Cross-Border Bankruptcy Update: COMI Migration and Illegitimate COMI Manipulation Distinguished

by Jones Day

Jones DayWith the significant increase in cross-border bankruptcy and insolvency filings in the 43 nations or territories that have adopted the UNCITRAL Model Law on Cross-Border Insolvency (the "Model Law"), including the U.S., the incidence of "COMI migration"—the shifting of a debtor’s "center of main interests" ("COMI") to a country with more favorable insolvency laws—has also increased. As demonstrated by a ruling handed down by the U.S. Bankruptcy Court for the Southern District of New York, COMI migration may be justified and legitimate under circumstances that do not represent bad-faith "COMI manipulation." In In re Ocean Rig UDW Inc., 570 B.R. 687 (Bankr. S.D.N.Y. 2017), the court ruled that scheme of adjustment proceedings pending in the Cayman Islands (the "Caymans") should be recognized as "foreign main proceedings" under chapter 15 of the Bankruptcy Code, even though the debtors’ COMI had been shifted to the Caymans less than a year before the proceedings were commenced, because the country in which the debtors’ COMI had previously been located did not have a law permitting corporate restructurings.

Procedures and Recognition Under Chapter 15

Eligibility of Foreign Debtor for Chapter 15 Relief

Under section 1515 of the Bankruptcy Code, the representative of a foreign debtor may file a petition in a U.S. bankruptcy court seeking "recognition" of a "foreign proceeding." Section 101(24) of the Bankruptcy Code defines "foreign representative" as "a person or body, including a person or body appointed on an interim basis, authorized in a foreign proceeding to administer the reorganization or the liquidation of the debtor’s assets or affairs or to act as a representative of such foreign proceeding."

Section 109(a) of the Bankruptcy Code provides that, "[n]otwithstanding any other provision of this section, only a person that resides or has a domicile, a place of business, or property in the United States, or a municipality, may be a debtor under [the Bankruptcy Code]." In Drawbridge Special Opportunities Fund LP v. Barnet (In re Barnet), 737 F.3d 238 (2d Cir. 2013), the Second Circuit ruled that section 109(a) applies in cases under chapter 15 of the Bankruptcy Code. "[P]roperty in the United States" has been held to include an attorney retainer in a U.S. bank account, causes of action under U.S. law against parties in the U.S., and contract rights governed by U.S. law, including U.S. dollar-denominated debt issued under an indenture governed by New York law with a New York choice-of-forum clause. See In re Cell C Proprietary Ltd., 571 B.R. 542 (Bankr. S.D.N.Y. 2017); In re Berau Capital Resources Pte Ltd, 540 B.R. 80 (Bankr. S.D.N.Y. 2015); In re Octaviar Administration Pty Ltd., 511 B.R. 361 (Bankr. S.D.N.Y. 2014).

"Foreign proceeding" is defined in section 101(23) of the Bankruptcy Code as:

[A] collective judicial or administrative proceeding in a foreign country, including an interim proceeding, under a law relating to insolvency or adjustment of debt in which proceeding the assets and affairs of the debtor are subject to control or supervision by a foreign court, for the purpose of reorganization or liquidation.

More than one bankruptcy or insolvency proceeding may be pending with respect to the same foreign debtor in different countries. Chapter 15 therefore contemplates recognition in the U.S. of both a "main" proceeding—a case pending in the country where the debtor’s COMI is located (see 11 U.S.C. § 1502(4))—and "nonmain" proceedings, which may have been commenced in countries where the debtor merely has an "establishment" (see 11 U.S.C. § 1502(5)).

Foreign Main Proceedings—COMI

The Bankruptcy Code does not define "COMI." However, section 1516(c) provides that, "[i]n the absence of evidence to the contrary, the debtor’s registered office, or habitual residence in the case of an individual, is presumed to be" the debtor’s COMI.

