Section 108 Relief Automatically Available to Foreign Representatives in Chapter 15 Cases

By: Andrew J. Zapata

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

In a matter of first impression, the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”) in In re Fairfield Sentry Ltd.[1] held that the tolling provisions of section 108 of the Bankruptcy Code (the “Code”) become automatically available to “Foreign Representatives”[2] under section 103(a) in chapter 15 cases.[3]  Fairfield Sentry Ltd. was a feeder fund that invested its assets with Bernard Madoff, and was placed into liquidation proceedings in the British Virgin Islands after Mr. Madoff’s fraudulent activities were uncovered.[4] The Bankruptcy Court recognized the British Virgin Islands proceedings as a foreign main proceeding on July 22, 2010, and held that the joint liquidators were the foreign representatives of the debtor.[5] The foreign representatives sought to have the section 108 tolling provision applied from July 22, 2010 in order to have at least an additional two years to investigate and commence actions.

At a minimum, section 108 of the Code grants a two-year extension to a bankruptcy trustee for commencing actions.[6] Section 108 applies automatically to trustees in chapter 15 cases by virtue of section 103(a).[7] The Bankruptcy Court granted the joint liquidators the benefit of section 108’s tolling provisions because it determined that a foreign representative under chapter 15 is functionally indistinguishable from a bankruptcy trustee.[8] In reaching its conclusion, the Bankruptcy Court relied on In re Condor Ins. Ltd.,[9] where the court determined that section 108 relief was available to foreign representatives pursuant to section 1521(a)(7).[10]  Although In re Condor Ins. Ltd. did not apply section 108 automatically, it also “did not indicate any objection to the automatic availability of such relief or consider section 103(a) of the Code.”[11] The Bankruptcy Court also relied on In re Bancredit Cayman Ltd.[12] There, the court denied section 108 relief to foreign representatives because the issue was “presently unnecessary” and “plainly inappropriate” as a procedural matter for the resolution of the litigation.[13]  However, the court recognized that the idea was controversial and stated that “[n]othing in this decision should be read to decide the ultimate issue: whether § 108 is available to foreign representatives.”[14]

In re Fairfield Sentry Ltd. is the first case to definitively and automatically extend the benefits of section 108 to foreign representatives in chapter 15 cases. The extension of the tolling provision to foreign representatives has a practical utility because it provides a bright-line rule for practitioners and judges. It allows parties to plan for bankruptcy litigation and gives sufficient time to litigants to fully investigate and commence claims for recouping shareholder and creditor losses. The jurisprudential significance of In re Fairfield Sentry Ltd. is the Court’s deployment of a functionality argument to give foreign representatives the same benefits as trustees under chapter 108. Foreign representatives will no longer have to rely on the discretionary provisions of section 1521 of the Code,[15] thus alleviating any doubt as to whether the minimum two-year tolling provision of section 108 will apply. In a bankruptcy jurisdiction as active and influential as the Southern District of New York, the effects of the In re Fairfield Sentry Ltd. may be far-reaching.