Abitibi, Bashas', US Concrete, Penn Traffic, Edscha, Gems TV: Bankruptcy

AbitibiBowater Inc., the largest newsprint maker in North America, for a second time is trying to sell a shuttered paper mill in Lufkin, Texas.

The bankruptcy court approved the plant’s sale in October 2009 for $20.5 million. The buyer, CIT Partners LLC, never completed the acquisition, and the contract was terminated.

The plant is situated on a tract of almost 900 acres. The plant includes paper machines. Abitibi said it would make the machines “inoperable” before the sale, thus making the machinery worth its value as scrap.

Operations at the plant were suspended in late 2003 and permanently closed in late 2007.

With no buyer under contract, Abitibi is asking the bankruptcy court to approve sale procedures in which bids initially would be due July 28. The auction would occur on Aug. 2, with the sale-approval hearing on Aug. 4. The bankruptcy court will hold a June 30 hearing to decide on adopting the proposed auction procedures.

The hearing for approval of the Abitibi’s disclosure statement is scheduled for July 7. Once disclosure materials are found to pass muster, creditors may vote on the reorganization plan. For details on the plan, click here for the May 25 Bloomberg bankruptcy report.

AbitibiBowater was formed in October 2007 through a merger between Montreal-based Abitibi-Consolidated Inc. and Greenville, South Carolina-based Bowater Inc. Abitibi is a producer of newsprint, uncoated mechanical paper, and lumber. Bowater also makes bleached kraft pulp and lumber. The Montreal-based company began reorganizing with 24 pulp and paper mills plus 30 wood- product plants. Revenue in 2008 was $6.8 billion. In Chapter 11 petitions filed in April 2009, the combined AbitibiBowater companies listed assets of $9.9 billion and debt totaling $8.8 billion as of Sept. 2008.

The case is AbitibiBowater Inc., 09-11296, U.S. Bankruptcy Court, District of Delaware (Wilmington).


Judge Puts Limits on Actions by Rangers Partnership

The general partner of the Texas Rangers professional baseball club, which is the target of an involuntary Chapter 11 petition, was prohibited by the bankruptcy judge on June 18 from using, selling or leasing property outside of the ordinary course of business without express approval from the court.

Ordinarily, in an involuntary case, a company can use its property without restriction before it’s officially declared bankrupt. Michael Lynn, the U.S. bankruptcy judge in Fort Worth, said in the order that he will explain his action in a forthcoming opinion that could decide whether the Rangers have a legitimate prepackaged reorganization plan that can be approved at a July 9 confirmation hearing.

The holders of $144.4 million of the $525 million in secured debt against the team’s owners filed involuntary Chapter 11 petitions on May 28 against the partnerships that are the Rangers’ limited and general partners. The secured lenders’ collateral includes the limited and general partnership interests in the team.

At a hearing last week, Lynn talked about whether there should be a chief restructuring officer appointed if the involuntary petitions against the general and limited partners are granted and they join the team in Chapter 11.

Lynn directed the parties at last week’s hearing to argue over whether the team’s current owners or the lenders are entitled to exercise ownership rights, including support for or opposition to the reorganization plan. In the forthcoming decision, Lynn also will rule on whether the Rangers’ plan adversely affects any creditor or equity holder. If no one’s rights are impaired, the plan could be approved without a vote of creditors. Lynn will also rule on whether the disclosure statement is adequate.

If everything passes muster, a confirmation hearing is tentatively scheduled for July 9 where Lynn could approve the plan and authorize selling the team in a $575 million transaction to a group including President Nolan Ryan.

The team disclosed last week that the lenders should receive a total of $256 million from the sale toward their $525 million in claims. Only $75 million will come directly from the team because the lenders’ claims and liens against the team are limited to that amount. The remainder will come from the security interests the lenders hold in the general and limited partnership interests in the Rangers.

Among the lenders who filed the involuntary petition, Monarch Master Funding Ltd. has $119.8 million of the debt. The remainder is held by funds affiliated with Kingsland Capital Management, Sankaty Advisors LLC and Stonehill Capital Management LLC.

For details on the plan and disclosure statement that the Rangers amended last week, click here for the June 18 Bloomberg bankruptcy report. For details on the original version of the plan and sale, click here for the May 26 Bloomberg bankruptcy report.

