COMI Maybe? The Second Circuit Examines the Relevant Date for Determining a Debtor’s “Center of Main Interests”

A debtor in a foreign insolvency proceeding may petition a United States bankruptcy court for recognition of the foreign proceeding under chapter  15 of the Bankruptcy Code, which provides certain relief similar to that provided to debtors in bankruptcy cases pending in the United States and its territories.  When a foreign debtor seeks such recognition of its bankruptcy proceeding, a U.S. court must determine the location of the foreign debtor’s “center of main interests” (COMI).  If the debtor’s COMI is located in the same jurisdiction where the insolvency proceeding is taking place, the proceeding is recognized as a “foreign main proceeding,” and certain sections of the Bankruptcy Code (such as the automatic stay set forth in section 362) will apply to the debtor and any of its property located in the United States.  If the debtor’s COMI is located in a different jurisdiction than where the insolvency proceeding is pending, the proceeding may be recognized as a “foreign nonmain proceeding.”  Under such circumstances, the bankruptcy court has discretion to grant the foreign debtor the protection of the automatic stay.
But what if a debtor’s COMI changes? What is the appropriate time period to analyze in determining the location of a debtor’s COMI?  Is it when the foreign proceeding was filed, or when the foreign representative files a chapter 15 petition for recognition?  This was precisely the question that the United States Court of Appeals for the Second Circuit in Morning Mist Holdings Ltd. v. Krys (In re Fairfield Sentry Ltd.), considered.  The answer: the time of the filing of the chapter 15 petition, with an opportunity to look back in time, but only to ensure that a foreign debtor’s COMI is not being manipulated.  In reaching its conclusion, the Second Circuit embraced the Fifth Circuit’s reasoning from Lavie v. Ran (In re Ran), and rejected the reasoning of a decision from the Bankruptcy Court for the Southern District of New York—In re Millennium Global Emerging Credit Master Fund.  But because the bankruptcy court clearly found—and the Second Circuit agreed—Sentry’s COMI was located in the BVI when its liquidation commenced and when it filed its petition for recognition, the distinction between Ran and Millennium Global appears to be—in this case—of no consequence.
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