In a recent decision, the United States Bankruptcy Court for the Southern District of New York found that a relatively small retainer placed in the trust account of the foreign liquidators’ U.S. counsel constituted “property” sufficient to satisfy the requirements of section 109(a) of the Bankruptcy Code in a chapter 15 proceeding.[1] The decision elucidates the parameters of the “property” requirement of section 109, which the Second Circuit has applied even in the chapter 15 context.[2]
In August 2014, B.C.I. Finances Pty Limited, Binqld Finances Pty Limited, E.G.L. Development (Canberra) Pty Limited, and Ligon 268 Pty Limited (the “Debtors”), a group of companies controlled and operated by the Binetter family, were placed into Australian liquidation proceedings after allegations of fraud and tax evasion arose.[3] John Sheahan and Ian Russell Lock were appointed as joint liquidators (the “Liquidators”).[4] Following their appointment, the Liquidators brought suit against the Debtors’ corporate directors, including Andrew and Michael Binetter, in Australia, alleging that the corporate directors had breached their fiduciary duties, and that their breaches caused “significant losses” to the Debtors.[5] The trial judge in Australia ultimately ruled in the Liquidators’ favor, but did not come to a determination on the issue of damages.[6]
In 2017, the Liquidators sought chapter 15 recognition of the Australian liquidation proceedings in order to conduct discovery of Andrew and Michael Binetter, who had moved to New York City during the pendency of the trial in Australia.[7] Andrew Binetter, along with another party (together, the “Objecting Parties”), opposed the Liquidators’ chapter 15 petition.
The Objecting Parties claimed that the Debtors were ineligible for chapter 15 relief because they did not have sufficient “property” in the United States to satisfy section 109(a) of the Bankruptcy Code. Section 109(a) states that “only a person that resides or has a domicile, a place of business, or property in the United States . . . may be a debtor under this title.”[8] The Second Circuit has held that this requirement must also be satisfied in the context of chapter 15 proceedings.[9] However, the Second Circuit did not specify a threshold for the amount of “property” sufficient to satisfy this requirement in the chapter 15 context.
In response, the Liquidators argued that (1) a $1,250 retainer placed in the trust account of the Liquidators’ counsel (the “Retainer”) and (2) the Debtors’ fiduciary duty claims against Andrew and Michael Binetter (the “Fiduciary Duty Claims”) constituted “property in the United States” sufficient for section 109(a) eligibility.[10]
The Bankruptcy Court held...
