Attorney retainer and claims against insiders located in the US form basis for Chapter 15 recognition

New York Bankruptcy Judge Sean H. Lane determined that the Australian debtors in a Chapter 15 foreign recognition proceeding satisfied the U.S. property requirements of Section 109(a) of the Bankruptcy Code on the basis of attorney retainers and claims against insiders located in the U.S.

The decision revolved around the Australian liquidation proceedings of debtors B.C.I. Finances Pty Limited and its affiliates. The debtors were the subject of investigation by tax authorities and were in liquidation in Australia. In 2015, the debtors’ former directors were found guilty of various statutory and fiduciary duty violations in the Federal Court of Australia. At some point during those proceedings, two of the insider defendants moved to New York City.

In the Chapter 15 case, the liquidators of the Australian debtor estate were seeking discovery of the former company directors and access to any debtor assets or documents the insiders had brought to the U.S. The insider parties objected, arguing that the debtors are not eligible for relief under Chapter 15 because they have not satisfied Section 109(a) of the Bankruptcy Code, which dictates that “only a person that resides or has a domicile, a place of business, or property in the United States, or a municipality, may be a debtor under this title.” 11 U.S.C. § 109.

Before commencing this case, the debtors had each placed retainers of US$1,250 in the trust account of the liquidators’ counsel, which they contended satisfied the property requirement under Section 109(a). The liquidators also contended that the debtors’ fiduciary duty claims (of greater than USD$15 million) in the Australian case against the insiders, currently residing in the United States, also constituted property in the United States.

Judge Sean H. Lane decided that the liquidators were entitled to Chapter 15 recognition of Australia as home to the foreign main proceeding, as both the retainers and the situs of the fiduciary claims against the debtors’ insiders were in New York, and therefore constituted eligible property under Section 109(a).

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Authored by Ronald Silverman and Raphaella Ricciardi

Ronald Silverman
New York


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