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Order, and determined that it should proceed, regardless of the pendency of the Chapter 11 Cases." Ultimately, on November 30, 2008, the Israeli court appointed the Receivers. On January 7, 2009, FIBI filed a motion for relief from the automatic stay or for abstention in the Debtors' cases. Additionally, on January 28, 2009, the Receivers filed applications for recognition under chapter 15 of the Bankruptcy Code.
Issue: (i) Should the petitions for recognition be granted? (ii) Should the stay be lifted or should the court abstain from hearing the chapter 11 cases?
Holding: (i) the chapter 15 petitions are denied; (ii) the court abstains from hearing the chapter 11 cases.
Rule: For a petition for recognition to be granted, the petition must meet the three requirements of § 1517: "(1) such foreign proceeding for which recognition is sought is a foreign main proceeding or foreign nonmain proceeding within the meaning of section 1502; (2) the foreign representative applying for recognition is a person or body; and (3) the petition meets the requirements of section 1515." The ultimate burden of proof is on the foreign representative seeking recognition.
Reasoning: The court held that the Receivers failed to meet their burden and the petitions were denied. The Receivers failed to show that the receivership is collective in nature under § 101(23)(iii). Additionally, the petition should be denied because the Receivers were appointed in violation of the automatic stay and, for this reason, recognition would be against the public policy of the United States. Lastly, the Receivers have failed to show that GH LP's assets and affairs are subject to the control or supervision of the Israeli court. The court steps through each of these reasons in more detail.
Violation of the Automatic Stay. Section 362 of the Bankruptcy Code stayed the appointment of the Receivers. FIBI proceeded in the Israeli court in spite of and in the face of the court's Stay Order. As noted above, the Israeli court decided to proceed regardless of the chapter 11 bankruptcies before this court and noted that "in spite of the broad, worldwide grant of jurisdiction given to United States federal courts over a debtor's assets wherever located, a United States court cannot control the actions of a foreign court, nor can it exercise control over assets in a foreign country without the assistance of the foreign court." Ultimately, the Israeli court decided to lift the automatic stay for purposes of proceeding with the receivership action. The Second Circuit has held that actions taken in violation of the stay are void. Once the chapter 11 cases were filed, FIBI could have protected its interests and sought the court's assistance under various provisions of the Bankruptcy Code. It chose not to. Thus, the appointment of the Receivers was a violation of § 362.
The Israeli Receivership is not Collective in Nature. "A proceeding that is 'collective in nature' is one that 'considers the rights and obligations of all creditors.' Š 'This is in contrast, for example, to a receivership remedy instigated at the request, and for the benefit of, a single secured creditor.'" In general, receiverships are regarded as more prejudicial to creditors as a whole than a federal bankruptcy proceeding. The Israeli receivership is more like an individual creditor's replevin or repossession action than an action to make sure that there is an orderly reorganization or liquidation by an independent trustee; it is not a proceeding under Israeli bankruptcy law. More specifically, the Israeli receivership is designed to allow FIBI to collect its debts.
The Israeli Receivership does not involve GH LP's Assets and Affairs. "A debtor's assets and affairs must be subject to the jurisdiction of a foreign court. 11 U.S.C. § 101(23)." Here, the Israeli court may have jurisdiction over the assets of GH LP, the Receivers have not shown that the Israeli court has jurisdiction over GH LP's affairs.
The Receivers Appointment Is Contrary To Public Policy. "Recognition of the Israeli Receivership Proceeding as a foreign proceeding would be manifestly contrary to the public policy of the United States because such recognition would reward and legitimize FIBI's violation of both the automatic stay and this Court's Orders regarding the stay." In general, recognizing a post-petition seizure of a debtor's assets would substantially hinder United States bankruptcy courts' abilities to carry out their most fundamental duties: giving the debtor a breathing spell and preventing a race to the courthouse. Additionally, condoning FIBI's conduct would be harmful because future foreign creditors would follow FIBI's lead and feel free to violate the automatic stay without repercussions.
Abstention. Regardless of its rulings with respect to the recognition of the chapter 15 petitions, the court decided to abstain from hearing any issues that arose with respect to the Debtors' assets that remained in Israel. The court said: "These cases are now liquidating chapter 11 cases, not candidates for reorganization. This Court also
©2010 Leif M. Clark
