The Bottom Line

In In re ENNIA Caribe Holding N.V., 18-12908 (Bankr. S.D.N.Y. Dec. 20, 2018), a bankruptcy court in the Southern District of New York recognized a foreign insurance company’s rehabilitation proceeding in Curaçao as a “foreign main proceeding,” pursuant to Chapter 15 of the Bankruptcy Code, over objections from the insurance company’s nondebtor parent company. In doing so, the court examined, among other things, what is required for a “collective proceeding” in a foreign insolvency.

What Happened

This case involved ENNIA Caribe Holding N.V. (ENNIA), the largest insurance company in Curaçao and St. Maarten, with approximately 50 percent of the total assets of the insurance sector of Curaçao and St. Maarten. For two or more years, the Central Bank of Curaçao and St. Maarten (CBCS), a national regulatory authority that oversees Curaçao insurance companies, had been negotiating for ENNIA to improve its liquidity levels. But in July 2018, the CBCS’ concerns over ENNIA’s solvency led the CBCS to ultimately revoke the insurers’ licenses of ENNIA and initiate a proceeding under Curaçao law to rehabilitate ENNIA and authorize the CBCS to control ENNIA’s operations during the pendency of the rehabilitation. After gaining approval from a Curaçao court to control ENNIA, the CBCS replaced most of ENNIA’s managers, removing ENNIA from the control of the nondebtor entity that owned it, Parman International B.V. (Parman). The CBCS also appointed a foreign representative, authorizing that representative to file Chapter 15 petitions on behalf of the three Curaçao-based insurance companies (and three of their unregulated affiliates) that make up ENNIA. CBCS authorized the filing of these Chapter 15 petitions in an attempt to recover, allegedly, over $240 million of ENNIA’s assets being held in accounts at Merrill Lynch in New York, but Parman sought to block at least a portion of these funds being returned to Curaçao. 

In this case, the critical issue was whether the Curaçao insurance company rehabilitation proceeding is a “foreign proceeding” under Chapter 15 of the Bankruptcy Code. For context, the Bankruptcy Code defines a foreign proceeding 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.” 11 U.S.C. § 101(23).

Focusing on the Bankruptcy Code’s definition of foreign proceeding, Parman opposed the Curaçao rehabilitation proceeding being recognized as a foreign proceeding, arguing, among other things, that the proceeding is neither a collective proceeding nor a proceeding in which “the assets and affairs of the debtor are subject to control or supervision by a foreign court.” Parman also argued that even if the Curaçao proceeding does constitute a foreign proceeding under Chapter 15, the bankruptcy court should still refuse to recognize it because it is “manifestly contrary to the public policy of the United States” since the Curaçao law used to initiate the proceeding violates due process.

The New York bankruptcy court disagreed. In doing so, the court found that the Curaçao proceeding was collective since the “plain language” of the relevant Curaçao statute used to initiate the proceeding directs the CBCS to “look after the interests of the joint creditors.” The bankruptcy court also noted precedent that supported the Curaçao proceeding being collective in nature, even if creditors are not allowed to participate, merely by being a proceeding involving parties other than just one class of creditor or just one party-in-interest.

The bankruptcy court further went on to reject Parman’s argument that the Curaçao rehabilitation proceeding was not a collective one because it was not under the supervision of a foreign court, since certain aspects of the rehabilitation, including violations of fundamental principles of law such as the principle of due process, can be appealed to a court in Curaçao and can ultimately be reviewed by the Supreme Court of the Netherlands. Furthermore, the bankruptcy court highlighted that the definition of “foreign court” found in § 1502(3) of the Bankruptcy Code includes an “authority competent to control or supervise a foreign proceeding” and concluded that even if there were no involvement of the Curaçao court, the CBCS, as a national authority tasked with regulating the insurance industry and given “essentially complete control over” ENNIA’s assets, itself qualifies as a foreign court.

Finally, the bankruptcy court found that Curaçao’s regulation of insurance companies and the procedures outlined in Curaçao law for their rehabilitation “are largely consistent with the approaches to such issues utilized in this country and in most countries around the world, with variations reflecting local approaches to administrative and judicial allocation of authority.”

Why the Case Is Interesting

Under Curaçao law, a Curaçao regulator was able to force a Curaçao insurance company into rehabilitation, seize control of its operations and pursue its U.S.-based assets over the objection of its owner. Although not subject to a court process similar to that used in the United States, the bankruptcy court broadly defined the scope of a collective proceeding and court to permit recognition of that foreign proceeding, even assuming the proceeding lacked direct court supervision or participation by creditors.