Morning Mist Holdings Ltd. v. Krys, No. 11-4376 (2d Cir. 2013)
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Morning Mist appealed from the judgment of the district court affirming the order of the bankruptcy court, which determined that the debtor had its "center of main interests" (COMI) in the British Virgin Islands (BVI), and therefore recognized debtor's liquidation in the BVI as a "foreign main proceeding" under 11 U.S.C. 1517. To determine the proper COMI, the court considered the relevant time period for weighing the interests, and the principles and factors for determining which jurisdiction predominated. The court concluded that the relevant time period was the time of the Chapter 15 petition, subject to an inquiry into whether the process had been manipulated. The relevant principle was that the COMI lies where the debtor conducts its regular business, so that the place was ascertainable by third parties. The statute included a presumption that the COMI was where the debtor's registered office was found. Among other factors that could be considered were the location of headquarters, decision-makers, assets, creditors, and the law applicable to most disputes. Applying these principles, the court affirmed the decision of the district court recognizing the BVI liquidation as a foreign main proceeding.
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11-4376-cv Morning Mist Holdings Ltd. v. Krys 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT August Term, 2012 (Argued: November 19, 2012 Decided: April 16, 2013) Docket No. 11-4376 - - - - - - - - - - - - - - - - - - - -x In the Matter of: Fairfield Sentry Limited, Debtor, MORNING MIST HOLDINGS LIMITED, MIGUEL LOMELI, Appellants, - v.KENNETH KRYS, CHRISTOPHER STRIDE, Appellees. - - - - - - - - - - - - - - - - - - - -x Before: JACOBS, Chief Judge, WINTER, Circuit Judge, SWAIN, District Judge.* Morning Mist Holdings Limited and Miguel Lomeli appeal 34 from the judgment of the United States District Court for 35 the Southern District of New York (Daniels, J.), affirming * The Honorable Laura Taylor Swain, United States District Judge for the Southern District of New York, sitting by designation. 1 the order of the United States Bankruptcy Court for the 2 Southern District of New York (Lifland, J.), which 3 determined that the debtor in this case, Fairfield Sentry 4 Limited, had its center of main interests in the British 5 Virgin Islands, and therefore recognized Fairfield Sentry s 6 liquidation in the British Virgin Islands as a foreign main 7 proceeding under 11 U.S.C. § 1517. 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 We affirm. ROBERT A. WALLNER, Milberg LLP, New York, New York (Kent A. Bronson, on the brief; Stephen A. Weiss, Seeger Weiss LLP, New York, New York, on the brief), for Appellants. DAVID J. MOLTON, Brown Rudnick LLP, New York, New York (Daniel J. Saval, May Orenstein, Kerry L. Quinn, on the brief), for Appellees. DENNIS JACOBS, Chief Judge: The question presented is where the debtor in this 24 bankruptcy proceeding had its center of main interests 25 within the meaning of Chapter 15 of the Bankruptcy Code 26 (enacted as part of the Bankruptcy Abuse Prevention and 27 Consumer Protection Act of 2005). 28 whether the pending foreign bankruptcy proceeding is a 29 foreign main proceeding, in which event U.S. proceedings 30 against the debtor are stayed. 2 The answer determines Morning Mist Holdings 1 Limited and Miguel Lomeli (collectively, Morning Mist ) 2 appeal from the judgment of the United States District Court 3 for the Southern District of New York (Daniels, J.), 4 affirming the order of the United States Bankruptcy Court 5 for the Southern District of New York (Lifland, J.), which 6 determined that the debtor, Fairfield Sentry Limited 7 ( Sentry ), had its center of main interests in the 8 British Virgin Islands ( BVI ), and therefore recognized 9 Sentry s liquidation in the BVI as a foreign main 10 proceeding under 11 U.S.C. § 1517. 11 For the following reasons, we affirm. 12 To determine the proper center of main interests 13 ( COMI, as the term is abbreviated by the parties and other 14 courts), we consider the relevant time period for weighing 15 the interests, and the principles and factors for 16 determining which jurisdiction predominates. 17 (as did the bankruptcy court and the district court) that 18 the relevant time period is the time of the Chapter 15 19 petition, subject to an inquiry into whether the process has 20 been manipulated. 21 consult foreign law, as directed by the statute) is that the 22 COMI lies where the debtor conducts its regular business, so We conclude The relevant principle (for which we 3 1 that the place is ascertainable by third parties. The 2 statute includes a presumption that the COMI is where the 3 debtor s registered office is found. 4 that may be considered are the location of headquarters, 5 decision-makers, assets, creditors, and the law applicable 6 to most disputes. Among other factors 7 8 9 BACKGROUND Sentry was organized in 1990 as an International 10 Business Company under the laws of the BVI. From 1990 until 11 Bernard Madoff s arrest on December 11, 2008, Sentry was the 12 largest of the feeder funds that invested with Bernard L. 13 Madoff Investment Securities LLC ( BLMIS ). 