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Ernst & Young to be KDI's receiver. E&Y's "jurisdiction" as receiver was later "broadened" to include the Friedmans and KDI's American subsidiary (KD/CO) which was incorporated in Colorado. E&Y then sought recognition of the Canadian receivership proceeding from the Colorado bankruptcy court. Two interested parties objected: the State of Colorado which had commenced its own criminal investigations, and "local" Colorado victims who had commenced their own lawsuit against the debtors in Colorado.
Over these objections, the court concluded that the BS factors weighed in favor of recognition of the Canadian receivership proceeding as a foreign main proceeding. Key to this determination was that the Friedmans, while presently residing in the United States, resided in Canada during its fraudulent scheme. The evidence also indicated that the majority of the debtors' assets were in the name of and ultimately controlled by KDI in Canada (even though some $465,000 remained frozen in Colorado bank accounts). The court found the remaining BS factors to be less critical. Neither KDI nor its American subsidiary KD/CO did any real business at all -- they were both created as part of a fraudulent scheme. The debtors' victims were spread evenly throughout Canada, Israel, and the United States. The court did not find that one jurisdiction's laws would apply more than another. Furthermore, the court found that KDI and KD/CO probably served the same purpose (i.e., to defraud creditors), and thus concluded that the receivership proceedings should be recognized as a single proceeding.76 The court acknowledged that a court may decline to recognize a foreign proceeding if it would be manifestly contrary to the public policy of the United States. But, this exception, said the court, is intended to be applied narrowly and under extreme circumstances. The Canadian proceedings here were not so offensive to the public policies raised by the objecting parties in this case.77
* In re Monitor Single Lift I, Ltd., 381 B.R. 455 (Bankr. S.D.N.Y. Feb. 2008) (Glenn, J.)
An office, one employee, and some bank accounts were sufficient to deny abstention of a Cayman corporation's chapter 11 case in New York. Three entities filed voluntary chapter 11 petitions. The parent entity (PLC) is a Cayman corporation, with its principal office in London, and its stock traded on the Norwegian over-the-counter market.78 The second entity (MSL 1) is a subsidiary of PLC, incorporated in the Cayman Islands, and was formed for the sole purpose of constructing one of PLC's two failed projects, which ultimately led to the debtors' collective demise. The third entity (FinCo) is another subsidiary of PLC, incorporated
76 The bankruptcy court noted that, for the purposes of recognition, it was unnecessary to make final determinations regarding whether KD/CO actually was an alter ego of KDI or whether the two entities must be liquidated as a single entity. Instead, the court reserved the right to modify or terminate its recognition at a later time if the Canadian court later decide that KDI and KD/CO should be liquidated separately.
77 Said the court in response to the victims' concern that recognition would mean less money recovered for them, "All wronged investors should share in the assets accumulated in the Receivership Proceeding, regardless of nationality or locale." The State's concern about E&Y's fee was equally unavailing and unsupported by evidence. Said the court, "Costs of liquidation are a reality, whether through a foreign proceeding, or through a United States bankruptcy case."
78 The court acknowledged that the parent corporation had an office, one employee, and some bank accounts in New York.
