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The Forum Shopping Debate Heats Up for In-Bound Cross-Border Cases?

posted by Jason Kilborn

Thanks so much to Bob and the rest of the Credit Slips crew for having me back!  For my first post, I thought I'd draw some attention to what seems to be the latest in the forum shopping (corruption?) wars in the U.S. Bankruptcy Courts (which also ties in my new Arabic study a bit).  Many people, including myself, have written on the seemingly foreign-insolvency unfriendly decisions out of the Southern District of New York involving the Bear Stearns and Basis Yield collapsed hedge funds.  Relatively few people seem to have picked up the latest, a decision from traditionally more friendly Delaware in a case involving a Saudi-owned, Cayman-registered hedge fund called Saad Investments Finance Co. (No. 5) Ltd. (Case No. 09-13985) ("SIFCO").  Ironically, SIFCO's name (sa'd) means, in Arabic, “good luck” or “good fortune.”  As it turns out, the liquidators’ choice of the District of Delaware to seek cooperation in this cross-boder bankruptcy case was, indeed, fortunate.  Not only did the Delaware court not go out of its way sua sponte to find reasons to reject SIFCO's liquidators' petition for recognition (as the New York court had done), it seems to have almost glibly concluded that SIFCO's "center of main interests" was in the Cayman Islands, despite circumstantial evidence to the contrary (as discussed in the Bear Stearns and Basis Yield cases) and without citing either the controlling law or any particular fact that supported this crucial finding (see p. 2, finding "I").  This decision, in stark contrast to the New York holdings, seems rather transparently based on public policy and comity, rather than (and perhaps in derogation of) the new governing statute, Chapter 15 of the U.S. Bankruptcy Code.  While a few commentators have tried to rationalize this case by contrasting SIFCO with the Bears Stearns and Basis Yield hedge funds, the only explanation that seems at all persuasive to me is that the Delaware court has once again positioned itself as the "debtor-friendly" (or now, foreign-representative-of-the-debtor friendly) forum for U.S. bankruptcy proceedings.  I'll leave it to those who are both more expert (see also here and here) and much braver than I to conclude whether this is in fact the meaning of the latest Delaware decision and, if so, whether that represents a good or not-so-good development for U.S. cross-border bankruptcy policy.  I'll have more to say about this decision in the next issue of the Cayman Financial Review, for which I have been invited to write a bankruptcy column this year (thanks so much to Andy Morriss for the invitation).  Thanks once again to Credit Slips for having me back!


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