1) The US Bankruptcy Court in Delaware recognized insolvency proceedings for SIFCO in the Cayman Islands as a "foreign main proceeding", allowing SIFCO to receive protections under Chapter 15 of the US Bankruptcy Code. 2) In contrast, the New York Bankruptcy Court denied recognition to similar proceedings for two Bear Stearns funds in the Cayman Islands, determining their center of main interests was in New York rather than the Cayman Islands. 3) The determination of a company's "center of main interests" (COMI) is important for whether foreign insolvency proceedings can be recognized in the US and receive protections like the automatic stay of litigation against the debtor.

1. US COLUMN
COMI in the US
Our US correspondent David Conaway contrasts two
cases involving the determination of “centre of main
interests” (COMI) with different outcomes
T
he United States Bear Stearns funds that were also 15 petitions, the US Bankruptcy
Bankruptcy Court in in “winding up” proceedings in the Court for the Southern District of
Delaware recently entered Cayman Islands. New York refused to recognise the
an order that impacts international In the Bear Stearns cases, two Cayman Islands proceedings as
insolvency cases. When foreign- Bear Stearns hedge funds, either “foreign main” or “foreign
based debtors file for creditor registered as exempt companies non-main” proceedings since the
protection in their “home” under the laws of the Cayman Court found that the Cayman
jurisdiction, they may also need to Islands, and with their primary Islands was neither the place of
protect any US assets from claims operations apparently in New York, Centre of Main Interests (COMI)
of creditors. Chapter 15 was added filed “winding up” proceedings in nor of an “establishment”. Rather,
to the US Bankruptcy Code as a the Cayman Islands. The “winding the Court concluded that the Bear
vehicle for foreign debtors to file for up” proceedings were filed in the Stearns funds operated in New
insolvency in their home Cayman Island since the funds York. In so ruling, the Bear Stearns
DAVID H. CONAWAY jurisdiction, but also have a were registered in the Cayman court effectively ignored Chapter
Shumaker, Loop & Kendrick,
LLP (USA) secondary bankruptcy proceeding Islands. In response to investor 15’s presumption that an entity’s
in the US. Foreign debtors often lawsuits arising from sub-prime COMI is where it is organised.
find it necessary to invoke certain investments filed against the Bear The effect of this ruling is that to
benefits of the US Bankruptcy Stearns funds in the United States, obtain the protections of the US
Code, including for example the the Bear Stearns funds needed Bankruptcy Code, the Bear Stearns
“automatic stay” which enjoins creditor protection in the United funds would be required to file
actions of creditors against the States. The administrators of the Chapter 11 proceedings in New
debtor or its assets. Bear Stearns funds’ “winding up” York. The Court also suggested
proceedings in the Cayman Islands that involuntary proceedings might
Foreign main proceeding thus filed Chapter 15 petitions in be filed against the Bear Stearns
New York seeking recognition of funds in New York.
On 3 February 2010, the Delaware
the Cayman Islands proceedings as
Bankruptcy Court in Saad
“foreign main” proceedings or in Establishing the centre
Investments Finance Company (No.
the alternative as “foreign non- of main interests
5) Limited (SIFCO No. 5), entered
main” proceedings. Without
an order recognising SIFCO’s COMI is a key concept in Chapter
recognition of the Cayman Islands
Cayman Island “winding up” 15, the UNCITRAL Model Law
“winding up” proceeding by the
proceeding as a “foreign main and the European Union
US Bankruptcy Court as the
proceeding”. The Delaware Insolvency Regulation, all of which
primary insolvency proceeding, a
Bankruptcy Court’s decision in presume COMI is where an entity
Chapter 15 petition will not be
SIFCO stands in contrast to the has its corporate registration.
granted, and the debtor cannot
New York Bankruptcy Court’s COMI impacts where the main
invoke the debtor protections of
prior ruling in Bear Sterns, where proceeding is deemed to be
the US Bankruptcy Code.
the Bankruptcy Court denied a located, based on where a business
In Bear Stearns, even though
Chapter 15 proceeding filed by two has its “centre of main interests”,
no party objected to the Chapter
36 Spring 2010

2. US COLUMN
“The Bear Stearns
which is analogous to the principal exempt as companies under the this fact and focused on the
place of business. Thus, if COMI laws of the Cayman Islands. Many location of the business activities at
exists in a foreign country, a US have suggested that the the time of the filing of the
Bankruptcy judge should recognise presumption should be Chapter 15 petition. At that time, court effectively
a foreign insolvency proceeding as determinative, absent substantial SIFCO was in the Cayman Islands
the “foreign main” proceeding and contrary evidence that the debtor’s “winding up” proceeding, with ignored Chapter
the US Chapter 15 proceeding as operations, or “centre of main Cayman Islands representatives 15’s presumption
an “ancillary” proceeding. If a interest” was somewhere else. In appointed to effect the “winding
debtor does not have COMI in the Bear Sterns, in the absence of any up” of SIFCO. The Delaware that an entity’s
country where it files its insolvency creditor objection, the New York Court also appeared to be more COMI is where it
proceeding, but has an Bankruptcy Court virtually ignored willing to recognise the
“establishment” in such country, the the presumptive location of the presumptive COMI, SIFCO’s is organised
”
US Bankruptcy Court should Cayman Islands and examined place of registration in the
recognise the foreign proceeding as where the Bear Stearns funds Cayman Islands.
a “foreign non-main” proceeding. business operations were truly Based on this, the Delaware
If the foreign insolvency conducted, which it found to be in Bankruptcy Court found that
proceeding is recognised as a New York. The result was the SIFCO’s COMI at the time of the
“foreign main” proceeding, the Chapter 15 proceeding was denied, Chapter 15 filing was in fact in the
approval of the Chapter 15 and the assets of the Bear Stearns Cayman Islands. As such, the
proceeding will invoke the funds in the US were subject to SIFCO’s Cayman Islands
automatic stay. If the foreign creditor claims. “winding up” proceeding was
insolvency proceeding is recognised It appears that in SIFCO, as in deemed to be a “foreign main
as a “foreign non-main” Bear Stearns, much of the business proceeding” giving rise to a
proceeding, the Chapter 15 activity of SIFCO occurred outside successful Chapter 15 filing in the
proceeding will not invoke the the Cayman Islands, where SIFCO US. Once in Chapter 15, SIFCO
automatic stay protections. was registered as an exempt was able to invoke the automatic
In both Bear Stearns (NY) and company. Unlike the New York stay to enjoin all creditor action
SIFCO (Delaware), the debtor Bankruptcy Court in Bear Stearns, against SIFCO in its assets in the
funds were registered (organised) as the Delaware Court largely ignored US.
Spring 2010 37