In 2009, the District Court of the Southern District of Texas upheld the Bankruptcy Court's decision refusing to recognize of the foreign bankruptcy pending in Israel in the case of In re Lavie, ___ B.R. ___, 2009 WL 890387 (S.D. Tex. 2009).
In 1997 involuntary bankruptcy proceedings were initiated in Israel against Yuval Ran and Zuriel Lavie was appointed temporary receiver and later in 1999, the trustee of Ran's bankruptcy estate. In 1997 Ran moved to Houston, Texas. In 2006, the Israeli trustee Lavie filed a petition seeking recognition of the Israeli bankruptcy proceeding as a foreign main or foreign nonmain proceeding under chapter 15 of the U.S. bankruptcy code. The bankruptcy court denied Lavie's petition and the appeal therefrom was remanded to the bankruptcy court for further findings. On remand, the bankruptcy court declined to recognize the Israeli bankruptcy proceeding as either a foreign main or foreign nonmain proceeding. Lavie further appealed the bankruptcy court's decision.
The court reviewed that chapter 15 of the bankruptcy code was designed to optimize disposition of international insolvencies by facilitating appropriate access to the U.S. bankruptcy courts by a representative of an insolvency proceeding pending in a foreign country. Under section 304 of the bankruptcy code, which was chapter 15's predecessor, relief to foreign representatives was generally based on subjective factors and comity. In contrast, under chapter 15 the courts are given objective statutory guidelines as to whether to "recognize" the foreign proceeding.
A foreign proceedings can be a main proceeding, a non-main proceeding, or a foreign proceeding that is neither main nor non-main. A foreign proceeding must be recognized as main or non-main in order to be recognized and for chapter 15 relief to be granted. A foreign main proceeding is a foreign proceeding pending in the country where the debtor has the center of its main interest ("COMI"). The habitual residence of an individual person is presumed to be his COMI, but this presumption can be rebutted. Other factors recognized by the court in In re Loy were the location of the debtor's primary assets, the location of the majority of the debtor's creditors, and the jurisdiction whose law would apply to most disputes. In re Loy, 380 B.R. 154, 162 (Bankr. E.D. Va.2007). The court noted that European courts generally find that an individual's COMI is his habitual or permanent residence. A foreign court's determination that its jurisdiction is the debtor's COMI does not bind a U.S. court, but chapter 15 requires the U.S. court to make an independent finding at the time of the filing of the petition for recognition rather than at the time the foreign insolvency proceedings were initiated in the foreign court.
A foreign nonmain proceeding is a foreign proceeding, other than a foreign main proceeding, pending in a country where the debtor has an establishment 11 U.S.C. section 1502(5). An establishment is defined as "any place of operations where the debtor carries out a nontransitory economic activity." The existence of an establishment is a factual question with no presumption in its favor. The court held that although chapter 15 does not explicitly detail the relevant time period for the determination of whether there is an "establishment, " the use of the present tense in section 1502(2) implies that the determination should be made as of the time of the filing of the petition for recognition by the foreign representative under chapter 15.
The District Court upheld the Bankruptcy Court's denial of of recognition of the Israeli bankruptcy proceedings as a foreign main proceeding. The District Court also found that the pending Israeli insolvency proceeding not a foreign nonmain proceeding. The Court rejected the argument that the pending Israeli insolvency proceeding in and of itself was such an economic activity as to constitute an establishment necessary for a foreign nonmain proceeding. The Court held that the Israeli insolvency trustee's activities were as the agent of the bankruptcy estate and not as the agent of Ran.
The Court noted that although the recognition was denied, this did not affect any right the foreign trustee may have to sue in the U.S. to collect on his claim.
