Americas, which is located in New York City (Offering Memorandum at 14), which suggests that even more of the Debtors’ assets are located in the United States than the at least ninety percent acknowledged by the JOLs to be located here.
The JOLs also identified two lawsuits pending in the United States District Court for the Southern District of New York, apparently the SPhinX Funds' only pending litigation claims; in addition, the SPhinX Funds filed proofs of claim in the PlusFunds and Refco chapter 11 cases pending in this Court. Stride Decl. ¶ 31.
. Until recently, the stock of two of the Debtors was traded on the Irish stock exchange.
. The Court had previously limited extensive discovery sought by SPhinX Fund investor-objectors, to the extent that such discovery concerned the merits of the RCM Settlement from the viewpoint of the SPhinX Funds as opposed to RCM’s estate and creditors.
. None of the SPhinX Funds is a party to the appellate litigation, with the exception that certain of the SPhinX Funds are appellees in connection with a related appeal by the
.
. The JOLs had also sought a temporary restraining order either compelling the turnover to them of the SPhinX Funds’ accounts in the United States or prohibiting any action against those accounts; however, Judge Bernstein found that the JOLs had not shown any possible danger to those funds, such as a creditor's attempt to seize assets, and therefore that they had not met their burden of showing irreparable harm. TRO Tr. at 33.
. The date of the hearing on the Petition.
. This is a reference to the Model Law promulgated by the United Nations Commission on International Trade Law at its Thirtieth Session on May 12-30, 1997, UN Sales No. E.99V.3 (the "Model Law”). H.R. Rep. 109-31, pt. 1, 109th Cong., 1st Sess., U.S.Code Cong. & Admin.News 2005, pp.88, 105-107 (2005).
. Other provisions of chapter 15 do require the court to consider, among other factors, the interests of U.S. creditors in certain circumstances.
See
. Bankruptcy Code section 1518 requires a foreign representative to file with a court prompt notice of any substantial change in the status of the foreign proceeding or of the foreign representative's appointment and concerning any other foreign proceeding that becomes known to the foreign representative.
. Among factors pragmatically considered by the court were that (a) key assets and contract parties were subject only to U.S. jurisdiction, and a U.S. proceeding would likely have been necessary under any circumstances, (b) the foreign jurisdiction’s reorganization statute had certain features that under the circumstances would have made a reorganization extremely difficult, and (c) the foreign creditors had generally accepted the U.S. court’s jurisdiction. Id. at 10-14.
. Section 1506 of the Bankruptcy Code 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."
.
See also
. For example, after recognition of a foreign main proceeding, the effects of a case under another chapter of the Bankruptcy Code are
. As noted above the RCM Trustee contends that the SPhinX Funds are solvent and have no need to be wound up; however, neither the RCM Trustee nor any other party-in-interest contends that liquidation is inimical to the Debtors. Thus it does not appear that the commencement of Cayman Islands winding up proceedings for these admittedly liquidating entities, all of which are registered in the Cayman Islands and several of which, as SPCs, are subject to additional Cayman Islands regulation, would be "manifestly contrary to the public policy of the United States."
. The JOLs also asserted, without opposition by any investor, that the Debtors are not stockbrokers, their investors being shareholders in, rather than customers of, the SPhinX Funds. The Debtors therefore are not ineligible for chapter 15 relief under
. Council Regulation 1346/2000 of 29 May 2000 on Insolvency Proceedings, 2000 O.J. (L.160), 1, 2, available at http://147.67.4.5/ eur-lex/pr i/en/oj/da1/2000/l_l 60/l_l 602 0000630en00010018.pdf.
. One other recent foreign decision also is relevant, although it applies common law principles of international comity rather than interprets the Model Law. In
Cambridge Gas Transport Corp. v. Official Committee of Unsecured Creditors (of Navigator Holdings PLC et al.),
[2006] UKPC (Lords of the Judicial Committee of the Privy Counsel) 26 (U.K.) [2006], 3 All E.R. 829, the Privy Council considered whether a request to transfer shares in a Manx company in order to implement a plan of reorganization previously confirmed under chapter 11 of the Bankruptcy Code should be recognized. It was argued on appeal that because the U.S. bankruptcy court did not have jurisdiction over the Manx shareholder, the Manx court should not have provided assistance to implement the chapter 11 plan. Lord Hoffman's statement of the ruling recognized, however, (a) that the Manx court at least had the power to assist the implementation of the chapter 11 plan to the extent that domestic insolvency law permitted and (b) it should do so in light of the economic reality that any interest in an insolvent Manx company was effectively reorganized by a chapter 11 plan that bound the company in which the shares were issued.
Id.
at 22, 26. To rule otherwise would delay and frustrate those with the real economic stake. Without discussing COMI at all, the decision made clear that a court can provide material assistance to a foreign court based on economic reality under principles of comity, as can this Court under chapter 15, whether or not the foreign jurisdiction is the COMI or the foreign proceedings are treated as main or nonmain.
See also In re Aerovias Nacionales De Colombia S.A. Avianca & Avianca, Inc.,
. While acknowledging this fact, the JOLs’ Cayman Islands counsel nevertheless asserted that the Cayman Court's authorization of the JOLs "to commence foreign ancillary insolvency proceedings in furtherance of the winding up of the [Debtors] (including commencing a Chapter 15 proceeding under the United States Bankruptcy Code)” indicated the Cayman Court’s view that the Cayman Islands proceedings should be primaiy. Tr. at 51. This overlooks, however, that cases under chapter 15 are ancillary
regardless
whether the foreign proceeding is main or nonmain.
. It became clear at oral argument that the JOLs were seeking a blanket ruling that privileges, such as the attorney-client privilege, would not apply in connection with such discovery, although the Petition had not addressed this point. Id. The Court permitted general discovery of the Debtors’ affairs, subject, however, to further determination, on notice, of any issues pertaining to the assertion of an applicable privilege.
. Although
. One may also read Bankruptcy Code