Legitimizing a COMI Shift Under Chapter 15

By: Taylor Anderson

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

Under Chapter 15 of the United States Bankruptcy Code, a bankruptcy court may recognize a “foreign main proceeding,” which is a proceeding pending where the debtor has the center of its main interests (“COMI”).  The United States Bankruptcy Court for the Southern District of New York recognized the Cayman Islands proceeding of Ocean Rig after finding that the shift of Ocean Rig’s COMI from the Marshall Islands to the Cayman Islands was not in bad faith.[1]

Ocean Rig and its three subsidiaries that specialize in deep-water drilling negotiated and proposed four schemes of arrangements to address their combined 3.7 billion dollar debt.[2]  Generally, a scheme of arrangement must be approved by creditors and sanctioned by the Grand Court of the Cayman Islands before it may be implemented. In connection with the schemes of arrangement and Cayman Islands proceedings, the joint provisional liquidators of Ocean Rig filed Chapter 15 cases to obtain orders enforcing the schemes in the United States.  The only objection to the proceedings came from Tally M. Weiner, an alleged shareholder.[3] The bankruptcy court found that Weiner lacked sufficient evidence to establish that she was in fact a shareholder and therefore she had no standing to sue.[4] Despite this lack of standing, the bankruptcy court addressed the objection on its merits.[5]  According to Ocean Rig, which had historically been connected to the Marshall Islands, the Cayman Islands were the debtors’ COMI because it had affirmatively established significant connections to the Cayman Islands.[6] Further, the shift satisfied other indicia of a legitimate COMI shift. The court agreed with Ocean Rig, and found that the petitioners had a “legitimate, good faith purpose for the shift.” [7]

The court held the COMI shift to be legitimate based on the extensive evidence provided by petitioners as to the connections the foreign debtors had to the Cayman Islands prior to filing. Under the Bankruptcy Code, there is a statutory presumption that a COMI is the debtor’s registered office or habitual residence.[8] Here, the COMI was shifted prior to the Chapter 15 filing; thus, the court was able to more comprehensively analyze the debtor’s operational activity to determine whether the shift was manipulated in bad faith by examining a variety of factors.[9] In its factor based analysis the court noted various activities of the petitioners prior to their Chapter 15 filing: (1) their incorporation in the Cayman Islands, (2) the hosting of meetings with creditors and advisors in the Cayman Islands, (3) the specific notice of relocation provided to business associates and creditors, (4) the public notice that was provided in both press releases and in Securities and Exchange Commission forms, and (5) the active management of the companies in the Cayman Islands, including regular meetings and day to day business operations.[10] The extent to which Ocean Rig and its subsidiaries had centralized their business operations in the Cayman Islands persuaded the court that the shift was legitimate.[11] Therefore, the Court found in favor of the petitioners and determined that the Cayman Islands were in fact the COMI.[12]   

COMI is determined at the time of the Chapter 15 petition filing. Consequently, there may be COMI shifts prior to filing. Courts will need to address the COMI shifts and determine whether they were made in bad faith. In cases where there is a good faith basis for the COMI shift, it is unlikely that the court will deny recognition. However, in cases in which the court finds potential bad faith, the court may exercise discretion, which it typically does not have, to deny the recognition. The Ocean Rig decision provides some guidance for future courts deciding these fact-sensitive issues. 

[1] In re Ocean Rig UDW Inc., 570 B.R. 687, 707 (Bankr. S.D.N.Y. 2017).

[2] Cara Salvatore, Highland Won’t Fight Ocean Rig’s Cayman Case Validity, Law 360 (June 19, 2017), https://www.law360.com/articles/936143/highland-won-t-fight-ocean-rig-s-....

[3] Id. at 692.

[4] Id.

[5] Id

[6] Id. at 696.

[7] Id. at 707.

[8] Id. (§1516(c) provides that in the absence of evidence to the contrary, a debtor’s registered office or habitual residence is presumed to be its COMI). This has been interpreted as a rebuttable presumption. See In re Millennium Glob. Emerging Credit Master Fund Ltd., 458 B.R. 63, 76 (Bankr. S.D.N.Y. 2011), aff’d 474 B.R. 88 (S.D.N.Y. 2012)

[9] Id. at 704

[10] Id. at 704-705.

[11] Id

[12] Id. at 703.