Vol 6 (2009) - Issue 4

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The Unraised Issue in In re Bear Stearns: What is the Temporal Framework for Determining the Centre of Main Interests?

This article examines the temporal framework for determining a foreign debtor’s centre of main interests (‘COMI’) under sections 1502 and 1517 of the United States Bankruptcy Code (‘Code’). Bankruptcy courts have identified non-exhaustive factors for determining the location of a debtor’s COMI. But the opinions in this area have not, until recently, reached the question of what temporal framework bankruptcy courts should use when making COMI determinations. Recently, In re Betcorp Limited held that COMI should be determined as of the chapter 15 petition date. The temporal framework is particularly relevant in cases where the debtor moves the COMI on the eve of chapter 15 commencement, or in cases where its COMI is moved for it by the prior appointment of a locally based administrator or liquidator with control over the debtor. Surprisingly, however, the issue was never raised in In re Bear Stearns, a case where the bankruptcy court denied recognition to debtors under the control of Cayman Islands liquidators at the time the chapter 15 petition was filed. The timing issue will recur as case law applying sections 1502 and 1517 of the Code develops.

Part I of this article explores the statutory framework for recognition of foreign proceedings under chapter 15. It concludes that the text of chapter 15 requires bankruptcy courts to make the COMI determination as of the date a debtor files a chapter 15 petition. Part II of this article anticipates two arguments for looking beyond the text: (a) chapter 15, as a model law, should be interpreted with foreign precedents and the objectives underlying a coordinated international insolvency scheme in mind; and (b) interpreting chapter 15 as written leads to an absurd result, for example, by permitting debtors to forum shop. Part II dispels these arguments and explains why bankruptcy courts should, absent highly unusual circumstances, construe COMI in the present. First, it identifies a crucial difference between chapter 15 and the European Regulation (‘EU Regulation’), and it explains why bankruptcy courts should be cautious when looking to foreign decisions to resolve the timing issue. Secondly, it explores policy reasons for measuring COMI in the present, and it explains why measuring COMI through a lookback period could severely restrict a foreign debtor’s access to American courts and thwart chapter 15’s primary goal of fostering coordination and cooperation to maximise value. Finally, it explains why forum shopping is not a concern when the debtor’s COMI is moved to the sovereign that created it.

Applying the COMI test as of the chapter 15 petition date, which takes into account the prior appointment of statutory liquidators or administrators, is wholly consistent with the objective of orderly and predictable insolvency proceedings. Having concluded that COMI should be measured as of the date a foreign representative files a chapter 15 petition, Part III discusses the implications of this framework to In re Bear Stearns.