14 Sentry s assets were invested with BLMIS, totaling over $7 15 billion. Roughly 95% of 16 Pursuant to its Memorandum of Association, Sentry 17 administered its business interests from the BVI, where its 18 registered office, registered agent, registered secretary, 19 and corporate documents, among other things, were located. 20 Sentry s Board of Directors oversaw the management, with 21 day-to-day operations handled by an investment manager, 4 1 Fairfield Greenwich Group ( FGG ), based in New York.2 2 Sentry s three directors, Walter Noel, Jr., Jan Naess, and 3 Peter Schmid, resided in New York, Oslo, and Geneva, 4 respectively. 5 When Madoff was arrested, Sentry s two independent 6 directors, Naess and Schmid, suspended all share 7 redemptions. 8 owner and principal of FGG, Sentry s investment manager.) 9 Over the ensuing months, Naess and Schmid focused on winding 10 down Sentry s business and preserving assets in anticipation 11 of litigation and bankruptcy. 12 2009 (when Sentry entered liquidation in the BVI), they 13 participated in approximately 44 teleconference board 14 meetings initiated by Sentry s registered agent in the BVI. 15 During this time, Naess and Schmid advised Sentry s 16 shareholders as to measures being taken in response to the 17 Madoff scandal. 18 address in the BVI, as shown on the letterhead. 19 20 (Noel was recused from that meeting as the From December 2008 to July That correspondence issued from Sentry s In February 2009, Naess and Schmid constituted themselves as a litigation committee with the authority to 2 Fairfield Greenwich (Bermuda) Ltd., a member company of FGG, served as Sentry s investment manager. We refer to those entities collectively as FGG. 5 1 (among other things) consider, commence, and settle 2 litigation to be taken by or against Sentry. 3 subsequently become engulfed in lawsuits. 4 Sentry would In May 2009, Morning Mist, a Sentry shareholder, filed 5 a derivative action in New York state court, claiming that 6 Sentry s directors, management, and service providers 7 breached duties to Sentry (the derivative action ).1 8 9 Back in the BVI, ten of Sentry s shareholders applied for the appointment of a liquidator. On July 21, 2009, the 10 High Court of Justice of the Eastern Caribbean Supreme Court 11 (the BVI court ) entered an order which commenced Sentry s 12 liquidation proceedings under the Virgin Islands Insolvency 13 Act of 2003. 14 Christopher Stride (from the BVI liquidation firm of Krys 15 and Associates) as liquidator,2 and gave the liquidator 16 custody and control of all the assets of the Company. 17 18 The order appointed Kenneth Krys and On June 14, 2010, pursuant to an order of the BVI court, the liquidator petitioned the United States 1 Later that month, Sentry would file a direct lawsuit in New York state court against its investment manager, FGG, and FGG s affiliates. 2 Stride later resigned and was replaced by Joanna Lau, who herself then resigned. Krys is currently Sentry s sole liquidator and the appellee in this case (hereafter referred to as the liquidator ). 6 1 Bankruptcy Court in the Southern District of New York 2 (Lifland, J.) for recognition of the BVI liquidation 3 proceedings under Chapter 15 of the Bankruptcy Code (the 4 Chapter 15 petition ).3 5 As of that date, Sentry s liquid assets consisted of 6 approximately $73 million in Ireland, $22 million in the 7 United Kingdom, and $17 million in the BVI. 8 assets were claims and causes of action, including claims 9 for approximately: $6 billion in customer funds under the 10 Securities Investor Protection Act; $3 billion from Madoff 11 customers who profited from redemptions in New York; and 12 $150 million in similar redemption claims in the BVI. 13 proceedings were commenced in the Netherlands and Ireland. 14 The litigations were undertaken under the supervision of the 15 BVI court and with the assistance of the liquidator s 16 BVI-based counsel. 17 Its other Other On July 22, 2010, the bankruptcy court granted the 18 liquidator s Chapter 15 recognition petition. 19 determining Sentry s COMI for purposes of Chapter 15, the 20 bankruptcy court examined the period between December 2008, 3 In Recognition of a foreign proceeding under Chapter 15 can have the effect of staying all other actions against the debtor in the United States, as explained in Part I below. 7 1 when Sentry stopped doing business, and June 2010, when the 2 Chapter 15 petition was filed. 3 determined that Sentry s COMI for the purpose of 4 recognition as a main proceeding is in the BVI, and not 5 elsewhere, and therefore recognized the BVI liquidation as 6 a foreign main proceeding under 11 U.S.C. § 1517(b)(1). 7 Modified Bench Mem. & Order Granting Chapter 15 Petitions of 8 Fairfield Sentry Ltd., Fairfield Sigma Ltd. & Fairfield 9 Lambda Ltd. for Recognition of Foreign Proceedings, In re The bankruptcy court 10 Fairfield Sentry Ltd., No. 10-13164(BRL), at 6 (Bankr. 11 S.D.N.Y. July 30, 2010) (hereinafter Bankr. Order ). 12 Pursuant to 11 U.S.C. § 1520, recognition of the BVI 13 liquidation as a foreign main proceeding imposed an 14 automatic stay on any other proceedings against Sentry in 15 the United States--including the derivative action brought 16 by Morning Mist. 17 also 11 U.S.C. § 1520(a)(1) (imposing automatic stay from 11 18 U.S.C. § 362). 