When a foreign representative meets a federal receiver, who’s ultimately in charge? And in charge of what?
The US Bankruptcy Code’s cross-border provisions were enacted by Congress to foster “cooperation between (A) courts of the United States, United States trustees, trustees, examiners, debtors and debtors in possession; and (B) the courts and other competent authorities of foreign countries involved in cross-border insolvency cases.” The same provisions were also intended to promote “greater legal certainty for [international] trade and investment.”
To this end, Chapter 15 of the Bankruptcy Code sets forth relatively simple, straightforward requirements necessary for foreign representatives to obtain recognition of a “foreign proceeding,” and provides further that once such recognition is granted, US courts “shall grant comity or cooperation to the foreign representative.” But the same chapter also provides that the recognizing US court may “modify or terminate” the relief otherwise available by statute to a foreign representative where the interests of creditors and the debtor “are sufficiently protected.”
These policy objectives – along with the Code’s cross-border provisions – are about to undergo a Texas-sized test next month, where a federal receiver appointed in Dallas to marshal the assets of Sir Allan Stanford’s Stanford Financial Group and other, related companies is wrangling with liquidators appointed for Antiguan affiliate Stanford International Bank, Ltd. – the entity that issued “certificates of deposit” purchased by investors in an alleged $8 billion, world-wide Ponzi scheme.
The case is likely to offer important insight into how federal courts will reconcile their equitable perogatives in other, non-bankruptcy insolvency proceedings (such as federal receiverships) with the Bankruptcy Code’s cross-border insolvency provisions.
In late February, the Securities and Exchange Commission sought a Temporary Restraining Order and immediate appointment of a receiver for the US-based assets of Stanford Financial Group (SFG) and related companies to stop an alleged “massive, ongoing fraud orchestrated . . . through . . . Antiguan-based Stanford International Bank, Ltd. and its affiliated Houston-based financial advisors . . . .”
Upon US District Court Judge David Godbey’s grant of a TRO, Dallas attorney Ralph Janvey was appointed Receiver. Very shortly thereafter, Antiguan regulators placed Stanford International Bank, Ltd. (SIB) into liquidation and appointed Nigel Hamilton-Smith and Peter Wastell as liquidators.
All the parties acknowledge that there were at least initial efforts to reach cooperative arrangements regarding the administration of the concurrent liquidation proceedings. Unfortunately, these efforts apparently went nowhwere.
In mid-March, Janvey’s counsel requested an amendment of the District Court’s receivership order so as to provide Janvey with the exclusive power to commence any federal bankruptcy proceeding (including the prohibition of any petition for recogntion by any other party without prior Court order) and to act as “foreign representative” in non-US courts on the companies’ behalf. The proposed Order further left such arrangements in place for approximately 6 months.
Judge Godbey granted the motion, which was unopposed – but struck provisions of the Order that would designate Janvey as a “foreign representative” in non-US proceedings.
Last Monday, Hamilton-Smith and Wastell sought recognition under Chapter 15 before Judge Godbey and requested (i) a further amendment of Janvey’s already-amended receivership order so as to remove the prohibition against their commencement of a Chapter 15 case; and (ii) referral of the Chapter 15 case to the US Bankruptcy Court.
In papers supporting their requests, the English liquidators essentially argue that the receivership order is unenforceable insofar as it purports to restrict the commencement of a Chapter 15 case – and that the District Court simply may not enjoin such a filing. Hamilton-Smith and Wastell claim further that Janvey has attempted – improperly and, apparently, without success – to interpose himself into the Antiguan liquidation and to have himself appointed as liquidator in that proceeding as well as in the US receivership. Predictably, Hamilton-Smith and Wastell also devote significant attention to establishing Antigua as the “center of main interests” for SIB’s Antiguan liquidation.
Mr. Janvey has yet to respond. But he provided some indication of what that response will be in a 58-page Interim Report filed last Thursday. In it, Janvey claims that SIB is an asset of the Receivership estate, since it was owned by Sir Allan Stanford on the date the receivership was instituted. According to Mr. Janvey, his efforts to intervene in the Antiguan liquidation were rebuffed by the Antiguan court on the grounds that the receivership had no effect in Antigua, and that Janvey was therefore not an interested party to the liquidation. Janvey further accuses Hamilton-Smith and Wastell of obtaining a Canadian registrar’s order recognizing them as the “foreign representatives” for SIB within the contemplation of Canadian insolvency law . . . all with no prior notice to him.
Not surprisingly, Janvey believes the US – and not Antigua – constitutes the “center of main interests” for these cases, and that his receivership, rather than the Antiguan liquidation, ought to be deemed the “main” or primary insolvency proceeding.
Can a federal court, acting within a federal receivership, interpose its own additional barriers upon the Bankruptcy Code’s relatively minimal requirements for obtaining recognition of a foreign insolvency? Can foreign representatives, once they have obtained recogntion for a foreign proceeding, demand and expect “comity” from any US court in aid of their own insolvency objectives, regardless of that court’s ongoing efforts to administer an insolvent estate? Or can that court modifiy the relief otherwise available to suit its own pre-existing administrative scheme for the same estate? Can a federal court utilize its equitable powers to institute a receivership that will administer world-wide assets, claims, and recovery actions? Or can the Court instead use similarly broad discretion to fashion and direct the mutual cooperation that, to date, has eluded Messr’s. Janvey, Hamilton-Smith, and Wastell?
This is a matter well worth watching.
Judge Godbey has scheduled briefing on the Antiguan liquidators’ requests into early May. Copies of the SEC’s papers in support of the TRO, the District Court’s amended receivership order, the liquidators’ notice of Chapter 15 case, motion to amend the receivership order, and papers in support of the motion to refer matters to the Bankruptcy Court . . . and the receiver’s interim report . . . are all available here.