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In Re Millennium Global Emerging Credit Master Fund Ltd.

United States Bankruptcy Court, S.D. New York
458 B.R. 63, 2011 Bankr. LEXIS 3237, 66 Collier Bankr. Cas. 2d 583 (2011)
ELI5:

Rule of Law:

A foreign debtor's center of main interests (COMI) under Chapter 15 of the Bankruptcy Code should be determined as of the date of the commencement of the foreign insolvency proceeding. The COMI is the location where the debtor conducts the administration of its interests on a regular basis and which is ascertainable by third parties, even if day-to-day investment management occurs elsewhere.


Facts:

  • Millennium Global Emerging Credit Master Fund Limited ('Master Fund') and Millennium Global Emerging Credit Fund Limited ('Feeder Fund') were incorporated in Bermuda as offshore investment funds.
  • The registered office of both Funds was located in Bermuda at all times, at the address of their common administrator, a Bermuda company.
  • The Funds had no employees, but two of their three directors were residents of Bermuda, and they utilized a Bermuda-based administrator, bank, custodian, and auditor.
  • The Funds' offering materials identified them as Bermuda entities and directed investors to send subscription documents and cash to the administrator and bank in Bermuda.
  • While the Funds' directors held ultimate authority, day-to-day investment management was delegated to a London-based investment manager, and the overall manager was located in Guernsey.
  • The Funds' assets, consisting of debt instruments from developing countries, were held in prime brokerage accounts with entities in London and New York.
  • On October 6, 2008, the Funds were unable to meet a margin call from their prime broker, Credit Suisse, leading to a notice of default.
  • Following the default, the Funds' directors petitioned the Supreme Court of Bermuda to wind up the Funds on October 16, 2008.

Procedural Posture:

  • On October 16, 2008, the Funds' directors petitioned the Supreme Court of Bermuda, a court of first instance, for an order to commence liquidation proceedings.
  • The Bermuda Court granted the petition, appointed provisional liquidators, and later appointed them as joint liquidators.
  • On June 30, 2011, the joint liquidators (Petitioners) filed Chapter 15 petitions in the U.S. Bankruptcy Court for the Southern District of New York, seeking recognition of the Bermuda proceedings.
  • BCP Securities, LLC (Objectant), a potential target of investigation by the liquidators, filed an objection to the recognition petition.
  • The U.S. Bankruptcy Court held an evidentiary hearing on July 27, 2011 to determine whether to grant recognition.

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Issue:

Does a foreign liquidation proceeding in the jurisdiction where an offshore investment fund is incorporated, maintains its registered office, and conducts its core administrative functions qualify for recognition as a 'foreign main proceeding' under Chapter 15 of the U.S. Bankruptcy Code, on the basis that the jurisdiction is the debtor's 'center of main interests' (COMI)?


Opinions:

Majority - Gropper, J.

Yes, a foreign liquidation proceeding in such a jurisdiction qualifies for recognition as a 'foreign main proceeding' because that jurisdiction constitutes the debtor's center of main interests (COMI). The court first held that the proper date for determining a debtor's COMI is the date on which the foreign proceeding was commenced, not the later date when the Chapter 15 petition was filed in the U.S. This approach aligns with the statutory purpose, pre-Chapter 15 practice, and the European regulations from which the COMI concept was derived, and it prevents forum shopping. Applying this rule, the court found that at the time the Bermuda liquidation began in 2008, the Funds' COMI was in Bermuda. Although investment management was outsourced, Bermuda was the only location reasonably 'ascertainable by third parties' as the Funds' nerve center, given it was the place of incorporation, registration, directors' meetings, administration, and banking. This distinguished the case from others like In re Bear Stearns, where the offshore entity had only a 'letterbox' presence. The court concluded that even if Bermuda were not the COMI, the Funds maintained an 'establishment' there, which would qualify the proceedings for nonmain recognition.



Analysis:

This decision significantly clarifies the temporal aspect of the COMI analysis, establishing that courts should look back to the start of the foreign proceeding, thereby curbing potential abuse and forum shopping by debtors. It provides crucial support for recognizing proceedings in offshore financial centers by focusing on objective, ascertainable administrative functions rather than solely on the location of day-to-day management or assets. The ruling reinforces Chapter 15's policy of promoting international cooperation and pushes back against a potential trend of U.S. courts being overly skeptical of recognizing proceedings from so-called 'tax havens,' so long as a genuine administrative presence exists.

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