When battles over jurisdiction arise in international insolvency proceedings, which country's laws will take priority? Two recent insolvency cases begun under similar circumstances led to two very different results.

In the first, the Baha Mar group of companies filed for Chapter 11 bankruptcy protection in the United States. All but one of the Baha Mar companies are incorporated in The Bahamas, and the last is incorporated in Delaware. Otherwise, the companies have little connection to the United States. The Baha Mar group of companies simply wanted to take advantage of the debtor-friendly laws in the United States.

Creditors of the Baha Mar group and the Bahamas Attorney General opposed Chapter 11 recognition in The Bahamas, and the Bahamas Supreme Court agreed that the Chapter 11 filing should not be recognized. The Bahamas Attorney General then applied for appointment of provisional liquidators, to which the Supreme Court also agreed.

The Chapter 11 bankruptcy judge had to decide whether to fight The Bahamas' assertion of jurisdiction and keep the proceeding in the United States. He decided that the creditors and other Baha Mar stakeholders had a reasonable expectation that insolvency proceedings would be held in The Bahamas, rather than the United States. The bankruptcy court rejected the Chapter 11 application.

In the second, a company called PARD and its related companies and subsidiaries filed for Chapter 11 bankruptcy protection in the United States. PARD is a public company incorporated in Bermuda. Related companies are also incorporated in Bermuda. A related company, PAE (BVI) Ltd, is incorporated in the British Virgin Islands and was not part of the initial Chapter 11 filing. None of these companies had any real connection with the United States at all. The only minor connection was the retainer agreement with lawyers for the Chapter 11 filing. The PARD group of companies simply wanted to take advantage of the debtor-friendly laws in the United States.

PAE got into some legal trouble in the British Virgin Islands (BVI) and was close to insolvency soon after lenders to the PARD group of companies succeeded in having a trustee appointed in bankruptcy. Concerned about the ongoing bankruptcy, the lenders sought appointment of a provisional liquidator in the BVI to prevent PAE from filing bankruptcy in the United States along with the PARD group. The BVI court appointed the provisional liquidator, rejecting the PARD group's attempt to block the appointment and reasoning that 1) since PAE was a BVI company it made sense for BVI to exert jurisdiction, and 2) appointment of a liquidator would not be inconsistent with the Chapter 11 bankruptcy process.

Since the court's decision, the liquidator and the Chapter 11 trustee have cooperated, showing that international jurisdiction issues can be resolved in a way that protects creditors.

To find out more about insolvency proceedings, visit Gonsalves-Sabola Chambers online or call the office at +1 242 326 6400.