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Chapter 15: Court Permits Foreign Debtors to Access and Receive Funds in U.S. Account

A court in New York has allowed offshore debtors to take control of an investment account in the U.S. over the objection of a shareholder.   At stake was the court’s discretion to permit chapter 15 debtors to access the funds and to transfer them outside the U.S.  The shareholder asserted that its interests weren’t fully protected, but the court ruled that on balance the debtors’ need for the money outweighed the shareholder’s concerns.

The decision arose out of the chapter 15 case of ENNIA Caribe Holding N.V. and five related debtors. In re ENNIA Caribe Holding N.V., Case No. 18-12908, 2019 Bankr. LEXIS 200 (Bankr. S.D.N.Y. Jan. 29, 2018).  The debtors operate the largest insurance company in Curaçao and St. Maarten.  In 2018, the Central Bank of Curaçao and St. Maarten (“CBCS”) filed for emergency rehabilitation relief in Curacao.  The court there granted the request and placed CBCS in control of the debtors’ operations.

In December 2018, the debtors filed for chapter 15 in the U.S. Bankruptcy Court for the Southern District of New York.  As we reported earlier this month, Judge Martin Glenn granted the foreign representative’s petitions and recognized the case in Curaçao as a foreign main proceeding.  This means that the court concluded that the debtors had their center of main interests in Curaçao and were entitled to protection of the Bankruptcy Code’s automatic stay and related chapter 15 relief.

At issue in this portion of the case were investment accounts the debtors had at Merrill Lynch in the United States.  Merrill Lynch had put an administrative freeze on the accounts, thus barring the debtors from accessing the $124 million value in the accounts.  This created serious problems for the debtors because they had an immediate need for liquidity to satisfy intercompany obligations. 

The debtors filed a motion in the Bankruptcy Court seeking permission to access and transfer the funds to Curaçao.  But a significant shareholder of the debtors objected to the relief requested, noting that transfer of the funds would cost a 1% repatriation fee.  Judge Glenn ruled that such alleged harm is “dwarfed by the benefits such a transfer would provide to ENNIA and the harm that the [d]ebtors would suffer without access to the funds in the Merrill Lynch accounts.”  2019 Bankr. LEXIS 200, at *16.

The Court’s analysis focused on U.S. Bankruptcy Code sections 1521(a)(5) and 1521(b) and the discretionary relief those sections afford courts in chapter 15 cases.  Section 1521(a)(5) gives a foreign representative “administration or realization of all or part of the debtor’s assets within the territorial jurisdiction of the United States.”  Section 1521(b) permits a foreign representative to carry out the “distribution of all or part of the debtor’s assets located in the United States.”  Id. at *11 (citing In re Agrokor d.d., 591 B.R. 163, 188-89 (Bankr. S.D.N.Y. 2018)).

Judge Glenn noted that on balance both forms of discretionary relief could be granted here:  administration of the funds and their transfer outside the U.S.  It was undisputed that the funds were the debtor’s property, and the proposed order would require Merrill Lynch to lift the administrative freeze.  The relief requested, Judge Glenn concluded, was necessary to effectuate the purposes of chapter 15.  “[T]hese accounts will allow the [d]ebtors to resolve their liquidity issues and remain in operation.”  2019 Bankr  LEXIS 200, at *13-14.  He added that the proposed order granting the requested relief had sufficient protections for creditors and other interested entities. 

Finally, the foreign representative argued that shareholders aren’t an “interested entity” meriting protection under Bankruptcy Code section 1522 when discretionary relief under section 1521 is sought.  Section 1522 allows a court to grant relief under section 1521 only if the interests of creditors and other interested entities are protected.  The shareholder asserted that it should be considered an interested entity.  But Judge Glenn concluded that he didn’t need to decide if shareholders generally qualify under the statute as interested entities because the shareholder here “is sufficiently protected” by the proposed order.  Id. at *14-15, n.6.