Second Circuit Determines The Relevant Date For Determining A Chapter 15 Debtor’s 'COMI'

1. INTRODUCTION

   Courts in the Southern District of New York and elsewhere have issued conflicting decisions regarding the appropriate time period to consider in determining a foreign debtor's "center of its main interests" or "COMI" for the purpose of recognition of a "foreign main proceeding" under Chapter 15 of the Bankruptcy Code. The split in authority that has developed over the past several years can be distilled into a single question: should COMI be measured at the time of the filing of the foreign proceeding for which recognition is being sought under Chapter 15 of the Bankruptcy Code, or, alternatively, at the time of the filing of the Chapter 15 petition? The answer may have a significant impact on the automatic relief a Chapter 15 debtor can obtain upon recognition of the foreign proceeding.

   The Second Circuit, in Morning Mist Holdings Ltd., et al. v. Kenneth Krys, et al. (In re Fairfield Sentry Ltd.), resolved the split and concluded that a foreign debtor's COMI should be determined on the date that the Chapter 15 petition is filed.1 At the same time, the court left lower courts with some discretion to consider the pre-filing period if there has been an obvious attempt to manipulate a foreign debtor's COMI or indicia of bad faith.

2. CHAPTER 15, COMI, AND SPLIT IN AUTHORITY

   To commence a Chapter 15 case in the United States, a duly authorized representative must seek recognition of a foreign insolvency proceeding by filing a petition for relief in a United States Bankruptcy Court. If the requirements for recognition are satisfied, Chapter 15 recognizes two types of "foreign proceedings" - "foreign main proceedings" and "foreign nonmain proceedings."

   A bankruptcy court will recognize a foreign proceeding as a foreign main proceeding "if it is pending in the country where the debtor has the center of its main interests."2 Certain automatic relief becomes available to the foreign debtor upon entry of an order recognizing a foreign main proceeding, including the imposition of the "automatic stay" on creditors that may preclude creditors from seizing the foreign debtor's United States assets or continuing litigation against the foreign debtor. On the other hand, if a foreign debtor only obtains recognition of a foreign nonmain proceeding, the petitioning foreign debtor must specifically request such relief from the bankruptcy court.3 While the Bankruptcy Code does not define "center of its main interests," it does create a presumption that a debtor's COMI is "the debtor's registered office, or habitual residence in the case of an individual" in absence of evidence to the contrary.4

   Whether a foreign proceeding can be recognized as a foreign main proceeding hinges on a determination that the foreign proceeding is pending in the jurisdiction where the debtor has its COMI. Without clear statutory guidance, the question that has confounded courts in multiple jurisdictions is what reference date the court is supposed to use when determining a foreign debtor's COMI - the date of the filing of the foreign proceeding or the date of the filing of the Chapter 15 petition. One view, expressed by Judge Gropper in In re Millennium Global Emerging Credit Master Fund Ltd., was that the appropriate date to determine a debtor's COMI is the date of commencement of the foreign proceeding.5 Taking the contrary view, a majority of the courts addressing this issue, including another bankruptcy court in the Southern District of New York, found that a...