COMI Maybe

Although the concept is central to recognition of foreign proceedings, the Bankruptcy Code does not define COMI. It does, however, establish a presumption. “In the absence of evidence to the contrary,” section 1516(c) reads, “the debtor's registered office, or habitual residence in the case of an individual, is presumed to be the center of the debtor's main interests.” 11 U.S.C. ' 1516(c). Like COMI, “habitual residence” also is not defined in the statute. While for most individuals, “habitual residence” is readily determined, for some individuals, as the Kemsley court found, determining “habitual residence” may not be a simple matter.

Debtor's Relocation and 'Habitual Residence'

In Kemsley, the debtor, Paul Zeital Kemsley, is a British citizen and a prominent businessman with interests in real estate and professional soccer. In the years prior to 2009, Mr. Kemsley suffered significant business setbacks. As a consequence of those reversals, in 2009 he relocated with his family to the United States. The court observed that “[t]his contest over recognition of an otherwise routine personal bankruptcy case focuses attention on the legal consequences of the decision made by this high profile (and formerly high net worth) British citizen to live for a period of time as an expatriate in the United States while also taking steps in London to obtain a discharge of his debts in the UK.” In re Kemsley, 2013 WL 1164930, at *2.

After relocating to the United States, Mr. Kemsley and his family lived for a time in Boca Raton, FL, and then moved to California, living in Beverly Hills. He had been living in the United States for three years when, in January 2012, Mr. Kemsley filed a bankruptcy petition in London, commencing the UK Proceeding. Mr. Kemsley and his wife subsequently separated, and in June 2012, Mrs. Kemsley and their children moved back to London. Mr. Kemsley, however, remained in the United States.

Barclays Bank PLC (Barclays), which in better times had loaned Mr. Kemsley more than '5 million, initiated actions against Mr. Kemsley in both New York and Florida. The trustee for the UK Proceeding attempted to obtain a stay of the Barclays litigation, but the UK court declined to stay the proceedings. In a further attempt to stay the Barclays litigation, in August 2012, the trustee filed a petition for recognition under Chapter 15. Barclays opposed recognition.

COMI and Habitual Residence for the Peripatetic Individual

In analyzing where Mr. Kemsley's COMI lay for purposes of recognition, the court looked not only to location ' where Mr. Kemsley was residing ' but also to time and evidence of intention ' when Mr. Kemsley resided in a particular location and whether circumstances evinced an intention to continue to reside there. “Habitual residence,” the court reasoned, “is a concept implying more than just the place where an individual happens to be living at a particular time and has aspects of an ongoing intention to stay in the same location for the foreseeable future unless and until something might occur to prompt or compel a change ' .” Id. at *4.

The court drilled down into Mr. Kemsley's various relocations, observing that he had left Britain for the United States in 2009, and that his residences within the United States since that time showed an intention to remain in the United States. “The term habitual residence,” the court emphasized, “includes an element of permanence and stability and is comparable to domicile; it connotes a meaningful connection to a jurisdiction, a home base where an individual lives, raises a family, works and has ties to the community. In short, it is the place where an individual is living and has manifested the expectation of remaining for an indefinite period of time.” Id. at *5.

However, the court did note that in mid-2012, the Kemsleys separated and Mrs. Kemsley moved back to Britain with their children. Mr. Kemsley remained in the United States, and at the time that the Chapter 15 petition was filed, was living in New York with his girlfriend. In his testimony, Mr. Kemsley indicated a desire to be nearer to his children.

“In this instance,” the court reasoned, “because of the Debtor's multiple internal moves while living in this country, the presumption in Section 1516(c) may not be helpful in determining the Debtor's habitual residence. One possible conclusion is that the Debtor has no habitual residence within the meaning of the statute. Another is that he has a COMI in the United States that has come into being each time that he and members of his family purposefully moved within this country to a new principal residence.” Id. at *4.

Date of COMI Determination: Date of Filing of Foreign Proceeding

The Kemsley court noted that “[a] critical factor in determining COMI for an individual is finding the existence of a habitual residence as of a particular date. There are two choices: COMI can be determined either as of the date of commencement of the foreign proceeding or of the related [C]hapter 15 case.” Id. at *5. While acknowledging that courts have taken differing approaches as to which date applies, the Kemsley court held that the correct date for measuring a debtor's COMI is the date of the commencement of the foreign proceeding. Considering the evidence, including the testimony of Mr. Kemsley himself, the court concluded that on the date when his UK petition was filed, Mr. Kemsley's COMI was the United States, not the UK. Therefore, the court held that the UK Proceeding cannot qualify for recognition under Chapter 15 as a foreign main proceeding.

