OPINION
Appellant Vesta Fire Insurance Company (“Vesta”) has appealed from an order of the Bankruptcy Court denying its objections to a preliminary injunction, issued pursuant to Section 304 of Title 11 of the United States Code (the “Bankruptcy Code”), staying an arbitration between Vesta and New Cap Reinsurance Corporation Limited (“New Cap”). That preliminary injunction was obtained pursuant to an application by appellee John Gibbons (“Gibbons” or the “Administrator”), the Administrator of New Cap in an Australian insolvency proceeding. For the reasons set forth below, the order is affirmed.
The Parties
Vesta is an Alabama corporation, and is licensed to do business in New York.
Gibbons is the Administrator of New Cap, a reinsurance company incorporated under the laws of Australia.
Facts and Prior Proceedings
Vesta and New Cap entered into an agreement of reinsurance (the “Agreement”). Under the explicit terms of that Agreement, any contractual disputes between the parties were to be arbitrated in Birmingham, Alabama.
On October 7, 1998, prior to the initiation of any insolvency proceedings involving New Cap, Vesta demanded arbitration to recover reinsurance proceeds allegedly owed to it by New Cap. A panel was selected, an organizational meeting held, and discovery requests served. On March 24, 1999, the arbitration panel held, at Vesta’s request, that New Cap would be required to provide pre-hearing security in
However, New Cap’s continued financial stability was in serious doubt. On April 21, 1999, Gibbons was appointed as Administrator of New Cap under the Australian Corporations Law, and on April 29, 1999 that appointment was ratified at a meeting of creditors. Under Australian law, a stay of all proceedings against New Cap became effective immediately upon the appointment of the Administrator. Shortly thereafter, an ancillary proceeding under Section 426 of the Companies Act 1985 of England and Wales was commenced in the High Court of Justice in London, and there is presently a stay of all proceedings against New Cap in the United Kingdom. On April 28, 1999, the Administrator commenced an ancillary proceeding in the Bankruptcy Court pursuant to 11 U.S.C. § 304. Following a hearing on May 5, 1999, the Honorable Cornelius Blackshear entered a preliminary injunction with respect to all creditors of New Cap that had not objected to the Administrator’s proceeding, and scheduled a hearing on Vesta’s objections for May 17,1999.
On May 17, after considering the parties’ briefing and hearing argument from counsel, Judge Blackshear denied Vesta’s request that it be exempted from the order staying all proceedings against New Cap, and that it be allowed to continue the arbitration already underway in Alabama. That order, from which Vesta now appeals, was memorialized and formally signed on May 19, 1999 (the “May 19, 1999 order”). Vesta filed its notice of appeal from the May 19,1999 order on May 27,1999.
In its papers, Vesta principally contends that (1) the bankruptcy court erred in failing to defer to the Federal Arbitration Act, 9 U.S.C. § 1 et seq., and the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “UN Convention”), 9 U.S.C. § 201 et seq.; (2) the bankruptcy court was in error in its view that a foreign debtor’s formal compliance with Section 304(c) automatically entitles it to injunctive relief; (3) the arbitration at issue was “unrelated to property of the debtor located in the United States,” and was therefore beyond the reach of Section 304; (4) that the bankruptcy court did not weigh properly the criteria governing relief under Section 304; and (5) that Vesta was entitled to relief, under Section 362(d)(1), from the bankruptcy court’s stay, just as it would from an automatic stay under Section 362 of the Bankruptcy Code. It presses that the stay of all proceedings, including arbitration proceedings, compromises its bargained-for right to arbitrate in a forum of its choice, and that the arbitration should be allowed to proceed without delay, even if it is not allowed to immediately collect on any arbi-tral award.
Oral argument was heard on October 6, 1999, at which time the matter was deemed fully submitted.
Discussion
The bankruptcy court’s decision under Section 304 to defer to the Australian insolvency proceeding shall be reviewed under an abuse-of-discretion standard.
See In re Treco,
Section 304 provides as follows:
(a) A case ancillary to a foreign proceeding is commenced by the fifing with the bankruptcy court of a petition under this section by a foreign representative.
