Cross-Border Insolvencies: Representing Foreign and U.S. Debtors, - - PowerPoint PPT Presentation

Cross-Border Insolvencies: Representing Foreign and U.S. Debtors, Creditors, Trustees and Liquidators

Navigating COMI, Concurrent Proceedings, Winding Down Offshore U.S. Funds, Discovery for Foreign Proceedings and More Today’s faculty features:

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WEDNESDAY, JANUARY 21, 2015

Presenting a live 90-minute webinar with interactive Q&A Warren E. Gluck, Holland & Knight, New York Matthew Wright, Director, Head of Restructuring & Insolvency, RHSW Caribbean, Rawlinson & Hunter, Cayman Island

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Cross-Border Insolvencies: Representing Foreign and U.S. Debtors, Creditors, Trustees and Liquidators

New York and Cayman Islands – Jan. 21, 2014

Presented to: Strafford Warren E. Gluck Holland & Knight New York Matthew Wright RHSW Cayman Islands

Topics For Today

• Summary of Chapter 15 and the Model Law
• Overview Foreign Insolvency Proceedings and Liquidators
• The Center of Main Interests Issue (And Offshore Companies)
• When Foreign and US Insolvency Proceedings Collide
• Cross border insolvency, tax disputes and other unprovable foreign

debts—the case of William and Patricia Millard

• Winding down offshore-incorporated, U.S. operated funds
• Recovering US-located assets of the debtor that have been seized
• r improperly transferred.
• Chapter 15 discovery in aid of foreign insolvency proceedings and

intermediary bank discovery

5

Chapter 15 – The Cross-Border Insolvency Statute

• Formalized Successor to 11 U.S.C. 304. Overriding Philosophy of Deference to

Foreign Insolvency Proceeding and Avoidance of Piecemeal Distribution of the (Foreign) Debtor’s Estate.

• Provides Powerful Mechanisms to:
• (1) Protect the Estate’s U.S. Assets and direct turnover to foreign proceeding.
• (2) Stay United States Litigation/Asset Seizures;
• (3) Permit the Enforcement of Debtor’s Claims Against Third Parties, Affiliates

and Insiders;

• (4) Apply Foreign Insolvency (i.e. Preference and Avoidance) Laws against

receivers of preferential and avoidable payments subject to U.S. jurisdiction.

• (5) Permit broad reaching discovery of debtor and third party assets.

6

Chapter 15 At a Glance

• 2005: U.S. adoption of the U.N. Commission
• n International Trade Law (UNCITRAL)

Model Law of Cross-Border Insolvency.

• Action brought by “Foreign Representative”

(typically, but not always, appointed by foreign court).

• Key: foreign proceeding to be at “center of

main interest” (COMI) of debtors. See In re Fairfield Sentry Limited, 714 F.3d 127 (2d

• Cir. 2013) (recognizing “COMI-Shifting” and

permitting recognition of offshore liquidations and bankruptcies, including shipping companies. Non-main recognition also possible

• “A collective judicial or administrative

proceeding in a foreign country, including an interim proceeding, under a law relating to insolvency or adjustment

• f debt in which proceeding the assets

and affairs of the debtor are subject to control or supervision by a foreign court, for the purpose of reorganization or liquidation.” 11 U.S.C. 101(23) – Formal “bankruptcy” is not required, nor is direct court supervision; administrative orders, third-party administrations and receiverships can suffice. – “Collective” means that there must be some creditor involvement in the proceedings, such as the right to submit claims – a crucial component.

7

Foreign Insolvency Proceedings and Foreign Liquidators

• Background to Cayman Islands and British Virgin Islands

insolvency law

• Requirements and qualifications of an insolvency practitioner
• Court process in “Caribbean” insolvencies
• Tool kit available to offshore liquidators
• Pros and cons of foreign insolvency proceedings

8

Foreign Proceeding or Chapter 11?

