28 October 2015
The United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”) today recognized the BVI liquidation of Tranen Capital Alternative Investment Fund Ltd. (the “Fund”), a British Virgin Islands mutual fund, as a foreign main proceeding under US bankruptcy law.
The Fund is subject to liquidation proceedings in the British Virgin Islands, which the Bankruptcy Court found was eligible for relief under chapter 15 of the U.S. Bankruptcy Code. This decision of the Bankruptcy Court is welcome news to creditors and investors of the Fund who have aired concerns in connection to the former management and business affairs of the company.
Chapter 15 was enacted by the United States in 2005 to provide effective mechanisms for dealing with cases of cross-border insolvency and its stated objectives include the fair and efficient administration of cross-border insolvencies that protects the interests of all creditors and interested entities, including the debtor, and protection and maximization of the value of the debtor’s assets. Foreign proceedings are classified as either “main” or “non-main” and, if classified by the court as a main proceeding (the country where the company is deemed to have its centre of main interests), then certain protections are automatically granted to the foreign proceeding, including an automatic stay of proceedings involving the debtor and its U.S. assets.
In their pleadings, the BVI Liquidators asserted that recognition of the BVI Liquidation under chapter 15 would afford them time needed to collect in and evaluate books, records and information and to assess the potential asset recoveries and litigation which may be available to them in order to realise Tranen’s assets and repay creditors and investors some of the monies lost in the Fund. While the Fund raised USD180m, by the time that Hadley Chilton and John J Greenwood of Baker Tilly in the British Virgin Islands were appointed as liquidators, the Fund had no readily realisable assets. The recognition of the investigatory powers of the BVI Liquidators enshrined in BVI law as well as the further facilities available in the US Bankruptcy Code will assist the BVI Liquidators in carrying out investigations into the prior transactions and the activities of former management and service providers.
Alston & Bird LLP acts for the BVI Liquidators in the United States of America and the pragmatic approach taken by the Bankruptcy Court suggests that, while each case turns on the underlying facts, chapter 15 of the Bankruptcy Code may be considered an accessible mechanism for foreign companies in cross-border insolvency proceedings to protect and maximize their U.S. assets, notwithstanding earlier cases which may have suggested the contrary.