(b) Subject to the provisions of subsection (c) of this section, if a party in interest does not timely controvert the petition, or after trial, the court may—
(1) enjoin the commencement or continuation of—
(A) any action against—
(i) a debtor with respect to property involved in such foreign proceeding; or
(ii) such property; or
(B) the enforcement of any judgment against the debtor with respect to such property, or any act or the commencement or continuation of any judicial proceeding to create or enforce a lien against the property of such estate;
(2) order turnover of the property of such estate, or the proceeds of such property, to such foreign representative; or
(3) order other appropriate relief, (c) In determining whether to grant
relief under subsection (b) of this section, the court shall be guided by what will best assure an economical and expeditious administration of such estate, consistent with—
(1) just treatment of all holders of claims against or interests in such estate;
(2) protection of claim holders in the United States against prejudice and inconvenience in the processing of claims in such foreign proceeding;
(3) prevention of preferential or fraudulent dispositions of property of such estate;
(4) distribution of proceeds of such estate substantially in accordance with the order prescribed by this title;
(5) comity; and
(6) if appropriate, the provision of an opportunity for a fresh start for the individual that such foreign proceeding concerns.
As a number of courts and commentators have observed, a petition filed pursuant to Section 304 “does not commence a full and conventional bankruptcy case.” 2 Collier on Bankruptcy ¶ 304.03[1] (15th ed.1999);
see In re Manning,
As Vesta has correctly observed, Section 304 does afford the bankruptcy court significant discretion. However, the direction of this discretion typically points in favor of granting, not denying, the relief sought by Section 304 petitioners. Indeed, it has been said that Section 304(b) affords a court wide latitude to mold appropriate relief, and that such relief is authorized “in near blank check fashion” so that the jurisdiction entrusted with overseeing an insolvency can proceed in a rational fashion with due regard for all of the varied and competing interests of creditors.
In re Culmer,
Of course, to grant relief under Section 304(b) a court must first consider the six factors set forth in Section 304(c). To the extent that an evaluation of the criteria set forth in that section require a court to assess the nature and quality of the foreign insolvency proceeding, and to determine whether the interests of claim holders in the United States will be protected in the same manner as foreign creditors, there is obviously an elastic element to the inquiry. However, there is little question from the record presented that sufficient evidence was presented to Judge Black-shear from which he properly could conclude that relief was warranted under Section 304(b).
There is no real dispute as between the parties that a “foreign proceeding,” within the meaning of the Bankruptcy Code, has been commenced in Australia, or that the Administrator is a “foreign representative” of New Cap. Furthermore, Vesta has neither seriously contested the bankruptcy court’s jurisdiction over the matter under consideration, nor the propriety of venue in this district’s bankruptcy court. Though Vesta has asserted that the arbitration at issue is “unrelated to property of the debtor located in the U.S.,” and that the relief provided to New Cap was therefore outside the ambit of Section 304’s jurisdictional mandate, the presence of debtor-owned property in the United States is not the “sine qua non of bankruptcy court jurisdiction under § 304.”
Haarhuis v. Kunnan Enters., Ltd.,
' Judge Blackshear was not presented with any evidence suggesting that the interests of Vesta would be treated differently from those of similarly-situated claimants, whether they be from Australia or beyond, or that the insolvency proceedings in Australia were sufficiently dissimilar from those in the United States as to preclude relief under Section 304. Neither was he presented with any evidence
The essence of Vesta’s position is that affording the Administrator the relief sought was, nevertheless, inappropriate, as it had a bargained-for right to arbitrate. Vesta posits that it should not be called upon to press its claims in Australia when it has a clear right to arbitrate in Alabama. Recognizing that recovery of any damages awarded by the appointed panel would be problematic, however, Vesta concedes that it is willing to refrain from collection.
As an initial observation, the maintenance of a vigorous defense in the Alabama arbitration will obviously have its costs, in terms of attorneys’ fees and the like. While Vesta minimizes both the amount and the importance of this expense, it is apparent that the funds for such a defense are themselves part of the common fisc ultimately available to the Australian court for distribution. The security payment required by the panel in March of 1999 presents a more troubling problem. Functionally, the payment of such security will transform Vesta from an unsecured creditor into a secured creditor — a practical consideration of not insubstantial consequence.
Furthermore, as the Administrator notes, Vesta is not alone among New Cap’s creditors in possessing contractual arbitration rights. While Vesta makes much of the fact that only a few claimants have joined it in opposing injunctive relief, others may well do so in the future.
1
Wheth
Vesta is correct that both the U.N. Convention and the Arbitration Act call for the recognition and enforcement of valid arbitration agreements, and it is not alone in its observation that courts have expressed a strong affinity for the enforcement of international arbitration agreements.
See In re United States Lines, Inc.,
This being said, however, it is well-settled that the provisions of the U.N. Convention do not demand greater fidelity in our courts than the statutory regime through which they were incorporated into the fabric of our domestic law.
