Vol 20 (2023) - Issue 2

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Lack of Sufficient Evidence Resulted in Denial of Recognition to Isle of Man Liquidation

Synopsis
Chapter 15 of the United States Bankruptcy Code provides a mechanism for a US court to recognise a 'foreign proceeding', which generally includes a foreign insolvency, bankruptcy, liquidation, or debt adjustment proceeding (e.g., scheme of arrangement). In particular, a US bankruptcy court shall recognise a foreign proceeding if (1) the foreign proceeding is a foreign main or foreign nonmain proceeding, (2) the petition for recognition was filed by a foreign representative, and (3) the petition satisfies certain procedural requirements. If all three criteria are satisfied, the petition for recognition must be granted, unless recognition would be 'manifestly contrary' to US public policy.
A foreign main proceeding is a foreign proceeding pending in the country where the debtor has the center of its main interest or 'COMI.' Chapter 15 does not define COMI, but a debtor's registered office is presumed to be its COMI. In determining a debtor's COMI, US courts will generally consider among other things:
the location of the debtor's headquarters; the location of those who manage the debtor; the location of the debtor's assets; the location of creditors; and the jurisdiction of the law governing most disputes. A foreign nonmain proceeding is a foreign proceeding pending in a country where the debtor has an 'establishment', which is defined as 'any place of operations where the debtor carries out nontransitory activity.' If a proceeding is neither a foreign main proceeding or a foreign nonmain proceeding, it cannot be recognised under Chapter 15.
Upon recognition of a foreign main proceeding, certain protections arise automatically in favor of the foreign debtor and the foreign representative. In particular, creditors will be enjoined from taking most actions against the foreign debtor or its assets in the US.
Further, while recognition of a foreign nonmain proceeding does not have the same automatic effect as recognition of a foreign main proceeding, a bankruptcy court may grant the same relief in connection with a foreign nonmain proceeding on a discretionary basis.
Thus, the type of foreign proceeding being recognised ultimately may have little, if any, consequence.
The United States Bankruptcy Court for the Western District of Oklahoma denied a request for recognition of a liquidation pending in the Isle of Man after finding that the proceeding was neither a foreign main proceeding nor a foreign nonmain proceeding. This article discusses the court's decision, particularly its findings that the liquidator did not demonstrate that the debtor had its COMI or an establishment in the Isle of Man.