Case Type:
Case Status:
BAP No. NC-21-1068-BGT (9th Circuit, Feb 17,2022) Published
The Ninth Circuit Bankruptcy Appellate Panel (BAP) reversed the bankruptcy court's order denying recognition of a Monaco insolvency proceeding under section 1501 based on the misconduct and bad faith of debtor, its insiders, the Monaco trustee, and their attorneys. The BAP held that the Monaco insolvency proceeding must be recognized regardless of any bad faith because the requirements for recognition under section 1517 were met and recognition of the foreign proceeding would not be manifestly contrary to U.S. public policy under section 1506.
Procedural context:
On May 29, 2019, Creditor International Petroleum Products and Additives Company, Inc. (IPAC) had obtained an arbitration award against Debtor Black Gold, which was subsequently confirmed by a California district court. In May 2020, Black Gold filed an insolvency proceeding in Monaco. The Monaco court appointed Jean-Paul Samba as the trustee. In November 2020, Mr. Samba filed a chapter 15 petition and motion for recognition on behalf of Black Gold in the U.S. Bankruptcy Court for the Northern District of California. The bankruptcy court denied recognition of the Monaco proceeding based on its findings that the petition was not a legitimate use of chapter 15 for the purposes and objectives as intended under section 1501. The bankruptcy court did not make any findings under section 1517, the primary section regarding recognition of foreign proceedings.
IPAC is a California-based petroleum additive manufacturing and sales company. In 2016, IPAC entered into an agreement with Black Gold for Black Gold to be IPAC's sales representative and exclusive distributor of IPAC products in Europe. Despite a confidentiality agreement, Black Gold and its principal, an Italian individual, and a former IPAC employee establish a competing additives business using IPAC's trade secrets and customer list. IPAC instituted an arbitration against Black Gold in California and won an award on May 29, 2019, which was confirmed by a California court. IPAC then attempted to collect on its debts in Monaco and the United States. However, Black Gold filed an insolvency proceeding in Monaco in May 2020. The Monaco court fixed May 29, 2019 (the same date as the arbitration award) as the date of Black Gold's "cessation of payments" (aka insolvency date), which would allow the trustee to avoid and recover transfers after that date. Furthermore, unlike U.S. bankruptcy law, the automatic stay under Monaco law would not terminate when the insolvency proceeding is closed, and Monaco's equivalent of "alter ego" claims would not be abandoned to creditors if the trustee chose not to pursue them. In November 2020, Mr. Samba filed a chapter 15 petition for recognition of the Monaco insolvency. The basis for Black Gold's eligibility was that it held property in the U.S. -- a $10,000 retainer held by Mr. Samba's attorneys. After several hearings and declarations from Mr. Samba and others, the bankruptcy court learned that Mr. Samba only had access to information provided by the debtor and had no plenary investigation powers similar to U.S. bankruptcy trustees. Further, creditors have no way to seek information equivalent to Rule 2004. Only after multiple hearings and declarations, the bankruptcy court learned that the principal of Black Gold was paying Mr. Samba's attorneys' fees, Mr. Samba's counsel also represented Black Gold in the California district court action, and was representing Black Gold's principal in litigation in Ohio. The bankruptcy court suggested that counsel hid these facts because it cast doubt on the integrity of the proceedings and Black Gold's good faith. As a result, the court found that the petition was not a legitimate use of chapter 15. The BAP reversed based on prior bankruptcy court decisions where the court recognized foreign proceedings despite (in at least one instance) even more egregious misconduct by the debtor and related parties. The BAP held that the foreign proceeding must be recognized under section 1517 and that nothing about Monaco's insolvency laws or procedures was manifestly contrary to U.S. public policy such that the proceeding should not be recognized. Rather, to the extent there was bad faith, the bankruptcy court had discretion after recognition to, for example, grant relief from the automatic stay for cause under section 362(d)(1).

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