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By Louis M. Solomon
re: Fairfield Sentry Limited, et al., 10 Civ. 7311 (S.D.N.Y. Sept. 2011) [enhanced version available to lexis.com subscribers], is an appeal to the District Court
of a ruling by the Bankruptcy Court that recognized the liquidation proceeding of
Fairfield pending in the British Virgin Islands (BVI) as a "foreign
main proceeding" under the U.S. Bankruptcy statute and stayed appellants derivative
as well as most other actions involving Sentry. We do not often post on bankruptcy
litigation, given the special statutory structure. Fairfield however
discusses two international litigation practice issues that arise in general
contexts as well. Fairfield is related to the Madoff insolvencies.
First, as with arbitral rulings and awards subject to the New York Convention
(which we discuss in our e-book, International Practice:
Topics and Trends), many of the bankruptcy regimes around the world have
rules allocating priority and responsibility to one court or another. Non-primary
courts then are to give comity and deference to the main or primary court with only
limited exceptions. In the statutory regime enacted in various countries and
recognized by the U.S., the main proceeding is one that is defined as a "foreign
main proceeding", which exists if the proceeding is "pending in the country where
the debtor has the center of its main interests" (also known as the COMI).
An important question arises as of when is that centrality tested. Fairfield
holds that for an entity that is actively in business prior to commencement
of the bankruptcy case, the activities of a debtor's liquidators are both "relevant
and important to the COMI determination".
Second, the U.S. Bankruptcy Code, along
with many others across the globe, permit a court to refuse to recognize a non-U.S.
bankruptcy if the action taken "would be manifestly contrary to the public policy
of the United States". This analysis in turn requires examination of the specific
procedures and substantive laws of the relevant jurisdiction. The principal
complaint about BVI proceedings was that they were "cloaked in secrecy".
The District Court rejected that as a grounds for determining that the proceeding
was contrary to U.S. public policy. Said the Court: "the mere fact of
conflict between foreign law and U.S. law, absent other considerations, is insufficient
to support the invocation of the public policy exception".
International Practice Law Blog for more analysis of international
and foreign law issues.
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