In re Northshore Mainland Services, Inc.
537 B.R. 192, 2015 Bankr. LEXIS 3134, 2015 WL 5444707 (2015)
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Rule of Law:
Under § 305(a) of the Bankruptcy Code, a U.S. court may dismiss the bankruptcy cases of foreign debtors in favor of a pending foreign insolvency proceeding when the interests of the debtor and creditors are better served by dismissal, particularly where the debtors' center of main interests and the legitimate expectations of stakeholders are located in the foreign jurisdiction.
Facts:
- The Debtors' primary asset is a nearly-complete, $3.5 billion resort complex, the Baha Mar Resort, located in Nassau, The Bahamas.
- Most of the debtor entities are incorporated under the laws of The Bahamas, with the exception of Northshore Mainland Services, Inc., which is a Delaware corporation.
- The main construction contract for the project, between Baha Mar Ltd. (BML) and CCA Bahamas, Ltd. (CCA), is governed by New York law.
- The primary financing for the project was a $2.45 billion secured credit facility from The Export-Import Bank of China (CEXIM), with the main facility agreement governed by English law and key security instruments governed by Bahamian law.
- Construction on the project fell significantly behind schedule, missing the initial November 2014 completion date and a revised opening date of March 27, 2015.
- Due to the failure to complete construction and generate revenue, the Debtors faced a severe liquidity crisis beginning in April 2015.
- In June 2015, ten days before filing for bankruptcy, seven of the Bahamian Debtors each opened a bank account in Delaware with a $10,000 initial deposit.
Procedural Posture:
- The Debtors filed voluntary petitions for Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the District of Delaware.
- The Debtors filed an Originating Summons in the Supreme Court of The Bahamas seeking recognition of the U.S. Chapter 11 cases.
- The Supreme Court of The Bahamas denied the Debtors' request for recognition of the U.S. proceedings.
- The Attorney General of The Bahamas filed petitions in the Bahamian Supreme Court to begin winding-up proceedings against the Bahamian Debtors and appoint provisional liquidators.
- CCA and CEXIM, major creditors, filed separate motions in the U.S. Bankruptcy Court to dismiss the Debtors' Chapter 11 cases.
- The Bahamian Supreme Court appointed joint provisional liquidators for seven of the key Debtor entities.
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Issue:
Does § 305(a) of the Bankruptcy Code warrant the dismissal of Chapter 11 cases filed by primarily Bahamian-incorporated debtors in favor of insolvency proceedings in The Bahamas, where the debtors' primary asset, operations, and the expectations of most stakeholders are centered?
Opinions:
Majority - Carey, J.
Yes, § 305(a) warrants dismissal of the Chapter 11 cases for the Bahamian debtors because the interests of the debtors and creditors are better served by having the insolvency managed in The Bahamas, which is the clear center of main interests for the project. While the debtors meet the minimal 'property in the United States' requirement for eligibility under § 109(a) and did not file in bad faith under § 1112(b), abstention under § 305(a) is appropriate. The court applied a multi-factor test and found that dismissal serves economy and efficiency, as the primary asset, the majority of creditors, and the debtor companies themselves are located in The Bahamas. Furthermore, the court determined that most stakeholders would legitimately expect that any insolvency proceeding would occur in The Bahamas. The Bahamian Supreme Court's refusal to recognize the U.S. proceeding and its initiation of its own winding-up and provisional liquidation process makes a U.S.-based reorganization impractical and unenforceable. Principles of international comity also support deferring to the Bahamian courts, as their proceedings are procedurally fair. The case of the one U.S. debtor, Northshore, is not dismissed as its connections are primarily with the United States.
Analysis:
This case illustrates the critical role of judicial discretion and international comity in transnational bankruptcy cases. It establishes that even when a foreign debtor satisfies the low threshold for Chapter 11 eligibility under § 109(a), a U.S. court will not hesitate to abstain under § 305(a) if the debtor's 'center of main interests' is clearly in another country. The decision reinforces the principle that parties cannot use U.S. bankruptcy courts merely as a tactical tool to avoid foreign insolvency proceedings where the foreign jurisdiction has the overwhelmingly greater connection to the dispute. This precedent guides future cases by emphasizing the importance of stakeholder expectations and the location of assets and operations over technical eligibility requirements.