The team filed under Chapter 11 on May 24 to complete the sale to the Ryan group since the lenders wouldn’t consent. The Rangers moved from Washington to Texas in 1972. The team defaulted on payments owing to the lenders in March 2009. This writer’s brother is a lawyer for an agent for the lenders.

The partnership that owns the team, Texas Rangers Baseball Partners, said in the petition assets and debt are both less than $500 million.

The case is In re Texas Rangers Baseball Partners, 10- 43400, U.S. Bankruptcy Court, Northern District of Texas (Fort Worth).

Bashas’ Revises Plan, Hopes for July 22 Confirmation

Supermarket operator Bashas’ Inc. was unable to arrange outside financing for the Chapter 11 plan that unsecured creditors voted to approve. Bashas’ nonetheless scheduled a July 22 confirmation hearing because it modified the plan last week so the reorganization can go ahead without outside financing.

Like the previous version that Bashas’ was unable to confirm, the new plan promises to pay all creditors in full, so existing shareholders can retain their equity.

Although Bashas’ contends the changes are not adverse to any creditor, affiliates of Prudential Life Insurance Co. of America disagree. As noteholders, they argue that creditors are entitled to vote again and predict the company will fail a second time three years from now when $150 million in debt comes due under the revised plan.

The revised plan increases the interest rate for secured lenders, accelerates the payment of principal, and provides the remaining debt will be paid on the third anniversary of confirmation. Payments to unsecured creditors likewise are accelerated with final payment in three years. Bashas’ admitted that the creditors’ committee and noteholders aren’t yet in agreement on the revised plan.

While the changes are “facially appealing,” Newark, New Jersey-based Prudential contends the modifications increase the possibility of a second failure by making more debt due sooner.

Bashas’ believes it can handle accelerated payments because the business has become more profitable than projected.

The bankruptcy judge in Phoenix approved the explanatory disclosure statement and originally scheduled confirmation for April 6.

Under the original plan, jointly proposed with the creditors’ committee, unsecured creditors would have received 10 percent when the plan became effective and 10 percent annually for five years. The remainder would have been paid on the fifth anniversary of plan confirmation.

The disclosure statement said the claims of unsecured trade suppliers and other unsecured creditors totaled more than $47 million.

For secured bank lenders owed $110 million and secured noteholders owed $87 million, the original plan had alternatives, both entailing full payment. If they were to accept the plan, full payment would come with interest in five years. If they voted against the plan, full payment with interest would come in 10 years.

With 158 grocery stores in Arizona when the reorganization began, Chandler, Arizona-based Bashas’ now has 134 locations. It filed under Chapter 11 last July in Phoenix, before the deadline ran out for filing the preference suit against the lenders.

The case is In re Bashas’ Inc., 09-16050, U.S. Bankruptcy Court, District of Arizona (Phoenix).

Luby’s Wins Auction for Fuddruckers at $63.45 Million

Luby’s Inc., the operator of 96 restaurants, mostly in Texas, won the auction for the Fuddruckers stores and franchise business owned by Magic Brands LLC.

The winning bid by Austin, Texas-based Luby’s was valued by Magic Brands and the creditors’ committee at $63.5 million. A statement by Magic Brands said the sale “could” result in full payment for unsecured creditors. For other Bloomberg coverage, click here.

The hearing for approval of the sale will take place tomorrow in U.S. Bankruptcy Court in Delaware. At the auction June 17, the opening bid of $40 million came from Travistock Group.

After closing stores, Austin-based Magic Brands has 62 company-owned Fuddruckers locations operating in 11 states. It also owns the Koo Koo Roo restaurant brand, which has three sites in California. The petition said assets are less than $10 million while debt is less than $50 million.

The Koo Koo Roo restaurants were in bankruptcy before. Owned by Prandium Inc., they were sold to Magic Brands through Chapter 11 in 2004. The 135 Fuddruckers stores in 32 states owned by franchisees aren’t in the bankruptcy.

The case is In re Magic Brands LLC, 10-11310, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Summerlin Investors May force GGP into Arbitration

Representatives of investors in Hughes Corp. filed papers in bankruptcy court last week attempting to force General Growth Properties Inc. into an arbitration to determine how much they are owed from the sale of the business in 1996.

Hughes Corp., some of whose investors include heirs of the late Howard Hughes, owned a master planned community outside Las Vegas named Summerlin. The project covers 22,500 acres and eventually may have a population exceeding 200,000.