See Stephens v. American Int’l Ins. Co.,
Though the Second Circuit did not explicitly address the U.N. Convention or its enabling legislation in
Cunard Steamship Co. v. Salen Reefer Servs. A.B.,
In
Cunard,
as in the instant case, a domestic creditor sought to enforce its bargained-for rights to arbitration as against a corporation insolvent under the laws of a foreign nation. Cunard, the plaintiff in that case, obtained an order of attachment based on a contract claim, and pressed its rights under the terms of the contract at issue to arbitrate that claim in London.
See id.
at 454. Upon motion by the defendant Salen, an insolvent corporation administered under the laws of Sweden, this Court ordered that the attachment be vacated on comity grounds. On appeal, Cunard contended,
inter alia,
that the district court’s vacatur of the attachment compromised Salen’s right to arbitrate, in contravention of both state and federal public policy in favor of arbitration.
See Cunard,
The Court of Appeals affirmed, holding on comity grounds
2
that deference was
The rationale underlying the granting of comity to a final foreign judgment is that litigation should end after the parties have had a fair opportunity to present their cases fully and fairly to a court of competent jurisdiction. The extending of comity to a foreign bankruptcy proceeding, by staying or enjoining the commencement or continuation of an action against a debtor or its property, has a somewhat different rationale. The granting of comity to a foreign bankruptcy proceeding enables the assets of a debtor to be dispersed in an equitable, orderly, and systematic manner, rather than in a haphazard, erratic or piecemeal fashion. Consequently, American courts have consistently recognized the interest of foreign courts in liquidating or winding up the affairs of their own domestic business entities.
Id. at 457-48 (emphasis added). More importantly insofar as Vesta’s claims concerning arbitration are concerned, the Cunard court remarked that “there is ... no compelling policy reason for a general creditor whose claim is subject to arbitration to receive a preference over other creditors.” Id. at 459.
Subsequent decisions have only reinforced Cunard’s essential holding that a United States court may defer to a foreign bankruptcy proceeding, even where a domestic creditor claims an entitlement to arbitration.
See In re Hopeivell,
is not as sacrosanct as [creditors] urge”);
Allstate Ins. Co. v. Hughes,
Vesta is correct that Cunard involved an arbitration that had yet to formally commence, and that the arbitration at issue in the case at bar had already begun at the time of the Administrator’s appointment. Setting aside the fact that the Alabama arbitration was only in its incipient stages at the time of the bankruptcy court’s injunction, and that no actual discovery had been completed, 3 this is a distinction of form and not substance. After all, if Vesta was in fact entitled to arbitration in the absolutist way that it claims, then it would presumably be entitled to such arbitration even had that arbitration not yet begun. However, as Cunard and its progeny indicate, Vesta is not so-entitled in the context of transnational bankruptcies, and it is difficult to divine any principled reason why Vesta’s formal rights to arbitrate would be any greater under the Arbitration Act or the U.N. Convention after commencement of proceedings. 4
Insofar as the inconvenience inherent in participation in an Australian insolvency proceeding is concerned, courts have routinely rebuffed the claims of creditors that the inconvenience necessarily attendant to litigation in a foreign forum- — • setting aside the particulars of the forum’s legal regime — constitutes grounds for rejection of a Section 304 petition.
See In re Brierley,
“[E]very person who deals with a foreign corporation impliedly subjectshimself to such laws of the foreign government, affecting the powers and obligations of the corporation with which he voluntarily contracts, as the known and established policy of the government authorizes.... He is conclusively presumed to have contracted with a view to such laws of that government....” Thus, ... [the] creditor’s rights are subject to foreign laws and [every creditor] must be required to pursue its remedies in the [foreign] liquidation. One who invests in a foreign corporation subjects his investment to foreign law and may not seek to obtain greater rights than his co-creditors by suing in an American court. . :
Vesta’s avowed willingness to forego collection of any judgment rendered in connection with the arbitration at issue does nothing to bolster its position. First, as noted earlier, to even participate in the arbitration the Administrator must expend funds, and the requirement of a security payment has the practical effect of transforming Vesta from an unsecured into a secured creditor. Second, and just as important, allowing Vesta to proceed to judgment would be to allow it to improve its position with respect to other creditors.
See In re Manning,
This is not to say that Vesta’s contentions concerning the significance of its bargained-for rights to arbitration are not well-taken. Were a domestic bankruptcy court supervising New Cap’s insolvency, it might well exercise its discretion to order continuation of the Alabama arbitration.
