Delaware Bankruptcy Court Recognizes Cayman Islands Proceeding as “Foreign Main Proceeding” Under Chapter 15 of the U.S. Bankruptcy Code

On December 17, 2010, the U.S. Bankruptcy Court for the District of Delaware granted protection over U.S. assets in a Cayman Islands exempted company in liquidation, finding it to be a foreign main proceeding under Chapter 15 of the U.S. Bankruptcy Code (Code).  This case diverges from other courts that have denied or limited Chapter 15 protection for liquidating Cayman Islands exempted companies in recent years.  See, e.g., “Cayman Islands Liquidations of Failed Bear Stearns Hedge Funds Denied Access to US Bankruptcy Court,” Hedge Fund Law Report, Vol. 1, No. 13 (May 30, 2008).  The petitioners were duly authorized foreign representatives and joint official liquidators in the debtors’ liquidation and winding up proceeding before the Grand Court of the Cayman Islands.  In granting the petition for recognition and protection under the Code, the Delaware Bankruptcy Court specifically found that the debtor, Saad Investments Finance Company (No. 5) Limited, had its “center of main interests” in the Cayman Islands.  This article summarizes the background of the case and the petitioners’ arguments, and examines how this case is distinguishable from foreign proceedings that were refused similar protection under the Code.  The case has particular relevance for hedge funds that are organized in the Cayman Islands, face winding up proceedings there and have U.S. investors.

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