19 alternative that even if the BVI liquidation was a nonmain 20 proceeding (in which a stay would not be automatic), a stay 21 of the derivative action was appropriate under 11 U.S.C. 22 § 1521, which allows for such relief. Id. at 9 (recognizing automatic stay); see The bankruptcy court concluded in the 8 Bankr. Order at 9-11. 1 Morning Mist appealed the bankruptcy court s order to 2 the district court. On September 16, 2011, the United 3 States District Court for the Southern District of New York 4 (Daniels, J.) affirmed, holding that the bankruptcy court 5 properly considered Sentry s administrative activities in 6 its COMI analysis, and correctly considered Sentry s COMI as 7 of the filing of the Chapter 15 petition (not over its 18 8 year operational history). 9 Fairfield Sentry Ltd., No. 10 Civ. 7311(GBD), at 7-12 Mem. Decision & Order, In re 10 (S.D.N.Y. Sept. 16, 2011). 11 (as it argues here) that recognition of the BVI liquidation 12 would be manifestly contrary to U.S. public policy, and was 13 therefore barred by 11 U.S.C. § 1506, because the court 14 records in the BVI liquidation were sealed. 15 was rejected on the ground that the right of public access 16 to court records is not absolute. 17 Morning Mist had argued there The argument Id. at 14-17. Imposition of the automatic stay was affirmed, 18 including the stay of Morning Mist s derivative action 19 against Sentry. Id. at 18. Morning Mist timely appealed. 20 21 22 9 1 2 DISCUSSION We review an appeal from a district court s affirmance 3 of a bankruptcy court decision independently, accepting 4 the bankruptcy court s factual findings unless clearly 5 erroneous, and reviewing the bankruptcy court s legal 6 conclusions de novo. 7 (2d Cir. 2005) (quoting In re AroChem Corp., 176 F.3d 610, 8 620 (2d Cir. 1999)). In re Enron Corp., 419 F.3d 115, 124 9 10 11 12 I Chapter 15 of the Bankruptcy Code was enacted in 2005 13 as part of the Bankruptcy Abuse Prevention and Consumer 14 Protection Act of 2005, Pub. L. No. 109-8, 119 Stat. 23 15 (codified at 11 U.S.C. §§ 1501-1532). 16 incorporate the Model Law on Cross-Border Insolvency so as 17 to provide effective mechanisms for dealing with cases of 18 cross-border insolvency, while promoting international 19 cooperation, legal certainty, fair and efficient 20 administration of cross-border insolvencies, protection and 21 maximization of debtors assets, and the rescue of 22 financially troubled businesses. 23 10 Its goal is to 11 U.S.C. § 1501(a). 1 Chapter 15 is derived from the Model Law promulgated by 2 the United Nations Commission on International Trade Law 3 ( UNCITRAL ), and it instructs that [i]n interpreting 4 [Chapter 15], the court shall consider its international 5 origin, and the need to promote an application of this 6 chapter that is consistent with the application of similar 7 statutes adopted by foreign jurisdictions. 8 § 1508. 9 Chapter 15 recommends the Guide to Enactment of the Model 11 U.S.C. The legislative history accompanying the passage of 10 Law, promulgated by UNCITRAL, for guidance as to the 11 meaning and purpose of [the Model Law s] provisions. 12 Rep. No. 109-31, pt. 1, at 106 n.101 (2005) (hereinafter 13 House Report ).3 14 H.R. The recognition of foreign proceedings is governed by 15 Sections 1515 through 1524. Under Section 1517, an order 16 recognizing a foreign proceeding shall be entered if--(1) 17 such foreign proceeding . . . is a foreign main proceeding 18 or foreign nonmain proceeding within the meaning of section 3 See also id. at 109-10 ( Uniform interpretation will also be aided by reference to CLOUT, the UNCITRAL Case Law On Uniform Texts . . . . Not only are these sources persuasive, but they advance the crucial goal of uniformity of interpretation. To the extent that the United States courts rely on these sources, their decisions will more likely be regarded as persuasive elsewhere. ). 11 1 1502; (2) the foreign representative applying for 2 recognition is a person or body; and (3) the petition meets 3 the requirements of section 1515. 4 There is no dispute that the second and third requirements 5 are met here. 6 liquidation qualifies as a foreign main or nonmain 7 proceeding. 8 11 U.S.C. § 1517(a). The only point at issue is whether the BVI Section 1502 defines a foreign main proceeding as a 9 foreign proceeding pending in the country where the debtor 10 has the center of its main interests, and defines a foreign 11 nonmain proceeding as a foreign proceeding, other than a 12 foreign main proceeding, pending in a country where the 13 debtor has an establishment. 4 14 The statute does not define COMI. 15 establish a presumption: In the absence of evidence to the 16 contrary, the debtor s registered office . . . is presumed 17 to be the center of the debtor s main interests. 18 § 1516(c). 19 20 11 U.S.C. § 1502(4)-(5). It does, however, 11 U.S.C. Upon recognition of a foreign main proceeding, Section 1520 provides certain automatic, nondiscretionary relief, 4 Establishment is defined as any place of operations where the debtor carries out a nontransitory economic activity. 11 U.S.C. § 1502(2). 12 1 including an automatic stay of all proceedings against the 2 debtor in the United States. 3 discretionary stay is also available under Section 1521, 4 regardless of whether a foreign main proceeding is 5 recognized. 