• Pros and cons of foreign insolvency proceedings:

– Cost – Ability to recover assets – Enforceable judgments – Subordination of insider claims – Global stay versus US Stay

9

Center of Main Interests (and Offshore)

– A proceeding pending in a country which is the center of the debtor’s main interests (“COMI” analysis)

• 11 U.S.C. 1516(c): 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.

• Relevant Factors: the location of the debtor’s headquarters; the

location of those who actually managed the debtor (which, conceivably could the be headquarters of a holding company); the location of the debtor’s primary assets; the location of the majority of the debtor’s creditors; the jurisdiction whose laws would apply to most disputes.

• In re Fairfield Sentry Limited, 714 F.3d 127 (2d Cir. 2013)

(recognizing BVI Liquidation of Connecticut-based, “Madoff” feeder fund as foreign main proceeding)

10

The Current State of COMI - Fairfield and the Future

• The Second Circuit upheld and agreed with the so-called

“post-insolvency activity” theory of COMI. The question is whether, as of the date of the chapter 15 filing, the foreign debtor is being managed by a liquidator or court-appointed professional from the place of incorporation, the assets of the company are under the control of the foreign proceeding and preferably located in the foreign-incorporation jurisdiction, and whether the creditors have looked to the foreign proceeding and place of incorporation to submit their claims.

• But, UNCITRAL Has clarified the definition of COMI – and

where does this leave us?

11

When US and Foreign Proceedings Collide

12

• Impact of collision of proceedings

– In re Soundview – Ch11 stay vs. Cayman stay – Action by a regulator(s) – Agreement of an International Protocol and Avoidance of Delay – Fairfield, Farnum and US Court approval of US “Situs” Property Sales, Even when the foreign court has approved the sale. In re Fairfield Sentry

Ltd.), 2014 WL 4783370 (2d Cir. Sept. 26, 2014)

– Adjudication of claims (insiders and unprovable/tax debts)

Unprovable Debts and the Case of the Millards

• In re William H. Millard and Patricia H. Millard, 501 B.R. 644 (Bankr. S.D.N.Y. 2013) (a foreign

insolvency can be recognized even where the largest (United States) creditor’s claim is not provable in the foreign proceeding; obtaining chapter 15 protection to avoid asset-grabbing during two-party dispute is a permissible purpose, does not constitute bad faith, and does not violate fundamental U.S. public policy).

• Unique Chapter 15 decision – substantial policy implications.
• The United States will recognize a foreign insolvency proceeding even where the principal debts of the

debtor, in this case, tax claims of a U.S. Territory, are not provable or admissible in the foreign

• proceeding. The United States takes the same approach, and it is commonly called the “revenue rule.”

See In re BearingPoint Inc., 2010 WL 4622458 (Bankr. S.D.N.Y. 2010).

• The United States will not “look behind” the definition of insolvency set forth by a foreign nation or

court.

• Enforcement of default judgments is not a fundamental public policy of the United States; default

judgments are disfavored. Utilizing the bankruptcy process to obtain a stay of enforcement proceedings, in a two party dispute, for the purpose of challenging default judgments or appealing judgments is not bad faith.

• Court authorized taking deposition of sitting governor.

13

Winding Down Offshore Incorporated, US Operated Funds: Practical Considerations

• Cost vs. expected recovery
• Location of assets
• Location of litigation targets
• Local knowledge
• Allegations of fraud and actions available to insolvency

practitioners

14

Recovering US Assets

• In re Condor Ins. Ltd., 601 F.3d 319, 329 (5th Cir. 2010)

(Fraud and preference claims based on foreign law may be brought within US Chapter 15’s);

– CSL Australia Pty Ltd v. Britannia Bulkers Plc, No. 08-cv-8290, 2009 WL 2876250 (PKL) (S.D.N.Y. Sept. 8, 2009) (turnover of property attached before foreign filing pursuant to foreign law). – In Re TIBC, 439 B.R. 614 (notwithstanding pre-existing lien by United States creditor, holding that property would be released if supported by foreign law).

• Asset seizures in the “Gap” period between a foreign filing

and a chapter 15 filing will almost always be vacated. Sanctions on the horizon?