Despite holding that Mr. Kemsley's COMI is to be determined as of the date of the filing of the UK Proceeding, and that as of that date Mr. Kemsley showed every indication of remaining in the United States, the court recognized that changes in the family's circumstances had occurred between that date and the date of the filing of the Chapter 15 petition. “The family break-up and related moves,” the court noted, ” ' are significant events for purposes of analyzing COMI for this individual. Once Mr. Kemsley's children left the United States and moved back to London, Mr. Kemsley's habitual residence in the United States is in conflict with his desire to be with his children. Based on Mr. Kemsley's own testimony, the Court believes that the most important variable in determining COMI for the Debtor turns out to be not his place of residence, but the residence of his children.” Id.

Ad Hoc Employment Arrangement Insufficient

Having concluded that the UK Proceeding did not qualify for recognition as a foreign main proceeding, the court considered whether the UK Proceeding qualified for recognition as a foreign nonmain proceeding, which would require that Mr. Kemsley have an “establishment” in Britain. Under section 1502(2), “establishment” is defined as “any place of operations where the debtor carries out a nontransitory economic activity.” 11 U.S.C.' 1502(2). The court noted that for an individual to have an establishment in a jurisdiction sufficient for purposes of recognition as a foreign nonmain proceeding, such establishment would need to be “a secondary residence or possibly a place of employment.” In re Kemsley, 2013 WL 1164930, at *14 (quoting Lavie v. Ran (In re Ran), 607 F.3d 1017, 1027 (5th Cir. 2010). The court noted that Mr. Kemsley's employment with a UK company ' which was an ad hoc arrangement, without a formal schedule or an employment agreement ' was “far too loose an arrangement to meet the statutory requirement for finding of an establishment.” Id. Consequently, the court held that the UK Proceeding did not qualify for recognition as a foreign nonmain proceeding.

Second Circuit Ruling

Less than a month after the Kemsley court held that the date on which an individual debtor's COMI is to be determined is the date of the filing of the foreign proceeding, and declined to recognize the UK Proceeding as either a foreign main proceeding or a foreign non-main proceeding, the United States Court of Appeals for the Second Circuit became only the second court of appeals to issue a decision as to the date on which a debtor's COMI is to be determined for purposes of recognition proceedings. In Morning Mist Holdings Ltd. V. Lomeli (In re Fairfield Sentry Ltd.), Case No. 11-4376, 2013 WL 1593348, at *4 (2d Cir. April 16, 2013), the court held that “a debtor's COMI is determined as of the time of the filing of the Chapter 15 petition,” not the date of the filing of the Chapter 15 petition, as the Kemsley court had held.

Given the Kemsley court's recognition of the importance of Mr. Kemsley's children's residence on a determination of his COMI, it remains to be seen whether the Fairfield Sentry court's holding concerning the date when COMI is to be determined will result in a modification of the Kemsley decision.

Kevin P. Ray is of counsel in Greenberg Traurig's Business Reorganization & Financial Restructuring Practice, representing interested parties in complex financial and operational corporate restructurings both in and out of court. He can be reached at [email protected].

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In the years since Chapter 15 was added to the Bankruptcy Code, courts have struggled to define and apply “center of main interests” (COMI), a key concept in the recognition of foreign proceedings. Yet in the vast number of cross-border insolvency cases, a debtor's COMI is readily ascertainable. In the case of a company, a court can look to the location of the company's registered office, the location of its business operations, or the location that the company's creditors generally recognize as its business location. In the case of an individual, commonly a person's habitual residence is apparent. But COMI becomes a challenge when a debtor ' whether company or individual ' is effectively multi-national, an increasingly common circumstance.

For an individual debtor, this multi-national complexity often arises where the debtor is expatriate, and peripatetic at that, and is further complicated physical separation of a fractured family. In In re Kemsley, Case No. 12-13570, 2013 WL 1164930 (Bankr. SDNY March 22, 2013), the United States Bankruptcy Court for the Southern District of New York recently declined to recognize an individual debtor's foreign proceeding pending in the United Kingdom (the UK Proceeding). The question for the court was whether the UK Proceeding qualified for recognition as either a foreign main proceeding or a foreign nonmain proceeding where the debtor had been resident in the United States since 2009. Significantly, however, in its analysis, the court discussed the range of factors that a court may consider when evaluating an individual debtor's COMI, which, in the court's view, may include where other members of the debtor's family reside.

