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Bear Stearns: Recognition of Foreign Insolvency Proceedings in the US

26th November 2007

What is this seminar about?

Under the chairmanship of The Hon Mr Justice Lightman, invited experts Gabriel Moss QC, Ron DeKoven, Professor Bob Wessels and Stephen Gale will discuss the latest decisions of the US Bankruptcy Court concerning the interpretation of Chapter 15 of the US Bankruptcy Code, including:

In re Bear Stearns, a decision that diverges from the ruling of Judge Drain in re SPhinX, Judge Lifland of the US Bankruptcy Court declined to recognise the Cayman Islands proceedings of two Bear Stearns' Hedge Funds under Chapter 15 of the US Bankruptcy Code. Judge Lifland ruled that, although the Hedge Funds were formally registered in the Cayman Islands, there was neither a "centre of main interest" (COMI) nor an "establishment" in Cayman and therefore recognition under Chapter 15 was not possible. In reaching his decision, Judge Lifland looked at the UNCITRAL Model Law, its Guide to Enactment, the European Insolvency Regulation and the European Court of Justice's Eurofood decision of 2 May 2006.

Background

Chapter 15 of the United States Bankruptcy Code ("Ancillary and Other Cross-Border Cases", available here) codifies a comprehensive framework through which representatives in corporate insolvency proceedings outside the US can obtain access to the United States courts. It incorporates almost verbatim the UNCITRAL Model Law on Cross-Border Insolvency. This has been described as a significant change that may greatly impact the global economy:

"If successful, this experiment … may save jobs and create greater certainty in the international financial market. If unsuccessful, the law could create confusion and chaos as courts worldwide compete with one another across international boundaries for large multinational bankruptcy cases." (Dechert LLP, April 2005 Special Alert)

Bear Stearns Asset Management operated two funds -- the High-Grade Structured Credit Strategies Fund and the High-Grade Structured Credit Strategies Enhanced Leverage Fund (once controlling about $10 billion in assets) -- that had invested heavily in collateralized debt obligations (CDOs) backed by subprime mortgages. As a result of the recent turmoil in sub-prime lending and in the financial markets, the two Cayman-registered Bear Stearns funds filed winding-up petitions in the Cayman islands and joint provisional liquidators appointed in Cayman applied for recognition in the US under Chapter 15.

Seminar materials

The participants at the seminar will receive a seminar folder containing recent publications, case notes, and the judgments that are discussed. Furthermore, the Institute has kindly obtained permission from Sweet & Maxwell, Chase Cambria Publishing, Prof Bob Wessels, and Look Chan Ho (Freshfields) to make the following publications available to participants online:

Gabriel Moss QC (3-4 South Square)

Ron DeKoven (3-4 South Square)

Professor Bob Wessels

Look Chan Ho (Freshfields Bruckhaus Deringer)


The seminar will allow ample time for discussion and will be followed by a reception. Solicitors and barristers may claim 2 CPD hours through attendance at this event.

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This seminar is part of the British Institute's 2007-2008 Seminar Series on Private International Law, which is kindly sponsored by:

This series explores issues which are of topical importance for current legal practice and study in the field of Private International Law. If you have any queries relating to this event please contact Jacob van de Velden.

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