6 11 U.S.C. § 1520(a). A 11 U.S.C. § 1521(a). Finally, Section 1506 provides an overriding public 7 policy exception to all of Chapter 15: Nothing in this 8 chapter prevents the court from refusing to take an action 9 governed by this chapter if the action would be manifestly 10 contrary to the public policy of the United States. 11 11 U.S.C. § 1506. 12 13 14 15 Few courts have considered the meaning of COMI under 16 Chapter 15, especially with respect to the time frame and 17 the factors that bear on the question.5 II 18 A. 19 Morning Mist argues that the bankruptcy court should Relevant Time Period 5 We have only mentioned Chapter 15 in cases where Section 304 of the Bankruptcy Code, the predecessor provision to Chapter 15, applied. See, e.g., In re Bd. of Dirs. of Telecom Arg., S.A., 528 F.3d 162, 169 (2d Cir. 2008) (noting that Section 304 controls because the bankruptcy petition was filed prior to Chapter 15 s effective date). 13 1 have looked at Sentry s entire operational history, while 2 the liquidator advocates affirmance of the determinations 3 that COMI should be considered as of the filing of the 4 Chapter 15 petition. 5 the COMI determination, we consider: (1) the text of the 6 statute; (2) guidance from other federal courts; and (3) 7 international sources. 8 determined as of the time of the filing of the Chapter 15 9 petition. To identify the time frame relevant to We conclude that a debtor s COMI is To offset a debtor s ability to manipulate its 10 COMI, a court may also look at the time period between the 11 initiation of the foreign liquidation proceeding and the 12 filing of the Chapter 15 petition. 13 Statutory Text. Chapter 15 does not define COMI. 14 Section 1517 provides that a foreign proceeding shall be 15 recognized . . . as a foreign main proceeding if it is 16 pending in the country where the debtor has the center of 17 its main interests. 18 11 U.S.C. § 1517(b) (emphases added). The present tense suggests that a court should examine 19 a debtor s COMI at the time the Chapter 15 petition is 20 filed. 21 looked to Congress choice of verb tense to ascertain a 22 statute s temporal reach. Consistent with normal usage, we have frequently Carr v. United States, 130 S. 14 1 Ct. 2229, 2236 (2010); see also Dobrova v. Holder, 607 F.3d 2 297, 301 (2d Cir. 2010) (relying on Congress s use of 3 present perfect tense in statutory construction). 4 AroChem Corp., we were guided by the tense used in a 5 provision of the Bankruptcy Code allowing bankruptcy 6 trustees to hire professionals (e.g., lawyers, accountants), 7 as long as the professionals do not hold or represent an 8 interest adverse to the estate. 9 F.3d 610, 623 (2d Cir. 1999) (quoting 11 U.S.C. § 327(a)) In In re In re AroChem Corp., 176 10 (emphasis added). 11 estate s counsel would not be disqualified based on past or 12 future representations. 13 The present tense signified that an Id. It therefore matters that the inquiry under Section 14 1517 is whether a foreign proceeding is pending in the 15 country where the debtor has the center of its main 16 interests. 17 In this light, we reject Morning Mist s invitation for us to 18 consider the debtor s entire operational history. 19 a COMI determination based on the date of the initiation of 20 the foreign proceeding is not compelled by the statute. 21 foreign proceeding is pending, 11 U.S.C. § 1517(b)(1) 22 (emphasis added), only after it has been commenced. 11 U.S.C. § 1517(b)(1) (emphases added). 15 Likewise, A Under 1 the text of the statute, therefore, the filing date of the 2 Chapter 15 petition should serve to anchor the COMI 3 analysis. 4 Other Federal Courts. Nearly every federal court to 5 address this question has determined that COMI should be 6 considered as of the time the Chapter 15 petition is filed. 7 Among circuit courts, only the Fifth has specifically 8 decided the question. 9 determination should be made with regard to the debtor s 10 The argument that the COMI operational history was rejected in In re Ran: 11 12 13 14 15 16 17 18 19 20 In re Ran, 607 F.3d 1017, 1025 (5th Cir. 2010). 21 highlighted a provision in the Bankruptcy Code that 22 explicitly includes a look-back period (11 U.S.C. § 23 522(b)(3)(A)), as was not done in Chapter 15. Every operative verb is written in the present or present progressive tense. . . . Congress s choice to use the present tense requires courts to view the COMI determination in the present, i.e. at the time the petition for recognition was filed. If Congress had, in fact, intended bankruptcy courts to view the COMI determination through a look-back period or on a specific past date, it could have easily said so. The court Id. 24 The Fifth Circuit observed that its approach would 25 advance Congress s purpose of harmonizing transnational 26 insolvency proceedings because looking at a company s full 27 operational history could make it more difficult to pinpoint 16 1 a single COMI: In fact, a meandering and never-ending 2 inquiry into the debtor s past interests could lead to a 3 denial of recognition in a country where a debtor s 4 interests are truly centered, merely because he conducted 5 past activities in a country at some point well before the 6 petition for recognition was sought. 