When a foreign representative of a foreign insolvency proceeding seeks recognition of that proceeding under Chapter 15 of the Bankruptcy Code, the bankruptcy court may only enter an order recognizing the foreign proceeding if “such foreign proceeding ' is a foreign main proceeding or foreign non-main proceeding within the meaning of section 1502.” See 11 U.S.C. ' 1517(a). A foreign main proceeding is a “foreign proceeding pending in the country where the debtor has the center of its main interests,” 11 U.S.C. ' 1502(4), whereas a foreign nonmain proceeding is a “foreign proceeding, other than a foreign main proceeding, pending in a country where the debtor has an establishment,” 11 U.S.C. ' 1502(5). Upon recognition as a foreign main proceeding, the Bankruptcy Code's automatic stay immediately applies to prohibit actions against the debtor and the debtor's assets located in the territorial United States. 11 U.S.C. ' 1520(a)(1). A bankruptcy court may impose the automatic stay in a foreign nonmain proceeding, but such action by the court is not mandatory. 11 U.S.C. ' 1521(a)(1). However, the effect of a court declining to recognize a foreign proceeding as either a foreign main proceeding or a foreign nonmain proceeding is dramatic. In that circumstance, where a foreign proceeding does not qualify as either a foreign main proceeding or a foreign nonmain proceeding, the foreign representative is effectively precluded from relief in United States bankruptcy courts.

Although the concept is central to recognition of foreign proceedings, the Bankruptcy Code does not define COMI. It does, however, establish a presumption. “In the absence of evidence to the contrary,” section 1516(c) reads, “the debtor's registered office, or habitual residence in the case of an individual, is presumed to be the center of the debtor's main interests.” 11 U.S.C. ' 1516(c). Like COMI, “habitual residence” also is not defined in the statute. While for most individuals, “habitual residence” is readily determined, for some individuals, as the Kemsley court found, determining “habitual residence” may not be a simple matter.

Debtor's Relocation and 'Habitual Residence'

In Kemsley, the debtor, Paul Zeital Kemsley, is a British citizen and a prominent businessman with interests in real estate and professional soccer. In the years prior to 2009, Mr. Kemsley suffered significant business setbacks. As a consequence of those reversals, in 2009 he relocated with his family to the United States. The court observed that “[t]his contest over recognition of an otherwise routine personal bankruptcy case focuses attention on the legal consequences of the decision made by this high profile (and formerly high net worth) British citizen to live for a period of time as an expatriate in the United States while also taking steps in London to obtain a discharge of his debts in the UK.” In re Kemsley, 2013 WL 1164930, at *2.

After relocating to the United States, Mr. Kemsley and his family lived for a time in Boca Raton, FL, and then moved to California, living in Beverly Hills. He had been living in the United States for three years when, in January 2012, Mr. Kemsley filed a bankruptcy petition in London, commencing the UK Proceeding. Mr. Kemsley and his wife subsequently separated, and in June 2012, Mrs. Kemsley and their children moved back to London. Mr. Kemsley, however, remained in the United States.

Barclays Bank PLC (Barclays), which in better times had loaned Mr. Kemsley more than '5 million, initiated actions against Mr. Kemsley in both New York and Florida. The trustee for the UK Proceeding attempted to obtain a stay of the Barclays litigation, but the UK court declined to stay the proceedings. In a further attempt to stay the Barclays litigation, in August 2012, the trustee filed a petition for recognition under Chapter 15. Barclays opposed recognition.

COMI and Habitual Residence for the Peripatetic Individual

In analyzing where Mr. Kemsley's COMI lay for purposes of recognition, the court looked not only to location ' where Mr. Kemsley was residing ' but also to time and evidence of intention ' when Mr. Kemsley resided in a particular location and whether circumstances evinced an intention to continue to reside there. “Habitual residence,” the court reasoned, “is a concept implying more than just the place where an individual happens to be living at a particular time and has aspects of an ongoing intention to stay in the same location for the foreseeable future unless and until something might occur to prompt or compel a change ' .” Id. at *4.

The court drilled down into Mr. Kemsley's various relocations, observing that he had left Britain for the United States in 2009, and that his residences within the United States since that time showed an intention to remain in the United States. “The term habitual residence,” the court emphasized, “includes an element of permanence and stability and is comparable to domicile; it connotes a meaningful connection to a jurisdiction, a home base where an individual lives, raises a family, works and has ties to the community. In short, it is the place where an individual is living and has manifested the expectation of remaining for an indefinite period of time.” Id. at *5.