General Growth, through a predecessor, acquired Hughes Corp. under an agreement that provided for paying the purchase price over 14 years. For the last payment at the end of 2009, the Hughes investors were to be paid about half of the fair market value of the remaining assets, plus other items such as excess cash flow.

If there were disagreement over the final payment, the 1996 agreement calls for the amount to be determined by a panel of independent appraisers.

The Hughes investors say General Growth hasn’t responded to requests to begin the arbitration. Since General Growth is paying all creditors in full, the Hughes investors they should be entitled to the benefit of their bargain by having the bankruptcy court compel General Growth to arbitrate as the agreement provides.

July 22 has been scheduled as the date for a hearing where the bankruptcy judge in New York will decide if General Growth should be compelled to arbitrate.

The General Growth Chapter 11 reorganization is nearing conclusion. In May, the bankruptcy judge picked a group including Brookfield Asset Management Inc. to be the lead bidder at auction to decide who provides the most advantageous equity- purchase and financing commitments to underlay the reorganization plan paying all creditors of the holding company in full. The property-owning subsidiaries have already confirmed their own plans paying their creditors in full.

Other investors had the right to submit competing financing proposals by June 2. General Growth must pick the best offer by July 2. The hearing for approval of a disclosure statement will occur July 30, with the confirmation hearing for approval of the plan to take place Sept. 30.

General Growth began the largest real-estate reorganization in history by filing under Chapter 11 in April 2009. The books of Chicago-based General Growth had assets of $29.6 billion and total liabilities of $27.3 billion as of Dec. 31, 2008. The company owns or manages more than 200 shopping-mall properties.

The case is In re General Growth Properties Inc., 09-11977, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Lehman to Sell Interest in India Private Equity Fund

Lehman Brothers Holdings Inc. has an agreement to sell its interest in a private equity fund named New Silk Route PE Asia Fund LP for $441,000. The net asset value of Lehman’s limited partnership interest in the fund was $17.6 million at the end of 2009.

The proposed buyer is Berkeley Investment Ltd. Although Lehman doesn’t intend to hold a formal auction, other bids should be submitted by July 2, court papers say. The hearing for approval of the sale is scheduled for July 14.

Lehman has a commitment to fund its limited partnership interest up to $125 million. Lehman funded $28 million before bankruptcy and since them failed to make $48 million in capital calls. When Lehman sells the limited partnership interest, the managers of the fund will withdraw their claims against Lehman for the unpaid capital calls and interest.

Lehman was authorized by the bankruptcy court last week to engage Sotheby’s to sell the corporate art collection at auction. The sale is expected to bring more than $10 million.

The Lehman holding company filed under Chapter 11 in New York on Sept. 15, 2008, and sold office buildings and the North American investment-banking business to London-based Barclays Plc one week later. The Lehman brokerage operations went into liquidation on Sept. 19, 2008, in the same court. The brokerage is in the control of a trustee appointed under the Securities Investor Protection Act.

The Lehman holding company Chapter 11 case is In re Lehman Brothers Holdings Inc., 08-13555, while the liquidation proceeding under the Securities Investor Protection Act for the brokerage operation is Securities Investors Protection Corp. v. Lehman Brothers Inc., 08-01420, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

LifePoint Cleared to Buy Sumner Regional Health

Sumner Regional Health Systems, the nonprofit operator of four acute-care hospital serving 11 counties in Tennessee, filed a Chapter 11 petition on April 30 in Nashville and was the recipient of a favorable decision from the bankruptcy judge on June 18 turning down an objection to the sale of the facility to LifePoint Hospitals Inc. for $154.1 million.

Sumner County opposed the sale. The bankruptcy judge wrote an opinion explaining why the county’s sale of the hospital in 1994 bestowed no power to block a sale now.

An order formally approving the sale is awaiting signature by the bankruptcy judge.

Sumner, based in Gallatin, Tennessee, listed book assets of $212.7 million and liabilities totaling $180.7 million. Sumner’s flagship facility is the 155-bed Sumner Regional. Debt includes $162 million in two secured tax-exempt revenue bonds issued in 2007 and 2008. The bonds were issued as part of an expansion program.

LifePoint has 48 hospitals in 17 states.

The case is In re Sumner Regional Health Systems, 10-04766, U.S. Bankruptcy Court, Middle District of Tennessee (Nashville).

