The U.S. Bankruptcy Code’s safe harbor provisions provide comfort to financial institutions that transfers made under protected financial contracts will generally not be subject to avoidance or “clawback” if the transferor subsequently files for bankruptcy protection under Chapter 7 or Chapter 11 of the U.S. Bankruptcy Code. But is the same true where the transferor is a foreign debtor whose main insolvency proceeding is occurring outside the United States, and whose representatives merely petition for “recognition” of the foreign proceeding in the United States under Chapter 15 of the Code? The U.S. District Court for the Southern District of New York recently confirmed that the safe harbors provide protection under this circumstance as well, even with respect to foreign law claims based on foreign transactions. See Fairfield Sentry Ltd. v. Citibank, N.A. London, 2022 WL 3644436 (S.D.N.Y. Aug. 24, 2022).
Background
Fairfield involved three investment funds organized in the British Virgin Islands (“BVI”) that invested in Bernard Madoff’s Ponzi scheme. After Madoff’s scheme collapsed, the funds became subject to insolvency proceedings in a BVI court, which appointed liquidators to recover and equitably distribute assets on behalf of the members of the funds. The liquidators, acting as the funds’ “foreign representatives,” obtained recognition of the BVI insolvency proceedings in the SDNY Bankruptcy Court under Chapter 15. The…