7 Id. For similar reasons, the Fifth Circuit emphasized that 8 third parties (primarily creditors) should be able to 9 ascertain a debtor s COMI. 10 Id. at 1025-26. We agree.6 The Fifth Circuit left open the possibility (albeit in 11 dicta) of looking at a broader time frame in order to 12 frustrate possible bad-faith COMI manipulation: 13 14 15 16 17 18 19 20 21 22 Lastly, we note that this case does not involve a recent change of domicile by the [debtor] in question. A similar case brought immediately after the party s arrival in the United States following a long period of domicile in the country where the bankruptcy is pending would likely lead to a different result. Id. at 1026. Most courts in this Circuit and throughout the country appear to have examined a debtor s COMI as of the time of 6 The Fifth Circuit pointed to English cases which seem to select a time linked to the commencement or service of the relevant insolvency proceeding. Id. at 1026 (emphasis added). But the italicized phrase is (at least) ambiguous, a matter not resolved by the Fifth Circuit. We consider international law on this point in the following section. 17 1 the Chapter 15 petition. 2 Ltd., No. 10 Civ. 7311(GBD), 2011 WL 4357421, at *6 3 (S.D.N.Y. Sept. 16, 2011); In re British Am. Isle of Venice 4 (BVI), Ltd., 441 B.R. 713, 720-21 (Bankr. S.D. Fla. 2010); 5 In re British Am. Ins. Co., 425 B.R. 884, 909-10 (Bankr. 6 S.D. Fla. 2010); In re Betcorp Ltd., 400 B.R. 266, 290-92 7 (Bankr. D. Nev. 2009). 8 that have taken a different approach. 9 Millennium Global Emerging Credit Master Fund Ltd., 474 B.R. See, e.g., In re Fairfield Sentry But there have certainly been courts See, e.g., In re 10 88, 92 (S.D.N.Y. 2012) (recognizing bankruptcy court s 11 conclusion that COMI should be determined as of the date of 12 the commencement of the foreign proceeding, rather than--as 13 most of the courts that have looked at the issue have 14 concluded--the date on which the Chapter 15 petition was 15 filed ). 16 Morning Mist, taking a cue from a prominent bankruptcy 17 court decision, suggests that we should employ the American 18 jurisdictional concept of principal place of business when 19 considering COMI, which would thus require consideration of 20 a debtor s operational history. 21 In re Millennium Global Emerging Credit Master Fund Ltd., 22 458 B.R. 63, 72 (Bankr. S.D.N.Y. 2011)). 18 Appellants Br. 33 (citing In In re 1 Millennium Global, the bankruptcy court suggested 2 substituting principal place of business for COMI, in which 3 case it is obvious that the date for determining an 4 entity s place of business refers to the business of the 5 entity before it was placed into liquidation. 6 72. 7 article by one of the drafters of Chapter 15. 8 quoted text, however, supports the contrary view: Congress s 9 decision to use the term COMI instead of principal place 10 458 B.R. at In support, the bankruptcy court quoted a law review Id. The of business was intentional: 11 12 13 14 15 16 17 18 19 20 21 22 23 Jay Lawrence Westbrook, Chapter 15 At Last, 79 Am. Bankr. 24 L.J. 713, 719-20 (2005). 25 Chapter 15 was drafted to follow the Model Law as closely as possible, with the idea of encouraging other countries to do the same. One example is use of the phrase center of main interests, which could have been replaced by principal place of business as a phrase more familiar to American judges and lawyers. The drafters of Chapter 15 believed, however, that such a crucial jurisdictional test should be uniform around the world and hoped that its adoption by the United States would encourage other countries to use it as well. As further support for the analogy to principal place 26 of business, the bankruptcy court in In re Millennium Global 27 pointed to Chapter 15 s predecessor, Section 304 of the 28 Bankruptcy Code. 458 B.R. at 73. 19 Section 304, now 1 repealed, allowed a party to commence a proceeding in U.S. 2 bankruptcy court ancillary to a foreign proceeding and 3 defined foreign proceeding as a proceeding in a foreign 4 country in which the debtor s domicile, residence, principal 5 place of business, or principal assets were located at the 6 commencement of such proceeding. 7 (2000). 8 business at the time of the commencement of the foreign 9 liquidation proceeding. 11 U.S.C. § 101(23) That wording looks to a debtor s principal place of But while the concept may be useful 10 in adducing factors that point to a COMI, Congress abandoned 11 that provision in enacting Chapter 15. 12 International Interpretations. Congress instructed 13 that [i]n interpreting [Chapter 15], the court shall 14 consider its international origin, and the need to promote 15 an application of this chapter that is consistent with the 16 application of similar statutes adopted by foreign 17 jurisdictions. 18 points to the Guide to Enactment of the UNCITRAL Model Law 19 on Cross-Border Insolvency (the UNCITRAL Guide ) for 20 guidance as to the meaning and purpose of [Chapter 15 s] 21 provisions. 22 statutory text controls, first and ultimately, we consider 11 U.S.C. § 1508. Legislative history House Report at 106 n.101. 20 Although the 1 international sources to the extent they help us carry out 2 the congressional purpose of achieving international 3 uniformity in cross-border insolvency proceedings. 4 The UNCITRAL Guide, which does not define COMI, 5 indicates that the concept was drawn from the European Union 6 Convention on Insolvency Proceedings. 7 ¶¶ 31, 72. 