NEW YORK, WILLEMSTAD – In a recent insolvency case, Judge Glenn of the United States Bankruptcy Court for the Southern District of New York recognized the rehabilitation proceeding of the insurance company ENNIA in Curaçao as a “foreign main proceeding” under Chapter 15 of the Bankruptcy Code.
The debtor, ENNIA Caribe Holding N.V. (“ENNIA”), is the largest insurance company in Curaçao, consisting of three insurance arms and three non-insurance affiliates. The insolvency proceeding in Curaçao was initiated pursuant to the prevailing insolvency statute in Curaçao, known as the “LTV.” Under the LTV statute, upon the application of the Central Bank of Curaçao and St. Maarten (“CBCS”), a court may pronounce “Emergency Regulations,” which transfer control over the debtor to CBCS. The foreign representative appointed by CBCS filed the Chapter 15 petition for recognition in the United States. The entities that comprise ENNIA are all directly or indirectly owned by Parman International B.V., which objected to the petition for recognition.
One of the primary issues raised by the owner was that the rehabilitation proceeding in Curaçao does not provide enough opportunity for creditor participation. Parman International argued that the lack of creditor participation is fatal to recognition as a “foreign proceeding” under Chapter 15 because §101(23) requires a proceeding be “collective” for recognition. Judge Glenn disagreed, holding that the determination of whether a proceeding is “collective” depends primarily on the overall structure of the proceeding, not any specific aspect of it, such as creditor participation. In deciding that the Curaçao proceeding is “collective,” Judge Glenn noted that the LTV statute requires the rehabilitation administrator to consider only “the interest of the joint creditors” and provides various tools to protect the creditors’ interests in the course of the proceeding. To the extent that the Curaçao proceeding at issue is supposed to operate in a manner protecting the joint creditors’ interests, the proceeding could be deemed “collective” for the purpose of §101(23).
Parman International also argued that recognition of the proceeding in Curaçao would run afoul §1506 of the Bankruptcy Code, because it is “manifestly contrary to the public policy of the United States,” 11 U.S.C. § 1506. In support of its position, Parman Internatioal argued that ENNIA received notice of the hearing regarding the pronouncement of the Emergency Regulations less than four hours in advance, and such short notice was inconsistent with the fundamental standards of fairness in the U.S.
Judge Glenn rejected this argument: even assuming that Parman International received only a few hours’ notice of the commencement of the case, Judge Glenn concluded that such notice did not violate due process and was not contrary to the public policy of the United States. First, the process was carried out in a manner consistent with the judgment of the Curaçao legislature that Emergency Regulations must be handled with the utmost urgency. Judge Glenn refused to “second guess the decision of the Curaçao legislature or the Curaçao court.” Second, Judge Glenn observed that many courts in the United States grant TROs and preliminary injunctions on short notice—sometimes even shorter notice than what the Owner received here. Finally, Judge Glenn also noted, many jurisdictions in the United States allow a regulator to seize an insurance company based on an order obtained ex parte—without giving any notice to its owners at all. Accordingly, Judge Glenn concluded that since even applicable U.S. law would contemplate very little or no notice of the seizure of an insurance company’s assets in a rehabilitation proceeding, the Curaçao proceeding at issue in this case could also comport with U.S. notions of due process.