Sunday, March 31, 2013

Eligibility of Foreign Insurance Company under Chapter 15

Miami Personal Bankruptcy Lawyer Jordan E. Bublick has over 25 years of experience in filing chapter 13 and chapter 7 bankruptcy cases. His office is in Miami at 1221 Brickell Ave., 9th Fl., Miami and may be reached at (305) 891-4055.  

In the case of In ree Tri-Continental Exchange Ltd., et al., 349 B.R. 627 (Bankr. E.D. Cal. 2006).tThe SVG winding-up proceeding was found to be a "foreign proceeding" as defined in 11 U.S.C. 101(23) and the joint liquidator was found to be a "foreign representative" within the meaning of 11 U.S.C 101 (24).

The Court stated that 11 U.S.C. 109(b)(3), which provides that the debtor as a foreign insurance company are ineligible to be a debtor under the Bankruptcy Code pursuant to 11 U.S.C. 109(b)(3), did not affect the availability of chapter 15 relief pursuant to the provisions of section 1501(c)(1). The Court noted that chapter 15 provides a unique definition of "debtor" for purposes of chapter 15 in section 1502(1).

A creditor argued that the case should only be recognized as a "foreign nonmain proceeding" and not as a "foreign main proceeding." A foreign main proceeding is defined in chapter 15 as "a foreign proceeding pending in the country where the debtor has the center of its main interests" ("CoMI")" 11 U.S.C. 1502(4). The court noted that CoMI was is new term in U.S. jurisprudence and was taken from the UNCITRAL Model Law.

The Court looked to other provisions of chapter 15 and the sources in the Model Law to analyze what constitutes CoMI. The Court found that CoMI generally equates with the U.S. concept of "principal place of business." The court also noted that section 1516(c) provides that "in the absence of evidence to the contrary, the debtor's registered office . . . is presumed to be the center of the debtor's main interests." The court pointed out that Congress used the term "evidence" instead of "proof" (as used in the Model Law) in section 1516(c) to conform with U.S. terminology and to made clear that the burden of proof as to CoMI is on the foreign representative who is apply for recognition of a foreign proceeding as a main proceeding.

The creditor also sought to have the Court exercise its discretion under section 1522(b) to impose additional conditions on the release of the seized funds that may be dismissed from the U.S. in rem proceedings and turned over to the foreign representative if the foreign proceeding is recognized. The Court noted that although the foreign representatives sought to be entrusted with "the administration or realization of" the debtors' assets within the U.S. pursuant to section 1521(b)(5), they did not ask to be entrusted with the "distribution of all or part of the debtor's assets located in the United States" pursuant to section 1521(b). The Court further noted that chapter 15 provides ample authority for the court to impose restrictions to protect U.S. creditors. Section 1521(b) conditions entrustment of distribution of assets within the U.S. by a foreign representative upon a finding that the interests of U.S. creditors is "sufficiently protected." (The Court notes that the House Reports explains that the term used is "sufficiently protected" as opposed to "adequately protected" as in the Model Law to avoid confusion with a very specialized legal term in U.S. Bankruptcy law "adequate protection."). Section 1522 authorizes the court to impose the condition for discretionary relief that creditors and interested parties are "sufficiently protected." Section 1506 also provides for a public policy exception which permits the court to refuse to take an action governed by chapter 15 if the action would be "manifestly contrary" to the public policy of the U.S.

The Court found that it was not necessary to place additional restrictions on disbursements as the foreign representatives were not being entrusted to distribute assets that are being maintained within the jurisdiction of the court. The creditors only seek to administer and realize assets under section 1521(a)(5). Furthermore, the Court stated that section 363 applies as a consequence of recognition of a foreign main proceeding and cash collateral cannot be used without permission pursuant to section 363(c)(2). The Court noted that if the creditor has an enforceable lien on the funds, that the funds are subject to protection as cash collateral. The Court also noted that the deprivation of use of the some of the funds may be required in order to allow the foreign representatives to recover estate assets. The Court further noted that it was confident that the foreign proceeding was proceeding in a proper manner and that it did not want to impede the progress of the foreign proceeding.