U.S. Concrete Will Have No Official Equity Committee

U.S. Concrete Inc. won’t have an equity committee. At a June 18 hearing, the bankruptcy judge in Delaware denied a motion to appoint an official shareholders’ representative.

Shareholders previously announced their opposition to the company’s prepackaged reorganization plan scheduled for a three- day confirmation hearing to begin July 23 and continue on July 28 and 29. The judge approved the explanatory disclosure statement on June 4.

U.S. Concrete is one of the 10 largest producers of ready- mixed concrete in the U.S. It negotiated the plan with creditors before the Chapter 11 filing on April 21. The plan reduces debt by $285 million through conversion of 8.325 percent subordinated notes into the new equity.

Shareholders are in opposition because they believe they are entitled to more than warrants for 15 percent of the stock. For details on the plan, click here for the April 30 Bloomberg bankruptcy report.

In practical terms, denying the shareholders their own committee means equity holders must pay the cost of opposing the plan. Were they to have an official committee, the company would pay for the shareholders’ professionals.

The Chapter 11 petition listed assets of $389 million and debt of $399 million. Liabilities include $40 million on a pre- bankruptcy secured credit facility in which JPMorgan Chase Bank NA serves as agent. There is another $17.9 million on undrawn letters of credit. U.S. Concrete’s balance sheet on Dec. 31 listed assets of $392.4 million and liabilities totaling $402.5 million. It has 125 fixed and 11 portable plants serving markets in California, New Jersey, Texas and Michigan.

The case is In re U.S. Concrete Inc., 10-11407, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Penn Traffic Settles with Price Chopper Over Breakup

Penn Traffic Co. has now settled with a second suitor jilted when the former supermarket operator decided to sell the business Tops Markets LLC.

Penn Traffic made an agreement in December to sell 22 stores to Price Chopper Operating Co. for $54 million. When Tops made an offer to buy all the stores at a higher price and assume large claims in the process, Penn Traffic dropped the Price Chopper agreement.

In January, one day after Penn Traffic was authorized to sell the business to Tops, Price Chopper sued in bankruptcy court to recover a $1.6 million breakup fee when its offer for 22 stores was bested by Tops.

Schenectady, New York-based Price Chopper agreed to settle by accepting $115,000. The settlement is tentatively scheduled for approval in the bankruptcy court on June 25.

The judge approved a settlement where Penn Traffic is paying Hilco Merchant Resources LLC $50,000 in to resolve a dispute over a $300,000 breakup fee resulting from termination of an agreement to liquidate stores before the advent of the Tops sale.

Tops purchased almost all of Penn Traffic’s stores as a going concern by paying $85 million cash. The sale was structured so Penn Traffic avoided a $72 million claim for pension plan termination and a $27 million claim by the principal supplier.

Penn Traffic filed under Chapter 11 again in November for the express purpose of selling the business. The petition listed assets of $150 million against debt totaling $137 million. Based in Syracuse, New York, Penn Traffic was in Chapter 11 twice before. Debt at the outset of the newest bankruptcy included $63.2 million owing to secured creditors, including $41.8 million to General Electric Capital Corp. on a senior secured facility and $10 million on a supplemental real estate credit with Kimco Capital Corp. serving as agent.

Penn Traffic operated stores Pennsylvania, upstate New York, Vermont and New Hampshire using the names BiLo, P&C and Quality.

The case is In re Penn Traffic Co., 09-14078, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Judgment Creditor Opposes Chapter 15 for ABC Learning

A.B.C. Learning Centres Ltd., an Australia-based operator of childcare centers, won’t have its Chapter 15 petition granted without overcoming objection from RCS Capital Development LLC, the winner of a $47 million verdict from state court jury in Arizona in May.

A.B.C. filed the Chapter 15 petition later in May to stop collection on the judgment. RCS contends in papers filed on June 17 that A.B.C. isn’t entitled to Chapter 15 protection because the proceedings in Australia aren’t court supervised.

When A.B.C. filed the Chapter 15 petition in May, the company was the subject of a voluntary administration in Australia. Later, creditors voted and changed the proceedings to a voluntary liquidation. RCS argues that in Australia a voluntary liquidation isn’t court-supervised. To be more precise, RCS says there is no court involvement unless creditors request it.

The bankruptcy court will hold a hearing on June 24 to decide if A.B.C. is entitled to Chapter 15 protection.

