In re Global Cord Blood Corp.

In re Global Cord Blood Corp.

Opinion

MEMORANDUM OF DECISION AND ORDER DENYING CHAPTER 15 PETITION FOR RECOGNITION OF A FOREIGN PROCEEDING

DAVID S. JONES

UNITED STATES BANKRUPTCY JUDGE

This Chapter 15 case arises out of proceedings pending in the Grand Court of the Cayman Islands ("Cayman Proceeding"). In response to evidence suggesting that a company's board and/or officers caused or allowed an improper expenditure of more than $600 million of corporate funds, the Grand Court appointed Joint Provisional Liquidators ("JPLs") as fiduciaries to investigate and, if appropriate, seek to recover misappropriated funds, and/or to take other actions as may be appropriate based on the findings of their investigation. The Cayman Grand Court conferred [*2]  extensive corporate powers on the JPLs and divested the power of a number of the company's board members.

The JPLs have petitioned this Court for recognition of the Cayman Proceeding under Chapter 15 of the U.S. Bankruptcy Code. This application, which has drawn two objections, tests the limits of how broadly Chapter 15 can be applied to assist a foreign court in its conduct of a case that does not involve insolvency or the identification, classification, or satisfaction of debts.

For reasons detailed below, the Court concludes that, on the present record, the Cayman Proceeding does not satisfy the Bankruptcy Code's definition of a "foreign proceeding" and, accordingly, is not eligible for recognition under Chapter 15. At bottom, the Court concludes that the Cayman Proceeding, which arises under various subsections of the Cayman Islands Companies Act ("Companies Act"), is most akin to a corporate governance and fraud remediation effort, and is not a collective proceeding for the purpose of dealing with insolvency, reorganization, or liquidation. As such, the Cayman Proceeding at its present stage falls outside the range of proceedings that Chapter 15 was designed to assist.

To hold otherwise would be to invite recourse to [*3]  U.S. bankruptcy courts whenever any foreign corporation sustains losses as a result of officer or director fraud or defalcation, so long as that corporation first commences proceedings in its home jurisdiction seeking to install new fiduciaries and right the wrong that the corporation has suffered. Although Chapter 15 is to be applied broadly to provide assistance to a wide variety of foreign proceedings, the proceeding here—at its present stage—falls outside the range of types of proceedings that have been found eligible for assistance under Chapter 15, and outside the meaning of applicable provisions of the Bankruptcy Code.

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