Eleanor Conlon
St. John’s University School of Law
American Bankruptcy Institute Law Review Staff
Under chapter 15 of title 11 of the United States Code (the “Bankruptcy Code”), a bankruptcy court can recognize a foreign insolvency, bankruptcy, or restructuring proceeding if it is a “foreign main proceeding.”[1] A foreign main proceeding is “a foreign proceeding pending in the country where the debtor has the center of its main interests.”[2] The Bankruptcy Code fails to define center of main interests, or “COMI.” However, a debtor’s COMI is presumed to be the location of its registered office under section 1516(c).[3] In In re Sunac China Holdings Ltd., the United States Bankruptcy Court for the Southern District of New York held that the COMI of a company incorporated in the Cayman Islands, with significant assets and operations in the People’s Republic of China (the “PRC”), was in Hong Kong, where its restructuring proceeding was pending.[4]
Sunac China Holdings Limited (the “Debtor”) is a holding company incorporated in the Cayman Islands with subsidiaries that operate one of the largest real estate companies in the PRC.[5] The Debtor, however, is registered to do business in Hong Kong,[6] and its stock is traded on the Hong Kong Stock Exchange.[7] In 2021, the Debtor faced liquidity issues and defaulted on some of its debt, including borrowings consisting of approximately $7.93 billion of senior notes, all governed by New York law, and $1.12 billion in private debt, $29 million of which is governed by U.K. law and $1.1 billion of which is governed by Hong Kong law.[8] Following negotiations with certain creditors, which was embodied in a restructuring support agreement, the Debtor agreed to restructure its liabilities under a scheme of arrangement to be approved by the Court of First Instance of the High Court of the Hong Kong Special Administrative.[9]In March 2023, the Debtor commenced its restructuring proceeding with the Hong Kong Court.[10] In September 2023, the Debtor filed a petition for recognition of the Hong Kong proceeding under chapter 15 of the Bankruptcy Code with the United States Bankruptcy Court for the Southern District of New York.[11] In October 2023, the Hong Kong Court sanctioned the scheme of arrangement.[12]
The Bankruptcy Court granted the petition and recognized the Hong Kong proceeding as a foreign main proceeding. As an initial matter, the court noted that the Cayman Islands was presumed to be the Debtor’s COMI because it was incorporated there.[13] However, the court concluded that it should consider the following factors to determine the Debtor’s COMI: (1) the location of the debtor’s headquarters; (2) the location of those who actually manage the debtor; (3) the location of the debtor’s primary assets; (4) the location of the majority of the debtor’s creditors or of a majority of the creditors who would be affected by the case; and (5) the jurisdiction whose law would apply to most disputes.[14]Although these factors can be useful in determining the Debtor’s COMI, they are “‘neither required nor dispositive.’”[15]
Here, the Court determined that the factors were inconclusive.[16] Regarding the first two factors, the Court did not interpret them based on the physical location of the Debtor, which would have supported a finding that the COMI was in the PRC.[17] Instead, the Court based these two factors on the principle that the COMI is where a debtor conducts its regular business. As a result, the Court found that these factors weighed in favor of the COMI’s location in Hong Kong.[18] The Court found that the third factor supported a COMI located in the PRC because creditors would likely need to bring action to enforce judgments against the subsidiaries in the PRC.[19] The Court determined the fourth factor was unhelpful because many creditors were located internationally.[20] Finally, the Court found that the fifth factor pointed to a COMI located in Hong Kong because, under Hong Kong law, debt governed by Hong Kong law can only be reorganized in Hong Kong.[21]
Ultimately, the Court focused on the location of the Debtor’s business activities and decision-making to determine its COMI.[22] The Court held that the Debtor’s COMI was in Hong Kong because (1) the Debtor’s business activities, essentially the restructuring of its debts, were regularly carried out and approved in Hong Kong by its Chief Financial Officer, who also lives and works in Hong Kong[23]; (2) creditors would not expect the Debtor to restructure in the PRC; and (3) a significant amount of the creditors approved the scheme and no objections to the scheme were filed.[24] Thus, the Court recognized the Hong Kong proceeding as the foreign main proceeding because Hong Kong was the Debtor’s COMI.[25]
A foreign proceeding will be recognized if it is a foreign main proceeding.[26] A court may consider various factors in determining whether a foreign proceeding is a foreign main proceeding, and the location of a debtor’s business activities and decision-making are significant factors.[27]
[1]11 U.S.C. § 1517(a)(1) (2005).
[2] Id. § 1502(4).
[3] See id. § 1516(c).
[4] See In re Sunac China Holdings, Ltd., 656 B.R. 715, 733 (Bankr. S.D.N.Y. 2024).
[5] See id. at 720–21.
[6] See id. at 721.
[7] See id.
[8] See id.
[9] See id. at 721–22.
[10] See id. at 722.
[11] See id.
[12] See id.
[13] See id. at 724–26.
[14] See id. (citing Fairfield Sentry, 714 F.3d at 137).
[15] See id. (quoting Fairfield Sentry, 714 F.3d at 137).
[16] See id. at 726.
[17] See id. at 726–28.
[18] See id. at 727–28.
[19] See id. at 728–29.
[20] See id. at 729.
[21] See id.
[22] See id. at 729.
[23] See id. at 730–31.
[24] See id. at 731–33.
[25] See id. at 733.
[26] See 11 U.S.C. § 1517(a)(1) (2005).
[27] See 656 B.R. at 733.