8 enacting the Convention on Insolvency Proceedings provides 9 some guidance: The centre of main interests should 10 correspond to the place where the debtor conducts the 11 administration of his interests on a regular basis and is 12 therefore ascertainable by third parties. 13 Regulation (EC) No 1346/2000 of 29 May 2000, Preamble ¶ 13 14 (emphases added) (hereinafter EU Regulation ). 15 U.S. statute, the EU Regulation employs the present tense. 16 The focus on regularity and ascertainability should also 17 inform our interpretation of the text. 18 debtor s administration on a regular basis, however, could 19 suggest a potentially broader time frame. 20 See UNCITRAL Guide In turn, the European Union Council Regulation Council Like the The reference to the But the EU Regulation does not operate as an analog to 21 Chapter 15. Under the EU Regulation, a main insolvency 22 proceeding in one EU member state is automatically 21 1 recognized by all other EU member states. 2 art. 16. 3 such as provided under Chapter 15. 4 States and the BVI are not parties to an agreement on the 5 subject and are not otherwise governed by a common legal 6 framework, a debtor must file a Chapter 15 petition in the 7 United States for the BVI proceeding to be recognized).7 8 Although the EU Regulation might refer to a broader time 9 frame for considering a debtor s COMI, it is not a fit for 10 11 See EU Regulation So the EU has no need for a recognition petition (Because the United construing Chapter 15. Relevant European case law interpreting COMI appears to 12 generally focus on whether a debtor s COMI is regular and 13 ascertainable, as suggested by the EU Regulation. 14 example, in In re Eurofood IFSC Ltd., the Court of Justice 15 of the European Union focused on criteria that are both 16 objective and ascertainable by third parties to determine a 7 For In In re Millennium Global, the bankruptcy court observed that [t]he EU Regulation does not contemplate the commencement of a separate ancillary proceeding to seek recognition of a foreign insolvency case, as in the Model Law and chapter 15, as the members of the Union are automatically required to recognize foreign proceedings from the date of their opening. 458 B.R. at 74. But that conclusion does not persuade us that we should determine COMI under Chapter 15 based on the date of commencement of the foreign proceeding as the bankruptcy court held in that case; rather, it suggests that the EU Regulation may be a poor analog for interpreting Chapter 15. 22 1 debtor s COMI. In re Eurofood IFSC Ltd., Case C-341/04, 2 2006 E.C.R. I-3813, 2006 WL 1142304, ¶ 33 (E.C.J. 2006). 3 Likewise, in In re Stanford International Bank Ltd., the 4 England and Wales Court of Appeal (Civil Division) looked to 5 whether third parties could ascertain a debtor s COMI, 6 specifically by examining factors in the public domain. 7 In re Stanford Int l Bank Ltd., Case No. A3/2009/1565 & 8 1643, 2010 EWCA Civ 137, 2010 WL 605796, ¶¶ 54-56 (Ct. of 9 Appeal 2010). These interpretations also reflect a concern 10 about possible COMI manipulation. 11 IFSC Ltd., 2006 WL 1142304, ¶ 35 (indicating concern with a 12 letterbox company not carrying out any business in the 13 territory of the Member State in which its registered office 14 is situated ). 15 not easily subject to tactical removal. 16 See, e.g., In re Eurofood A COMI that is regular and ascertainable is Overall, international sources are of limited use in 17 resolving whether U.S. courts should determine COMI at the 18 time of the Chapter 15 petition or in some other way. 19 * * * 20 21 22 We therefore hold that a debtor s COMI should be determined based on its activities at or around the time the 23 1 Chapter 15 petition is filed, as the statutory text 2 suggests. 3 international interpretations, which focus on the regularity 4 and ascertainability of a debtor s COMI, a court may 5 consider the period between the commencement of the foreign 6 insolvency proceeding and the filing of the Chapter 15 7 petition to ensure that a debtor has not manipulated its 8 COMI in bad faith. 9 10 B. But given the EU Regulation and other COMI Factors The parties also dispute what factors are relevant for 11 locating a COMI. 12 liquidation activities are irrelevant to the COMI 13 determination; the liquidator responds that these activities 14 and the fact of the BVI proceedings are the kind of 15 objective criteria that can be ascertained by third parties, 16 and are therefore critical. 17 activities, including liquidation activities and 18 administrative functions, may be considered in the COMI 19 analysis. Morning Mist argues that Sentry s We hold that any relevant 20 21 22 Chapter 15 creates a rebuttable presumption that the country where a debtor has its registered office will be its 24 1 COMI: In the absence of evidence to the contrary, the 2 debtor s registered office, or habitual residence in the 3 case of an individual, is presumed to be the center of the 4 debtor s main interests. 5 courts have focused on a variety of other factors as well. 6 The United States Bankruptcy Court for the Southern District 7 of New York has developed a widely adopted list of COMI 8 factors--warning, however, against mechanical application: 11 U.S.C. § 1516(c). But federal 9 10 11 12 13 14 15 16 17 18 19 In re SPhinX, Ltd., 351 B.R. 103, 117 (Bankr. S.D.N.Y. 20 2006). 