2009 Chapter 11 Recent Developments (Part III)

recognition.

Issues: Whether Betcorp's winding up is a foreign proceeding under § 101(23) and, if so, whether it is a foreign main proceeding or a foreign nonmain proceeding under § 1517(a).

Rules:

(1)

Is Betcorp a foreign proceeding? Seven elements are required under § 101(23): "(i) a proceeding; (ii) that is either judicial or administrative; (iii) that is collective in nature; (iv) that is in a foreign country; (v) that is authorized or conducted under a law related to insolvency or the adjustment of debts; (vi) in which the debtor's assets and affairs are subject to the control or supervision of a foreign court; and (vii) which proceeding is for the purpose of reorganization or liquidation."

(2)

Is Betcorp's proceeding main or nonmain? Under § 1502(4), "a foreign main proceeding is a 'foreign proceeding pending in the country where the debtor has the center of its main interests.' ["COMI"]" COMI is equivalent to the U.S.'s concept of 'principal place of business.' The factors relevant to determining COMI are: "the location of the debtor's headquarters; the location of those who actually manage the debtor...; the location of the debtor's primary assets; the location of the majority of the debtor's creditors or of a majority of the creditors who would be affected by the case; and/or the jurisdiction whose law would apply to most disputes."

a.

As for the timing of the COMI determination, the court denied 1st Technology's request to reference Betcorp's operational history and not assess COMI based only upon the state of affairs on the petition date. Instead, the court held that "the appropriate time to determine COMI was when the chapter 15 case commenced."

Holding: Betcorp's winding up is a foreign main proceeding.

Reasoning:

(1)

Is Betcorp's winding up a foreign proceeding? Although no court has really examined § 101(23), the court notes that in §§ 1501(a) and 1508, Chapter 15, which uses the term to define its scope and incorporates the Model Law on Cross-Border Insolvency (drafted by UNCITRAL), itself provides guidance. In fact, the scope of the Model Law's definition of 'proceeding,' contained in Article 2(a), and the requirements of § 101(23) are almost identical. The court then stepped through the seven elements of § 101(23):

i.

A proceeding: A voluntary winding up under the Australian law is a proceeding. In Chapter 15, the term 'proceeding' means something broader than it does in normal American legal contexts, which, as 1st Technology argues means a petition or application to a court. Cognizant of the

statutory directive to interpret Chapter 15 consistently with the understandings and usages of international law and the UNCITRAL Model Law, the court looked to the definition in the European Union Regulation on Insolvency Proceedings to determine what 'proceeding' means in an international insolvency context: "acts and formalities set down in law so that courts, merchants and creditors can know them in advance, and apply them evenly in practice. In the context of corporate insolvencies, the hallmark of a 'proceeding' is a statutory framework that constrains a company's actions and that regulates the final distribution of a company's assets." Here, such a law is the Australian Corporations Act (Cth) 2001, which governs voluntary winding up (Chapter 5), and a host of other procedures related to a corporation's existence. So, in Australia, despite the fact that a winding up proceeding may never be before a judge, once Chapter 5 is invoked, the process changes in ways that are beyond the debtor's control and the terms of these changes are set forth in Chapter

5. In further support, the court cited to Australian case law that indicated that the voluntary winding up process is a 'proceeding.'

ii. Judicial or Administrative in Character: An Australian proceeding is one that is administrative in character, although, in certain circumstances, it can temporarily become one that is judicial in