Foreign Main or Nonmain Status Doesn’t Necessarily Follow Foreign Citizenship

The country where an individual is a citizen does not necessarily mean that country is home to either the foreign main or foreign nonmain proceeding under chapter 15, according to Bankruptcy Judge Shelley C. Chapman of New York.

Judge Chapman said there is “scant case law” regarding an individual’s center of main interests, or COMI. Likewise, she said there is “limited case law” to explain where an individual maintains an “establishment.”

The case involved a woman who was born in the former Soviet Union. She obtained a U.S. “green card” 10 years ago. The debtor left troubles behind her in Russia. Judge Chapman said she had “an alleged trail of fraud, failed investments, and outstanding debt in both Russia and the U.S.” Her problems included an outstanding arrest warrant in Russia.

A Russian bank initiated an involuntary bankruptcy against the debtor in Moscow. Three years later, the Russian bankruptcy trustee filed a chapter 15 petition in New York, asking Judge Chapman to recognize the Russian bankruptcy as the foreign main proceeding, or, alternatively, as the foreign nonmain proceeding under Section 1517(b). The debtor opposed recognition of the Russian proceedings.

In her December 12 opinion, Judge Chapman found that the Russian trustee failed to establish that Russia was home to either the foreign main or nonmain proceeding.

For Russia to be the foreign main proceeding, Judge Chapman said that the Russian trustee was required to show under Section 1517(b)(1) that the debtor had her COMI in Russia. In the absence of contrary evidence, an individual’s “habitual residence” is presumed in Section 1516(c) to be the center of main interests.

Judge Chapman explained that “habitual residence is virtually identical to the concept of domicile.” Citing the Fifth Circuit, she said that domicile is established by “‘physical presence in a location coupled with an intent to remain there indefinitely.’” Lavie v. Ran (In re Ran), 607 F.3d 1017, 1022 (5th Cir. 2010).

The Russian trustee failed to carry his burden of proof. Supported by her green card, the debtor testified that she had left Russia in 2008, never intending to return. Judge Chapman said there was no “direct evidence” that the debtor had a habitual residence in Russia on the chapter 15 petition date.

The debtor explained that her apartment in Moscow — where she had no furniture or personal effects — had been seized by a bank. Having friends and family in Russia, Judge Chapman said, “is insufficient to establish that Russia was her COMI” on the petition date. The Russian bankruptcy therefore did not qualify as the foreign main proceeding.

To recognize Russia as home to a foreign nonmain proceeding under Section 1517(b)(2), the Russian trustee failed to show that the debtor had an “establishment” there. Section 1502(2) defines “establishment” as “any place of operations where the debtor carries out a nontransitory economic activity.”

Judge Chapman explained that the “mere presence of an asset in a given location, by itself, however, is insufficient to constitute a place of operations; to have a place of operations, the proposed debtor must engage in some economic activity in such location as of the petition date.”

The Russian trustee demonstrated that the debtor was the 100% owner of a company in Russia. However, the company had been in liquidation in Russia for one year. Judge Chapman said that the debtor’s ownership was “irrelevant because the company [was] in the late stages of bankruptcy and it is not conducting economic activity in Russia.” Furthermore, the debtor’s right to participate in the Russian bankruptcy did not show an “establishment” because, Judge Chapman said, there was no proof of her “active participation” in the foreign bankruptcy.