Insurance Rehabilitation in Curaçao Given ‘Foreign Main’ Recognition in New York

A foreign insurance company rehabilitation underscores three principles regarding chapter 15 recognition: (1) The foreign proceeding need not be supervised by a court; (2) participation by creditors is not indispensable; and (3) summarily ousting management from control of the assets does not “manifestly” offend U.S. public policy.

Systemically important to the island’s economy, an insurance company in Curaçao had about 50% of the assets of the insurance sector in Curaçao and St. Maarten and was responsible for half of the pensions in Curaçao.

For two years, the island’s regulator had been negotiating for the insurance company to improve its liquidity. Ultimately, the regulator revoked the company’s insurance license and importuned a court in Curaçao to authorize rehabilitation proceedings.

The regulator ousted the insurance company’s management and took over the assets of the insurance company and three asset-management companies that held the insurer’s assets, mostly in accounts with brokers in New York City.

The regulator appointed a foreign representative, who filed a chapter 15 petition in New York. The foreign representative intended on returning the assets to Curaçao. The insurance company’s non-bankrupt holding company opposed chapter 15 recognition.

In a December 20 opinion, Bankruptcy Judge Martin Glenn of New York overruled the objections and recognized the rehabilitation proceedings in Curaçao as the foreign main proceeding.

To satisfy the definition of “foreign proceeding” in Section 101(23), it must be “a collective judicial or administrative proceeding in a foreign country . . . .” Judge Glenn said the rehabilitation in Curaçao was “collective” because the “plain language” of the Curaçao statute required looking after the interests of “joint creditors.”

Citing precedent, Judge Glenn said that the proceedings in Curaçao would be “collective” even if creditors were not allowed to participate because the proceedings considered the interests of more than one party or class of creditors.

The holding company also argued that the rehabilitation was not “collective” because it was not under the supervision of a foreign court. As a matter of fact, Judge Glenn concluded that aspects of the rehabilitation could be appealed to a court in Curaçao and, ultimately, to the Supreme Court of the Netherlands.

Even if there were no court involvement, Judge Glenn nevertheless ruled that the Curaçao proceedings qualified because the statute requires a “judicial or administrative proceeding.” He said that the island’s regulator “clearly qualifies as an authority competent to control or supervise a foreign proceeding.”

The holding company argued that recognition would be “manifestly contrary to the public policy of the U.S.” under Section 1506, because it was given little if any notice of the commencement of the rehabilitation proceedings.

Judge Glenn found no conflict with U.S. policy, because the procedures in Curaçao were “largely consistent with the approaches to such issues utilized in this country and in most countries around the world.” He cited insurance statutes in Delaware, Ohio and Wisconsin, where regulators can take over an insurance company’s assets ex parte and without a hearing.