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* In re Compania de Alimentos Fargo, S.A., 376 B.R. 427 (Bankr. S.D.N.Y. Oct. 2007) (Bernstein, J.)
Alleged debtor's ongoing reorganization under Argentinian laws justified dismissal of the involuntary chapter 11 petition. As Judge Lifland mentioned in the closing paragraphs of the Bear Stearns opinion, the creditors in this case opted to file an involuntary chapter 11 petition rather than testing the reach of chapter 15. Since 2002, the alleged debtor in this case had been pursuing a concurso preventivo (a reorganization under Argentinian insolvency laws). The bankruptcy court noted that the alleged debtor conducts substantially all of its business in Argentina, all of its employees are located in Argentina, and substantially all of the alleged debtor's customers and suppliers are located in Argentina. Its ties to the United States included some inconsequential assets (one trademark and three trademark applications) and a substantial amount of unsecured debt in the form of notes issued in U.S. currency. Before the bankruptcy court was a motion to dismiss the involuntary petition, which the court treated as a motion for summary judgment to dismiss the case.
Considering the relevant factors of section 305(a)(1), the court concluded that the circumstances weighed heavily in favor of abstention. Said the court, Argentinian insolvency laws are substantially similar to American bankruptcy laws, with few exceptions which no one maintained were "repugnant to our notion of fundamental fairness." And, the court found it to be an inefficient use of judicial resources to maintain a parallel chapter 11 case where the alleged debtor has no assets to reorganize in America, and the Argentinian courts were not likely to accept a confirmed chapter 11 plan under principles of comity. As a final matter, the court declined the petitioners' invitation to suspend the chapter 11 proceedings -- in favor of dismissal -- to determine, at a later time, whether the creditors subject to the American courts' jurisdiction had violated the automatic stay triggered by the filing of the involuntary petition. Said the court, "If the reorganization serves no purpose, the automatic stay cannot give it a purpose." Because the relevant factors weighed heavily in favor of abstention, the court exercised its discretion and dismissed the involuntary case. Now, compare this holding with Judge Lifland's last few comments in the Bear Stearns opinion.
* In re Bear Stearns High-Grade Structured Credit Strategies Master Fund, Ltd.,
374 B.R. 122 (Bankr. S.D.N.Y. Sept. 2007) (Lifland, J.) Recognition of foreign proceedings is no rubber stamping exercise. Parting from the reasoning in the bankruptcy and district courts in the SphinX cases, Judge Lifland noted that the courts in the foregoing case failed to discuss the "establishment" requirement of section 1502(5). Because the debtor in this case was located in the Cayman Islands, where the bar is rather high for demonstrating a local business establishment, and the moving party could not demonstrate any pertinent non-transitory economic activity conducted locally in the Cayman Islands (only those necessary for offshore business), the court concluded that the foreign proceeding did not qualify for recognition at all -- main or non-main. The court noted, however, that non-recognition under chapter 15 did not leave the movants without a remedy in
U.S. courts. Said the court, the foreign representative may file an involuntary petition without the court first recognizing the foreign proceeding as main or non-main. But see In re Compania de Alimentos Fargo, supra; 11 U.S.C. S 1511(a)(1) ("Upon recognition . . .").