21 consideration of these specific factors is neither required 22 nor dispositive. 23 Various factors, singly or combined, could be relevant to such a determination: the location of the debtor s headquarters; the location of those who actually manage the debtor (which, conceivably could be the headquarters of a holding company); the location of the debtor s primary assets; the location of the majority of the debtor s creditors or of a majority of the creditors who would be affected by the case; and/or the jurisdiction whose law would apply to most disputes. This nonexclusive list is a helpful guide, but The SPhinX court and other federal courts have also 24 turned to international law, as directed by Congress. 25 e.g., In re SPhinX, Ltd., 351 B.R. at 118; In re 26 Tri-Continental Exch. Ltd., 349 B.R. 627, 634 (Bankr. E.D. 27 Cal. 2006). As discussed in Part II.A above, the EU 25 See, 1 Regulation enacting the European Union Convention on 2 Insolvency explains that COMI should correspond to the 3 place where the debtor conducts the administration of his 4 interests on a regular basis and is therefore ascertainable 5 by third parties. 6 this guidance may have been of limited utility in resolving 7 the timing question discussed in Part II.A, it underscores 8 the importance of factors that indicate regularity and 9 ascertainability.8 10 EU Regulation, Preamble ¶ 13. While The absence of a statutory definition for a term that 11 is not self-defining signifies that the text is open-ended, 12 and invites development by courts, depending on facts 13 presented, without prescription or limitation. 14 15 III 8 As mentioned above, the bankruptcy court in In re Millennium Global employed the concept of principal place of business to guide its COMI analysis. Accordingly, it applied the Supreme Court s recent definition of that concept, which looks at a corporation s nerve center, i.e., where a corporation s officers direct, control, and coordinate the corporation s activities. Hertz Corp. v. Friend, 130 S. Ct. 1181, 1192 (2010). Given Congress s choice to use COMI instead of principal place of business, that concept does not control the analysis. But to the extent that the concepts are similar, a court may certainly consider a debtor s nerve center, including from where the debtor s activities are directed and controlled, in determining a debtor s COMI. 26 1 2 Applying the principles set out above, we affirm the 3 decision of the district court (which affirmed the 4 bankruptcy court) recognizing the BVI liquidation as a 5 foreign main proceeding. 6 In a nutshell: for a proceeding to be recognized as a 7 foreign main proceeding, it must be pending in the 8 country where the debtor has the center of its main 9 interests. 11 U.S.C. § 1517(b)(1). That determination is 10 based on a debtor s COMI at the time the Chapter 15 petition 11 is filed. 12 commencement of the foreign proceeding and the filing of the 13 Chapter 15 petition to ensure that a debtor has not 14 manipulated its COMI in bad faith, but there is no support 15 for Morning Mist s contention that a debtor s entire 16 operational history should be considered. 17 a court may consider in this analysis are not limited and 18 may include the debtor s liquidation activities. 19 20 21 22 23 24 25 A court may look at the period between the The factors that The bankruptcy court made factual findings that place Sentry s COMI in the BVI during the relevant time period: Upon the revelation of the notorious Madoff fraud in December of 2008, the Debtors discontinued the transfer of funds for investment with BLMIS in New York, which comprised 95% of Sentry s investments. The board of representatives at the Debtors New York-based 27 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Bankr. Order at 5-6. 15 though Sentry had assets in other jurisdictions, the 16 administration of its affairs in the relevant time was 17 orchestrated from the BVI. 18 of bad-faith COMI manipulation: the record here as to the 19 relevant time period beginning December 2008, which 20 straddles the Liquidators appointment dates, does not 21 support a finding of an opportunistic shift of the Debtors 22 COMI or any biased activity or motivation to distort factors 23 to establish a COMI in the BVI. 24 investment managers, [FGG], resigned shortly thereafter, and the Debtors contracts with FGG were severed in 2009, still long before the filing of the Petition. As a result, the Debtors have no place of business, no management, and no tangible assets located in the United States. Rather, the Debtors activities for an extended period of time have been conducted only in connection with winding up the Debtors business. . . . The Court finds that the facts now extant provide a sufficient basis for finding that the Debtors COMI for the purpose of recognition as a main proceeding is in the BVI, and not elsewhere. The court went on to find that, even Id. at 6. There was no finding Id. at 8. The bankruptcy court s factual findings are not clearly 25 erroneous and support the conclusion that Sentry s COMI was 26 in the BVI at the time of the Chapter 15 petition, and that 27 Sentry did not manipulate its COMI in bad faith between the 28 initiation of the BVI proceeding and the filing of the 29 Chapter 15 petition. True, the relevant time period was 28 1 when the Chapter 15 petition was filed (with a look backward 2 to thwart manipulation), whereas the bankruptcy court looked 3 at a longer period (beginning with Madoff s arrest), but the 4 difference is not material. We therefore affirm.9 5 6 7 8 IV Finally, Morning Mist argues that the bankruptcy court 9 should have applied the public policy exception available 10 under 11 U.S.C. § 1506, because the BVI proceedings, which 11 are in the main confidential, were cloaked in secrecy. 