Where Do Your Interests Lie Under Chapter 15 of the Bankruptcy Code? Determining a foreign debtor’s “center of main interests” and its effect on creditors’ rights

by Mintz Levin

When doing business with a foreign company, it is important to identify the company’s “center of main interests” (“COMI”) as creditors may find themselves bound by the laws of the COMI locale. If a company initiates insolvency proceedings outside the U.S., it must petition a U.S. court under Chapter 15 of the Bankruptcy Code for recognition of the foreign proceeding. If the foreign proceeding is found to be a “foreign main proceeding” (i.e., a proceeding pending where the debtor has its COMI), Chapter 15 provides certain automatic, nondiscretionary relief, including an automatic stay of all proceedings against the debtor in the U.S. Therefore, when faced with a foreign insolvency proceeding, U.S. creditors’ rights will often be determined in the jurisdiction where the debtor’s COMI is located. However, despite its significance, COMI is left undefined by the statute, which prompted the Second Circuit Court of Appeals in Morning Mist Holdings Ltd. v. Krys, 2013 U.S. App. LEXIS 7608 (2nd Cir. April 16, 2013) to determine the relevant factors for locating a COMI and the appropriate time frame to consider those factors.

In Morning Mist, Miguel Lomeli and Morning Mist Holdings Limited (collectively, “Morning Mist”) filed a derivative action in New York state court against Fairfield Sentry Limited (the “Debtor”). The Debtor was one of Bernie Madoff’s largest “feeder funds,” having invested over $7 billion in the scheme. Shortly after the commencement of the derivative action, the Debtor initiated liquidation proceedings in the British Virgin Islands (the “BVI”). Then, in accordance with Chapter 15 of the Bankruptcy Code, the Debtor petitioned the U.S. Bankruptcy Court in the Southern District of New York for recognition of the BVI liquidation proceeding. The bankruptcy court granted the Chapter 15 petition, recognizing the BVI liquidation as a “foreign main proceeding” and imposing an automatic stay on all proceedings against the Debtor in the U.S., including the derivative action. The district court upheld the bankruptcy court’s decision, and Morning Mist appealed to the Second Circuit, arguing that the lower courts improperly found the BVIs to be the Debtor’s COMI.

To determine the Debtor’s COMI, the Second Circuit examined which factors should be considered and over what time period. Tackling the temporal element first, the Court concluded that the Chapter 15 petition filing date is the relevant review period, subject to an inquiry into whether the process has been manipulated. To offset a debtor’s ability to manipulate its COMI, a court may also review the period between the initiation of the foreign liquidation proceeding and the filing of the Chapter 15 petition. The Court squarely rejected Morning Mist’s suggestion that courts must consider a debtor’s entire operational history.

As for the appropriate factors to consider in locating a COMI, the Second Circuit held that any relevant activities, including liquidation activities and administrative functions, may be considered in a COMI analysis. Elaborating, the Court held that Chapter 15 creates a rebuttable presumption that the country where the debtor has its registered office will be its COMI, but recognized that courts have focused on a variety of other factors as well, including the location of the debtor’s headquarters, the location of those who actually manage the debtor, the location of the debtor’s primary assets, the location of the majority of the debtor’s creditors or the majority of the creditors who would be affected by the case, and/or the jurisdiction whose law would apply to most disputes. However, the Second Circuit emphasized that consideration of these factors is neither required nor dispositive.

Finally, Morning Mist argued that Chapter 15’s public policy exception (“Nothing in this chapter prevents the court from refusing to take an action governed by this chapter if the action would be manifestly contrary to the public policy of the United States.”) applied because the BVI proceedings were confidential and therefore “cloaked in secrecy.” The Second Circuit quickly dismissed this argument explaining that the public policy exception should be read restrictively and invoked only under exceptional circumstances concerning matters of fundamental importance for the enacting State. Recognizing that court pleadings can be sealed in U.S. cases, including bankruptcy cases, the Second Circuit found that the confidentiality of the BVI bankruptcy proceedings did not offend U.S. public policy.

The Morning Mist case adds some clarity to a significant issue in cross border insolvencies by highlighting the importance of understanding the internal operations and structure of foreign companies—factors that could affect the ability of U.S. creditors to seek redress in U.S. courts.

If you have any questions about this decision or its implications, please call your principal Mintz Levin attorney or one of the attorneys noted on this advisory.

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.

© Mintz Levin | Attorney Advertising

Written by:

Mintz Levin

Mintz Levin 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 info@jdsupra.com. 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: info@jdsupra.com.

- 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.