A.B.C. had 1,045 childcare centers in Australia when it began administration proceedings in Australia in November 2008. The company is also the subject a receivership proceeding. It had operations in the U.K., U.S., and New Zealand.

The RCS suit was for breach of development contracts for locations in the U.S.

Chapter 15 isn’t a reorganization like Chapter 11 or a liquidation like Chapter 7. If A.B.C. prevails, the U.S. court will assist the Australian proceedings by stopping lawsuits and creditor actions in the U.S. and facilitating the collection of any assets in the U.S. Prevailing in Chapter 15 will compel creditors in the U.S. to fight their disputes in Australia, which also would govern distributions to creditors.

The case is In re A.B.C. Learning Centres Ltd., 10-11711, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Briefly Noted

Carlyle’s Edscha Receives Exclusivity Until August 6

Auto parts maker Edscha North America Inc. sought and received a 60-day extension of the exclusive right to propose a Chapter 11 plan. The new deadline is Aug. 6. Edscha ceased operating in June 2009 and filed under Chapter 11 in October. The company said it won’t be feasible to propose a plan until a sale of assets in Mexico concludes. The sale was approved by the judge in April.

The U.S. company is liable on a $628 million guarantee of the parent’s bank debt. The Chapter 11 filing came more than eight months after the parent Edscha AG began its own insolvency proceedings in Germany. The companies are ultimately owned by Carlyle Group. The U.S. company listed assets of $6.4 million against debt totaling $672 million, including $629 million in secured claims.

The case is Edscha North America Inc., 09-39055, U.S. Bankruptcy Court, Northern District of Illinois (Chicago).

Bonus Program Approved for Gems TV Top Executives

Gems TV (USA) Ltd., a television retailer of gemstone jewelry products, received court authority last week to adopt a bonus program making the top two officers eligible to share $50,000 if a Chapter 11 plan is confirmed by Aug. 15. If confirmation doesn’t occur before Oct. 15, there would be no bonus, except under a separate program giving the two executives 2 percent of asset sale proceeds exceeding $14.5 million. If the sale brings $19.5 million, the bonus pool would be $130,000.

Reno, Nevada-based Gems TV shut down the business before filing under Chapter 11 on April 5. The petition said assets are less than $50 million while debt is expected to exceed $100 million.

The case is In re Gems TV (USA) Ltd., 10-11158, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Daily Podcast

WaMu, Extended Stay, Texas Rangers, Chemtura: Audio

Washington Mutual Inc., Extended Stay Inc., the Texas Rangers professional baseball club and Chemtura Corp. are the bankruptcy cases covered in the latest bankruptcy podcast on the Bloomberg terminal and Bloomberglaw.com. To listen, click here.


Anadarko Now Junk over Part Ownership in Gulf Well

Anadarko Petroleum Corp. lost investment-grade status on June 18 when Moody’s Investors Service lowered the corporate credit one notch to Ba1, the highest junk grade.

The action was based on what Moody’s called Anadarko’s “potential 25% share of the cleanup costs and the associated financial liabilities and fines” resulting from an oil well blowout in the Gulf of Mexico.

Moody’s said The Woodlands, Texas-based Anadarko has $178 million of insurance to cover costs resulting from part ownership in the well.

Moody’s noted that Anadarko has $707 million of debt maturities in 2011, although none this year.

Geokinetics, Seismic Data Provider, Lowered to B-

Geokinetics Holdings Inc., the world’s second-largest provider of seismic data, was demoted by one click on June 18 to a B- corporate rating from Standard & Poor’s.

S&P said that holders of the senior secured debt, now with a B rating, should realize a recovery of as much as 50 percent in the event of default.

Geokinetics is based in Houston. Net income for common shareholders in the first quarter was $4 million on revenue of $144 million. For 2009, revenue of $511 million resulted in a $22.4 million net loss for common shareholders.

Bank Failures

Reno Bank Becomes Year’s 83rd Failure

Nevada Security Bank was taken over by regulators on June 18 and became the 83rd U.S. bank to fail this year. The bank had $480 million in deposits and is estimated to cost the Federal Deposit Insurance Corp. $81 million.

To read Bloomberg coverage, click here.

Last year, there were 140 bank failures, five times more than 2008. The failures in 2009 were the most since 1992, when 179 institutions were taken over by regulators.