Various factors have been deemed relevant by courts in determining a debtor’s COMI, including the location of the debtor’s headquarters, managers, employees, investors, primary assets, or creditors, as well as the jurisdiction whose law would apply to most of the debtor’s disputes. See In re SPhinX, Ltd., 351 B.R. 103 (Bankr. S.D.N.Y. 2006), aff’d, 371 B.R. 10 (S.D.N.Y. 2007). In addition, courts have considered any relevant activities, including liquidation activities and administrative functions. See Morning Mist Holdings Ltd. v. Krys (In re Fairfield Sentry Ltd.), 714 F.3d 127 (2d Cir. 2013). Courts may also consider the situs of the debtor’s "nerve center," including the location from which the debtor’s "activities are directed and controlled, in determining a debtor’s COMI." Id. at 138. "[R]egularity and ascertainability" by creditors are also important factors in the COMI analysis. Id.

In Fairfield Sentry, the Second Circuit ruled that the relevant time for assessing COMI is the chapter 15 petition date, rather than the date a foreign insolvency proceeding is commenced with respect to the debtor. The impact of the ruling is that, in cases where a foreign representative engages in significant pre-U.S. chapter 15 filing activities—such as operating or liquidating the debtor—in the jurisdiction where the foreign proceeding was commenced, COMI "can be found to have shifted from the foreign debtor’s original principal place of business to the new locale." In re Creative Finance Ltd. (In Liquidation), 2016 BL 8825, *31 (Bankr. S.D.N.Y. Jan. 13, 2016). Such a COMI "migration" can occur even if the activities take place in a "letterbox" jurisdiction where the debtor itself had few contacts and conducted no meaningful business. Id. (citing cases).

In Fairfield Sentry, the Second Circuit also noted concern about possible COMI "manipulation," ruling that a court "may look at the period between the commencement of the foreign proceeding and the filing of the Chapter 15 petition to ensure that a debtor has not manipulated its COMI in bad faith." Fairfield Sentry, 714 F.3d at 138.

Foreign Nonmain Proceedings—Establishment

An "establishment" is defined in section 1502(2) as "any place of operations where the debtor carries out a nontransitory economic activity." Unlike with the determination of COMI, there is no statutory presumption regarding the determination of whether a foreign debtor has an establishment in any particular location. See In re British Am. Ins. Co., 425 B.R. 884 (Bankr. S.D. Fla. 2010). The debtor’s foreign representative bears the burden of demonstrating that the debtor has an establishment in a particular jurisdiction. Id. at 915.

In Ocean Rig, the bankruptcy court considered whether it should recognize under chapter 15 provisional liquidation and scheme of arrangement proceedings filed on behalf of four affiliated debtors in the Caymans, even though the debtors’ COMI had been purposely migrated from the Republic of the Marshall Islands ("RMI") 11 months before the proceedings were filed.

Ocean Rig

Publicly traded Ocean Rig UDW Inc. ("UDW") is the ultimate parent of the Ocean Rig Group, which includes three holding companies—Drill Rigs Holdings Inc. ("DRH"), Drillships Financing Holding Inc. ("DFH"), and Drillships Ocean Ventures Inc. ("DOV")—that directly or indirectly own a fleet of deepwater oil drilling rigs leased worldwide to oil and gas exploration companies. Until April 2016, UDW and direct subsidiaries DRH, DFH, and DOV (collectively, the "debtors") were registered as nonresident corporations in the RMI. However, none of the debtors ever conducted operations, directed their affairs, maintained management offices, conducted meetings, or had directors residing in the RMI. UDW was also a tax resident of Cyprus and had previously maintained a "law 89 establishment" in Greece under a law allowing foreign companies to provide limited services for head offices or affiliates outside Greece.

Collectively, the Ocean Rig Group has approximately $4.5 billion in face amount of U.S. dollar-denominated notes issued under credit agreements governed by U.S. law, with U.S. financial institutions acting as indenture trustees or collateral agents.

The sharp decline in oil and gas prices in recent years took a major toll on the finances of the Ocean Rig Group. Faced with expected payment defaults, the debtors began exploring restructuring alternatives in 2016. However, the RMI, which at that time served presumptively as the debtors’ COMI, did not have any laws or procedures permitting reorganization, as distinguished from liquidation, of companies.

