Bankruptcy court denies Chapter 15 recognition of Isle of Man case

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A US bankruptcy court recently denied Chapter 15 recognition to a case in the Isle of Man (IOM). The court ruled that the foreign case was neither a foreign main proceeding nor a foreign non-main proceeding. Although the court found that the IOM proceeding was a “foreign proceeding”, it also held that the center of the debtor’s main interests was not at the IOM and that the debtor had no ‘establishment. In re ShimminNo. 22-10039, 2022 LEXIS 2932 (Bankr. WD Okla. Oct. 14, 2022).

The Chapter 15 case was filed following litigation in the United States arising from the debtor’s sale of certain aircraft. Following the sale, disputes between and among the debtor and others arose over aircraft repairs, other services, and blocked funds. A jury trial in Oklahoma was scheduled for April 2022.

But the trial was adjourned because the debtor had filed insolvency proceedings with the IOM. The liquidator in this case filed the Chapter 15 case, seeking recognition of the IOM case as a foreign main or foreign non-main proceeding.

Before the bankruptcy court addressed these issues, it ruled that other fundamentals of Chapter 15 were met. In particular, the court held that the case brought before IOM was a “foreign proceeding” under Article 101(23) of the Bankruptcy Code, and that the liquidator was a “foreign representative” under Article 101(23) of the Bankruptcy Code. Article 101(24) of the Bankruptcy Code. In addition, the court found that the Chapter 15 petition satisfied the legal requirements of Section 1515 of the Bankruptcy Code.

But the liquidator did not provide the necessary evidence for the foreign case to be recognized as a main foreign proceeding or a non-main proceeding.

A foreign main proceeding is a proceeding that takes place in the jurisdiction where the debtor has its center of main interests (CIP). A debtor’s center of main interests is presumed to be where it has a “head office”, a presumption that can be rebutted depending on other factors:

  • the location of the debtor’s registered office;
  • the location of those who manage the debtor;
  • the location of the debtor’s main assets;
  • the location of a majority of creditors or of a majority of creditors who would be affected by the case; and or
  • the jurisdiction whose law would apply to most disputes.

In Shimin, the debtor’s registered office was at IOM. But the debtor’s address was that of a global business services company – a “mailbox” and not a place where the debtor did “real business”. 2022 Bank. LEXIS 2932, at *11.

The evidence presented on the other factors also did not support a conclusion that the IOM was the debtor’s center of main interests. Two individuals identified as directors of the debtor were in fact employees of the service company, and one of the disputing parties argued that the service company was engaged solely for the purpose of providing directors. The debtor also had assets outside of IOM: Switzerland, Togo, Cyprus, Oklahoma and Delaware.

Many of the debtor’s main creditors were not located in IOM, but were located in Monaco, France, the island of Malta and the United States. The contract at issue in the US litigation was governed by Oklahoma law, while IOM law had no bearing on the issues in dispute.

In short, all of these factors rebutted the presumption that the debtor’s center of main interests was the IOM. As a result, the US bankruptcy court refused to recognize the case before the IOM as a main foreign proceeding.

The court also ruled that the debtor did not even have an establishment at IOM. The Bankruptcy Code defines “establishment” as “any place of operations where the debtor carries out a non-transitory economic activity”. 11 USC § 1502(2). A court explained that “the terms ‘operations’ and ‘economic activity’ require demonstration of local effect in the market, more than mere incorporation and record keeping and more than mere maintenance of property . » In re Creative Finance Ltd.543 BR 498, 520 (Bankr. SDNY 2016).

In the Shimin In the Chapter 15 case, the court found that the liquidator had failed to present sufficient evidence to demonstrate that the debtor “had sufficiently engaged in the local IOM economy to constitute an ‘establishment'” and, therefore, the IOM insolvency case could not be recognized as a non-main foreign proceeding.

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