In a judgement here, published on 30 August 2007, Judge Burton Lifland in the US Bankruptcy Court (Southern District of New York) declined to recognise the Cayman Islands provisional liquidations of two Bear Stearns' Hedge Funds as foreign main proceedings.

Although registered in the Cayman Islands, the two companies' Centres of Main Interest were in the USA so the provisional liquidations could not be main proceedings.

Neither could they be foreign non-main proceedings as neither company had an establishment in the Cayman Islands.

The decision specifically uses the UNCITRAL Model Law and the European Insolvency Regulation to interpret the provisions of Chapter 15 of the US Bankruptcy Code. It also disagrees with parts of the Sphinx decision. Eurofood is cited.

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Bob Eisenbach's post at In The (Red) is a great overview of Chapter 15, the US implementation of the UNCITRAL Model Law on Cross-Border Insolvency.

As Bob says:

On October 17, 2005, as part of the Bankruptcy Abuse Prevention and Consumer Protection Act (known as "BAPCPA"), a new Chapter 15 of the Bankruptcy Code went into effect governing ancillary and other cross-border cases. (For those already familiar with ancillary proceedings, Section 304 of the Bankruptcy Code, which previously governed those proceedings, was repealed although many of its concepts have been retained in Chapter 15.)"

Chapter 15 is used:

• principally by representatives of or creditors in foreign insolvency proceedings to obtain assistance in the United States;
• by a debtor or others seeking to obtain assistance in a foreign country regarding a bankruptcy case in the United States; or
• when both a foreign proceeding and a bankruptcy case in the United States are pending with respect to the same debtor.

A really useful feature of Bob's post for those who want detailed analysis is the chart comparing Chapter 15 and the Model Law's provisions, prepared by his partner Adam Rogoff.

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The UNCITRAL Model Law on Cross-Border Insolvency should enhance cross-border assistance for non-EU officeholders and creditors in British insolvency proceedings.

Introduced in England and Wales, and Scotland, on 4 April 2006 it was first applied in the English High Court on 23 November 2006 in Re Rajapakse (unreported) when a US Chapter 7 Trustee sought the court's assistance to recover assets in England.

Cooperation in cross-border insolvency proceedings within the EU is governed by the European Insolvency Regulation.

Chapter 15 of the US Bankruptcy Code similarly introduces the UNCITRAL Model Law into US law.

Richard Howard's post Global Bankruptcy Mutual Assistance addresses the question in relation to Great Britain by outlining the core provisions of The Cross-Border Insolvency Regulations 2006.

We address foreign creditors' rights in the UK in a previous post here, and you can find out more about the UNCITRAL Model law here.

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Although he describes Judge Drain's decision in In re SPhinX Ltd as pragmatic and commercial, Chris Mallon of Weil, Gotshal & Manges uses the case in an article entitled:

Bankruptcy Blunder

I think the benefits of legislation encouraging cooperation between insolvency regimes far outweigh the risks of forum shopping. Of course parties will seek to gain advantage from any perceived uncertainty and some courts may react less predictably than others, but the COMI concept and its interpretation is becoming familiar to most practitioners.

Certainly in Europe the debate has moved beyond COMI to considering how to manage cooperation between main and secondary proceedings, particularly in relation to creditors' rights to claim in either or both, or whether secondary proceedings are better avoided altogether by recognition of creditors' local rights in main proceedings.

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In a review of the first year of enactment of Chapter 15 of the US Bankruptcy Code (which is based on the UNCITRAL Model Law on Cross-Border Insolvency) Mark Douglas of Jones Day considers the concepts of main and non-main proceedings and of COMI (centre of main interests) by reference to In re SPhinX Ltd and In re Tri-Continental Exchange Ltd under the title:

Chapter 15 Turns One: Ironing Out the Details.

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