Advance Sheets

Supreme Court Rules for Trustees on Property Exemptions

The U.S. Supreme Court came down on the side of bankruptcy trustees in an opinion on June 17 that looks beyond the governing rule of bankruptcy procedure and in some circumstances can give the trustee an unlimited time for objection to an individual’s claimed property exemptions.

The bankrupt in Chapter 7 listed kitchen equipment she used in her business as having a value of $10,718, the maximum amount of total exemptions to which she was entitled. The bankruptcy trustee didn’t object to the exemption within the time period prescribed by Bankruptcy Rule 4003.

Later, the trustee decided that the property was actually worth $17,000. He sought to sell the property, giving the bankrupt $10,718 and keeping the excess for the bankrupt estate.

The bankruptcy judge, eventually upheld by the U.S. Court of Appeals in Philadelphia, refused to allow the trustee to sell the property, saying his objection to the exemption came too late. The bankruptcy judge ruled that the bankrupt was entitled to keep all the equipment even if it was worth more than the exemptions allowed. Two other circuit courts reached the opposite conclusion, so the Supreme Court resolved the split by reversing the 3rd Circuit in Philadelphia.

In a 6-3 opinion, the court in effect disregarded the time limitation in the bankruptcy rule and looked to the Bankruptcy Code itself. The majority opinion, by Justice Clarence Thomas, said that the pivotal statutory language, “property claimed as exempt,” is “clear.” Thomas said that the estimated $10,718 value must be confined to “its proper role” of “aiding the trustee in administering the estate.”

Thomas distinguished a 1992 Supreme Court opinion, Taylor v. Freeland & Kronz, because the bankrupt in the earlier case listed the value of the property as “unknown.” Thomas in substance said that Taylor remains good law and allows the bankrupt to keep property if the trustee doesn’t object within the time prescribed in Rule 4003 and the value is listed in bankruptcy schedules as “unknown.”

Thomas provided an escape hatch for bankrupts who must retain all of the claimed exempt property. To start the clock on the trustee’s time for objecting to the exemption, he said that the bankruptcy schedules should list the value of the property as “full fair market value” or “100 percent of fair market value.”

Justice Ruth Bader Ginsburg wrote a dissent, joined by Chief Justice John G. Roberts and Justice Stephen G. Breyer. The dissenters took the majority to task for putting “no time limit constraints” on a bankruptcy trustee when it comes to objecting to exemptions. They also say the ruling “drastically reduces Rule 4003’s governance” and “exposes debtors to protracted uncertainty concerning their right to retain exempt property.”

Before the Supreme Court opinion, the courts of appeal were evenly split on how the issue should be decided. The 11th Circuit agreed with the 3rd Circuit as did the Bankruptcy Appellate Panel from the 6th Circuit. The 8th and 9th Circuits reached the conclusion approved by the Supreme Court.

The case is Schwab v. Reilly, 08-538, U.S. Supreme Court.

Current Residence Determines Chapter 15 Eligibility

In deciding eligibility for Chapter 15, the court must look to the bankrupt’s residence when the Chapter 15 petition is filed, according to a May 27 ruling by the U.S. Court of Appeals in New Orleans.

The case involved an involuntary bankruptcy begun in Israel in 1997 against an Israeli citizen. The individual moved permanently to the U.S. later in 1997 and is now a legal permanent resident seeking U.S. citizenship.

In 2006 the Israeli bankruptcy receiver filed a petition in Texas under Chapter 15, asking that the proceedings in Israel be deemed a “foreign main proceeding.” The next year, the bankruptcy judge denied the Chapter 15 petition, and the 5th Circuit in New Orleans affirmed.

Eligibility for Chapter 15 turns on where the bankrupt has its “center of main interests.” So-called COMI is presumed to be the “habitual residence” in the case of an individual.

The 5th Circuit examined the statute and decided that the individual’s place of residence at the time of the filing of the Chapter 15 petition governs eligibility. Consequently, the appeals court ruled that Israel could not be recognized as the place of the “foreign main proceeding.”

The circuit court also ruled that Israel wasn’t even eligible as a “foreign non-main proceeding” because the individual “has engaged in almost no economic activity” in Israel since he left in 1997.

The court said the result “likely” would be different if the Chapter 15 petition were filed “immediately after the party’s arrival in the U.S.”

The case is Lavie v. Ran (In re Ran), U.S. 5th Circuit Court of Appeals (New Orleans).

To contact the reporter on this story: Bill Rochelle in New York at wrochelle@bloomberg.net.

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