However, the court did note that in mid-2012, the Kemsleys separated and Mrs. Kemsley moved back to Britain with their children. Mr. Kemsley remained in the United States, and at the time that the Chapter 15 petition was filed, was living in New York with his girlfriend. In his testimony, Mr. Kemsley indicated a desire to be nearer to his children.

“In this instance,” the court reasoned, “because of the Debtor's multiple internal moves while living in this country, the presumption in Section 1516(c) may not be helpful in determining the Debtor's habitual residence. One possible conclusion is that the Debtor has no habitual residence within the meaning of the statute. Another is that he has a COMI in the United States that has come into being each time that he and members of his family purposefully moved within this country to a new principal residence.” Id. at *4.

Date of COMI Determination: Date of Filing of Foreign Proceeding

The Kemsley court noted that “[a] critical factor in determining COMI for an individual is finding the existence of a habitual residence as of a particular date. There are two choices: COMI can be determined either as of the date of commencement of the foreign proceeding or of the related [C]hapter 15 case.” Id. at *5. While acknowledging that courts have taken differing approaches as to which date applies, the Kemsley court held that the correct date for measuring a debtor's COMI is the date of the commencement of the foreign proceeding. Considering the evidence, including the testimony of Mr. Kemsley himself, the court concluded that on the date when his UK petition was filed, Mr. Kemsley's COMI was the United States, not the UK. Therefore, the court held that the UK Proceeding cannot qualify for recognition under Chapter 15 as a foreign main proceeding.

Despite holding that Mr. Kemsley's COMI is to be determined as of the date of the filing of the UK Proceeding, and that as of that date Mr. Kemsley showed every indication of remaining in the United States, the court recognized that changes in the family's circumstances had occurred between that date and the date of the filing of the Chapter 15 petition. “The family break-up and related moves,” the court noted, ” ' are significant events for purposes of analyzing COMI for this individual. Once Mr. Kemsley's children left the United States and moved back to London, Mr. Kemsley's habitual residence in the United States is in conflict with his desire to be with his children. Based on Mr. Kemsley's own testimony, the Court believes that the most important variable in determining COMI for the Debtor turns out to be not his place of residence, but the residence of his children.” Id.

Ad Hoc Employment Arrangement Insufficient

Having concluded that the UK Proceeding did not qualify for recognition as a foreign main proceeding, the court considered whether the UK Proceeding qualified for recognition as a foreign nonmain proceeding, which would require that Mr. Kemsley have an “establishment” in Britain. Under section 1502(2), “establishment” is defined as “any place of operations where the debtor carries out a nontransitory economic activity.” 11 U.S.C.' 1502(2). The court noted that for an individual to have an establishment in a jurisdiction sufficient for purposes of recognition as a foreign nonmain proceeding, such establishment would need to be “a secondary residence or possibly a place of employment.” In re Kemsley, 2013 WL 1164930, at *14 (quoting Lavie v. Ran (In re Ran), 607 F.3d 1017, 1027 (5th Cir. 2010). The court noted that Mr. Kemsley's employment with a UK company ' which was an ad hoc arrangement, without a formal schedule or an employment agreement ' was “far too loose an arrangement to meet the statutory requirement for finding of an establishment.” Id. Consequently, the court held that the UK Proceeding did not qualify for recognition as a foreign nonmain proceeding.

Second Circuit Ruling

Less than a month after the Kemsley court held that the date on which an individual debtor's COMI is to be determined is the date of the filing of the foreign proceeding, and declined to recognize the UK Proceeding as either a foreign main proceeding or a foreign non-main proceeding, the United States Court of Appeals for the Second Circuit became only the second court of appeals to issue a decision as to the date on which a debtor's COMI is to be determined for purposes of recognition proceedings. In Morning Mist Holdings Ltd. V. Lomeli (In re Fairfield Sentry Ltd.), Case No. 11-4376, 2013 WL 1593348, at *4 (2d Cir. April 16, 2013), the court held that “a debtor's COMI is determined as of the time of the filing of the Chapter 15 petition,” not the date of the filing of the Chapter 15 petition, as the Kemsley court had held.

Given the Kemsley court's recognition of the importance of Mr. Kemsley's children's residence on a determination of his COMI, it remains to be seen whether the Fairfield Sentry court's holding concerning the date when COMI is to be determined will result in a modification of the Kemsley decision.

Kevin P. Ray is of counsel in Greenberg Traurig's Business Reorganization & Financial Restructuring Practice, representing interested parties in complex financial and operational corporate restructurings both in and out of court. He can be reached at [email protected].

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