12 Appellants Br. 25. 13 Section 1506 provides: Nothing in this chapter 14 prevents the court from refusing to take an action governed 15 by this chapter if the action would be manifestly contrary 16 to the public policy of the United States. 17 § 1506. 18 application of Section 1506. 19 11 U.S.C. This Court has not had occasion to discuss the The statutory wording requires a narrow reading. 9 Morning Mist also claims that the bankruptcy court erroneously stayed the derivative action that it brought against Sentry. Appellants Br. 36-37. Because we affirm the recognition of the BVI liquidation as a foreign main proceeding, the stay was automatic. See 11 U.S.C. § 1520(a) (imposing automatic stay on U.S. proceedings against debtor upon recognition of foreign main proceeding). 29 1 Section 1506 does not create an exception for any action 2 under Chapter 15 that may conflict with public policy, but 3 only an action that is manifestly contrary. 4 § 1506 (emphasis added). 11 U.S.C. The legislative history confirms: 5 6 7 8 9 10 11 12 House Report at 109 (emphases added). 13 further explains that the exception should be read 14 restrictively and invoked only under exceptional 15 circumstances concerning matters of fundamental importance 16 for the enacting State. 17 courts in the United States have adopted this view. 18 e.g., In re Vitro S.A.B. de CV, 701 F.3d 1031, 1069-70 (5th 19 Cir. 2012); In re Iida, 377 B.R. 243, 259 (B.A.P. 9th Cir. 20 2007); In re Ephedra Prods. Liab. Litig., 349 B.R. 333, 336 21 (S.D.N.Y. 2006); In re Toft, 453 B.R. 186, 193 (Bankr. 22 S.D.N.Y. 2011); In re Metcalfe & Mansfield Alt. Invs., 421 23 B.R. 685, 697 (Bankr. S.D.N.Y. 2010).10 [Section 1506] follows the Model Law article 5 exactly, is standard in UNCITRAL texts, and has been narrowly interpreted on a consistent basis in courts around the world. The word manifestly in international usage restricts the public policy exception to the most fundamental policies of the United States. The UNCITRAL Guide UNCITRAL Guide ¶ 89. 10 Federal See, Even beyond the bankruptcy context, we apply public policy exceptions sparingly. For example, in the judgment enforcement context, a foreign judgment is unenforceable as against public policy to the extent that it is repugnant to fundamental notions of what is decent and just in the State 30 1 The confidentiality of BVI bankruptcy proceedings does 2 not offend U.S. public policy. 3 has proceeded under seal, Morning Mist s assertion that they 4 are shrouded in secrecy is overwrought. 5 Br. 7. 6 orders in the liquidation, but public summaries have been 7 made available. 8 applications and orders before BVI court). 9 access to court documents is not unusual in the BVI, as the Although the BVI liquidation Appellants The BVI court did seal the various applications and See, e.g., J.A. 445-46 (summarizing Such restricted 10 liquidator explains, because only certain limited records 11 are typically available to non-parties. 12 12-13. 13 liquidation, any non-party may apply to the court for access 14 to sealed documents. 15 Appellees Br. And in all cases in the BVI, including this Id. In any event, Morning Mist cannot establish that 16 unfettered public access to court records is so fundamental 17 in the United States that recognition of the BVI liquidation 18 constitutes one of those exceptional circumstances 19 contemplated in Section 1506. 20 copy judicial records is not absolute. [T]he right to inspect and Nixon v. Warner where enforcement is sought, but that standard is high, and infrequently met. Ackermann v. Levine, 788 F.2d 830, 841 (2d Cir. 1986) (internal quotation marks omitted). 31 1 Commc ns, Inc., 435 U.S. 589, 598 (1978). 2 Pyramid Co. of Onondaga, we discussed at length the common 3 law and constitutional rights to public access of court 4 documents. 5 110, 119-20 (2d Cir. 2006). 6 documents is not absolute and can easily give way to 7 privacy interests or other considerations. 8 see also United States v. Amodeo, 44 F.3d 141, 146 (2d Cir. 9 1995) ( Although there is a presumption favoring access to In Lugosch v. Lugosch v. Pyramid Co. of Onondaga, 435 F.3d The right to access court Id. at 120; 10 judicial records, the fact that a document is a judicial 11 record does not mean that access to it cannot be 12 restricted. (internal citation omitted)). 13 Important as public access to court documents may be, 14 it is not an exceptional and fundamental value. 15 qualified right; and many proceedings move forward in U.S. 16 courtrooms with some documents filed under seal, including 17 many cases in this Court. 18 hold that recognition of the BVI liquidation is manifestly 19 contrary to U.S. public policy. There is no basis on which to 20 21 22 It is a CONCLUSION For the foregoing reasons, we affirm. 32
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