Therefore, the debtors decided to migrate their COMI to the Caymans, which does have a corporate reorganization law—the Cayman Islands Companies Law (the "CICL"). Accordingly, in April and October 2016, UDW and the other debtors registered as Cayman corporations. Among other things, each debtor thereafter: (i) maintained its head offices and books and records in the Caymans; (ii) conducted board meetings in the Caymans; (iii) had some, but not all, officers and directors residing in the Caymans; (iv) appointed registered agents for payment and notices in the Caymans; (v) provided notification of the change to investment service providers, the U.S. Securities and Exchange Commission, and various media outlets; (vi) issued a press release noting the relocation of its principal place of business to the Caymans; (vii) opened a bank account in the Caymans; and (viii) conducted restructuring discussions and negotiations from the Caymans.

Beginning on March 27, 2017, the debtors commenced provisional liquidation proceedings and scheme of arrangement proceedings under the CICL (the "Cayman Proceedings") for the purpose of implementing a debt restructuring involving a debt-for-equity swap. The Grand Court of the Cayman Islands (the "Cayman Court") appointed Simon Appell and Eleanor Fisher as joint provisional liquidators (the "liquidators") for the debtors. Creditors voted to support the schemes of arrangement in August 2017, and the Cayman Court sanctioned the schemes on September 14, 2017.

On March 27, 2017, the liquidators filed a petition in the U.S. Bankruptcy Court for the Southern District of New York, seeking recognition of the Cayman Proceedings under chapter 15 as either foreign main or nonmain proceedings, as well as the enforcement of any schemes of arrangement for the debtors sanctioned by the Cayman Court. Certain parties objected to recognition, focusing principally on the shift in COMI from the RMI to the Caymans.

The Bankruptcy Court’s Ruling

The bankruptcy court granted the petition for recognition of the Cayman Proceedings as foreign main proceedings.

Initially, bankruptcy judge Martin Glenn found that the debtors were eligible for relief under chapter 15 because they satisfied section 109(a)’s requirement of property in the U.S. by means of: (i) $1 million in legal fee retainers deposited into U.S. bank accounts; and (ii) $4.5 billion in face amount of U.S. dollar-denominated debt issued under debt instruments governed by New York law (which also satisfied the venue requirements under U.S. law).

Judge Glenn ruled that schemes of arrangement, such as the Cayman Proceedings and similar restructuring proceedings sanctioned under the laws of the U.K., Hong Kong, and Singapore, satisfy section 101(23)’s definition of "foreign proceeding," as required for recognition under section 1517(a) of the Bankruptcy Code.

Judge Glenn also found that the debtors’ COMI was the Caymans despite their previous contacts with the RMI, Cyprus, and Greece. According to the judge, on the basis of all the actions taken by the debtors in the year preceding commencement of the Cayman Proceedings (described previously), the shift of COMI to the Caymans was "real" and "done for proper purposes to facilitate a value-maximizing restructuring of [the debtors’] financial debt," rather than being "manipulated prior to the filing in bad faith." There was no evidence, the judge explained, pointing to any " ‘insider exploitation, untoward manipulation, [and] overt thwarting of third party expectations’ that would support denying recognition" (quoting In re Fairfield Sentry Ltd., 440 B.R. 60, 65–66 (Bankr. S.D.N.Y. 2010)).

Judge Glenn issued an order enforcing the debtors’ Cayman schemes of arrangement on September 20, 2017.


Ocean Rig is instructive as to the steps a debtor should take to ensure that its COMI has been legitimately shifted to a new jurisdiction for purposes of recognition of a bankruptcy proceeding in that jurisdiction as a foreign main proceeding under chapter 15 of the U.S. Bankruptcy Code and versions of the Model Law enacted elsewhere. The ruling reaffirms the principle that COMI migration for a legitimate purpose, such as to restructure a company, preserve going-concern value and jobs, and maximize asset values, does not offend the purposes underlying chapter 15 and the Model Law. By contrast, bad-faith COMI manipulation violates those purposes. See, e.g., Creative Finance, 2016 BL 8825, at *3–4 (denying recognition of a British Virgin Islands ("BVI") liquidation commenced as part of a scheme to avoid paying a U.K. judgment and finding that the debtors’ foreign representative failed to demonstrate that the debtors’ COMI was in the BVI—either at the time of the filing of the liquidation or because of the liquidator’s post-filing activities—or even that the debtors had an establishment in the BVI).

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Jones Day | Attorney Advertising

Written by:

Jones Day

Jones Day on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.