15

Tracing Assets and Business Using Intermediary Bank Discovery

• All U.S. dollar-denominated wire transfers from anyone or any company in the

world to anyone or any company in the world “clear” (are processed by) intermediary banks in New York.

• Intermediary banks are obligated to and do maintain records of wire transfers they

process.

• It is possible to recreate the financial history of any person or company in the

world that does business in U.S. dollars.

• The Records are clearly relevant in debt enforcement and cross-border insolvency

cases and are available via properly issued subpoena any time a subpoena can be issued.

• AQ Asset Management v. Levine, 974 N.Y.S.2d 332 (1st Dep’t 2013) (financial

records are the banks’ records; customers have no standing to object to subpoenas for financial records).

16

When Can Intermediary Bank Discovery Be Utilized?

• Any Foreign Court proceeding where the information will be of assistance (via 28

U.S.C. 1782).

• Chapter 15: Discovery is, by itself, sufficient reason to file a Chapter 15 - In re

Fairfield Sentry Ltd., 2010 WL 4455879 (Bankr. S.D.N.Y. July 22, 2010). But, now must meet 11 U.S.C. § 109 requirements. In re Barnet, 737 F.3d 238 (2d Cir. 2013)

17

Most Significant Uses

• A Lawful Way Around Foreign Bank Secrecy Laws

– Discover every one of a target’s bank accounts that originates or receives U.S. dollar wire transfers, worldwide.

• “Trace” Money from Transferee to Transferee

– The technique allows for multiple rounds and follow-up, so it is possible to “follow” the money. – Cost and time effective method for piecing together financial history

• Identify Fraudulent and Preferential Transfers in the context of International

Insolvency.

• Discover Intra-Corporate or Related-Party Transfers and Secret Shell Entities to

Pierce the Corporate Veil.

• Reveal Counterparties and Business Contacts List / Seize Receivables and

Establish Jurisdictional Predicates.

• Dispute Allegations/Catch lies.

18

Warren E. Gluck

Warren E. Gluck Senior Associate Holland & Knight New York

• T. 212.513.3396

warren.gluck@hklaw.com Warren E. Gluck is a litigator in Holland & Knight's New York office. He practices commercial litigation, insolvency and admiralty law, and is experienced in all aspects of the litigation process. He has been named a New York Super Lawyers Rising Star for the past two years (2012, 2013).

• Mr. Gluck is a frequent speaker on the topics of international debt enforcement and cross-border

insolvency and has pioneered new asset tracing methods. He also has substantial experience in connection with interim and protective remedies and has litigated dozens of prejudgment attachment and injunction-predicated cases. 19

Matthew Wright

Matthew Wright Director RHSW (Cayman) Limited Cayman Islands

• T. 345.949.7576

Matthew is a qualified insolvency practitioner in the Cayman Islands, specialising in corporate advisory and restructuring, liquidations, asset tracing, solvent wind down of funds and realisation of distressed and illiquid assets. He has acted as the court appointed liquidator on numerous Cayman Islands funds and companies. He also acts as Liquidating Agent, director and manager of a number of illiquid and distressed funds, outside formal insolvency procedures. Matthew joined the firm in 2010 and is a Director of RHSW (Cayman) Limited. He has worked predominately on solvent and insolvent restructurings since joining Ernst & Young in London in 2004. In the UK, he worked on the restructuring of Metronet (London Underground), the UK subsidiary of Kaupthing, the troubled Icelandic bank, and a wide variety of trading company and debt restructurings. Since arriving in the Cayman Islands in 2009, Matthew has led teams working on Madoff feeder funds as well as luxury hotel insolvencies in the Cayman Islands, Anguilla and Turks and Caicos. He is a member of the Association of Chartered Certified Accountants and a member of the Cayman Islands Society of Professional Accountants. He is also a board member of the Cayman Islands chapter of INSOL, which promotes the interests of restructuring professionals in the Cayman Islands and encourages best practices in the industry. 20