See In re Manshul Construction Corp.,
However, in the context of the instant insolvency those arguments and the difficult questions they raise are more appropriately put to the Administrator or an Australian court entrusted with the task of supervising New Cap’s insolvency. The record does not indicate the priority to be accorded to any arbitral award favoring Vesta, what New Cap’s existing liabilities are, or the nature of Vesta’s status vis-a-vis other New Cap creditors. As a result, it is impossible to even say with any degree of certainty that Vesta would be entitled to anything at the end of the day should New Cap be liquidated
in tato. C.f. In re Treco,
Finally, Vesta has suggested that because injunctive relief provided in connection with Section 304 is akin to the protection afforded by the automatic stay applicable to domestic bankruptcies under Section 362(a), Judge Blackshear erred in failing to consider whether Vesta was entitled to relief from the stay under Section 362(d)(1). It is true that such relief is analogous, in many respects, to that provided by the automatic stay, in that the essential purpose of both is the same— repose from creditors, protection of creditors from each other, and maintenance of an orderly liquidation or administration of the estate.
See In re Bird,
The purposes of the automatic stay, to preserve the assets of the debtor for the benefit of all creditors and to protect the creditors from each other by stopping the race to seize the debtors assets, are not advanced by disallowing suits against the debtor in the court where the bankruptcy case is pending. In fact, the opposite is true. Having such litigation go forward in what can be termed the home court centralizes all actions against the debtor in one forum under the control of one court and thereby aids the home court in protecting the debtor and creditors and in efficiently administering the estate.
Whereas §§ 362 and 304 perform similar functions in protecting the debtor from his or her creditors, as with many analogies, there is a danger in expanding the analogy to an equation, for my function in a domestic bankruptcy case is quite different from my function in an ancillary one. Were this a traditional chapter 7 or 11 proceeding, I would be empowered to administer North Atlantic’s estate.... However, in the context of an ancillary proceeding, I do not determine the extent or validity of claims against the estate; proofs of claim are not even filed in this court. The administration of the debtor’s estate, as a whole, is not within my province, for I am not the home court; the main proceeding is in the United Kingdom. It would offend principles of comity for me
Judge Blackshear was presented with ample evidence from which it could be concluded that relief should be provided to the Administrator under Section 304, and Vesta’s only claim to preferential treatment was premised upon the existence of an arbitration clause in its reinsurance agreement with New Cap. Tellingly, when pressed by Judge Blackshear to indicate how it was different from any other creditors with arbitration clauses in their contracts, Vesta was unable to do so. 6 Moreover, merely because the arbitration at issue was already underway at the time of the Administrator’s appointment did not demand an exception to the injunction. Pending litigation has been stayed frequently in the context of Section 304 proceedings, and, as explained above, there is no reason why a pending arbitration in its initial stages should be treated any differently.
Judge Blackshear was thus well within the confines of his discretion when he refused to grant Vesta an exception to the May 5,1999 injunction.
Conclusion
For the reasons set forth above, the May 19, 1999 order appealed from shall be affirmed.
Notes
. As the Honorable Tina L. Brozman, Chief Judge of the Bankruptcy Court for the Southern District of New York, noted in
In re Hopewell,
. Because of the procedural posture of the case, the district court’s decision was not premised upon Section 304, but rather general principles of comity. However, the
Cunard
Though the Cunard decision was premised on general principles of international comity, its discussion of those principles is nevertheless frequently repeated in connection with Section 304 petitions.
. The record indicates that a panel was selected, an initial meeting was held, and that discovery requests were served. However, as Vesta acknowledged to Judge Blackshear, actual discovery material had yet to be exchanged between the parties.
. Courts have routinely stayed pending litigation in response to Section 304 petitions or other bankruptcy proceedings.
See In re Manning,
To the extent that the Second Circuit's decision in
Fotochrome, Inc. v. Copal Co.,
. In its briefing materials, Vesta has cited several cases in which arbitration was allowed to proceed under such circumstances. However, while such cases make clear that the interests a potential judgment creditor has in arbitrating its claim(s) may be significant, they are inapposite. Where a bankruptcy court allows arbitration against a debtor under its supervision, that court is nevertheless able to coordinate the claims of the arbitrating creditor with those of other creditors. In the context of transnational bankruptcies, however, such supervision and coordination by the United States bankruptcy court is conspicuously absent.
. More specifically, counsel to Vesta responded that "[w]e have an arbitration clause in our contract and we have a pending arbitration.”