Conor Carman
St. John’s University School of Law
American Bankruptcy Institute Law Review Staff
In cross-border insolvency proceedings, the power to obtain information through discovery is essential for recovering assets for creditors. A recent decision by the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”), In re Historic & Trophy Buildings Fund FCP-SIF, balances safeguarding sensitive information and facilitating cooperative efforts in foreign liquidation proceedings.
Historic & Trophy Buildings Fund FCP-SIF (the “Debtor”) entered into a liquidation proceeding in Luxembourg.[1] Soon after, the Luxembourg court appointed a liquidator (the “Liquidator”) who thereafter sought and obtained recognition of the Luxembourg proceeding from the Bankruptcy Court for the purpose of obtaining discovery.[2] Pursuant to Bankruptcy Rule 2004, the Liquidator sought information regarding a 2015 corporate restructuring agreement between the Debtor and affiliated entities that diminished the Debtor’s control over certain real estate investments.[3] Responding to the Liquidator’s motion for discovery, certain U.S. registered companies (the “Sorgente Entities”), raised a limited objection.[4] In the objection, the Sorgente Entities sought a protective order to establish an attorneys’ eyes-only restriction on confidential materials produced via discovery.[5] Namely, the Sorgente Entities proposed (i) limiting access to produced information solely to counsel for the Liquidator, (ii) a bar on disclosures by the Liquidator to the appointing Luxembourg Court, and (iii) a bar on disclosures by the Liquidator to a public prosecutor in Luxembourg if the information obtained by discovery revealed criminal misconduct.[6]
Under section 1521(a)(4) of title 11 of the United States Code (the “Bankruptcy Code”), a foreign representative can seek recognition in a U.S. bankruptcy court to conduct discovery.[7] To guide and protect this process, section 1522 requires the court to ensure that the interests of creditors and other stakeholders are sufficiently safeguarded.[8] Here, the court faced the legal challenge of balancing the Liquidator’s need for any information against the Sorgente Entities’ objections pertaining to confidentiality.[9] Central to the Sorgente Entities’ objection was the protection of commercially sensitive information.[10] They also contended that the Liquidator’s motion for discovery should be viewed as a conflict of laws issue.[11] The Liquidator, however, argued that compliance with Luxembourg law mandated reporting information produced during discovery to the appointing court and, if necessary, to prosecutorial authorities.[12]
In its decision, the Bankruptcy Court aligned the Liquidator’s investigative needs under section 1521(a)(4) of the Bankruptcy Code with the confidentiality concerns of the Sorgente Entities, as mandated by section 1522’s protective measures for stakeholders’ interests.[13] In doing so, the court rejected the Sorgente Entities’ demands for restrictions on the Liquidator’s compliance with Luxembourg law.[14] Applying a balancing interests test, the Court reasoned that the Sorgente Entities failed to show they would incur a significant risk in the dissemination of their business confidences by way of the Liquidator’s reporting obligations to Luxembourg officials.[15] The court determined that the Liquidator had a significant need for the requested information, and further reasoned that such disclosure was unlikely to become public.[16] The Sorgente Entities’ sole objection to this was that Luxembourg officials would not be subject to a U.S. protective order’s bar on disclosure.[17] However, the Bankruptcy Court reasoned that the Liquidator had a “clear and substantial need” for the information the Sorgente Entities sought to bar.[18] Further, the Bankruptcy Court emphasized the relevance of Chapter 15’s purpose to “provide assistance to insolvency proceedings in other nations’ courts.”[19] Therefore, the Bankruptcy Court authorized entry of a protective order, but denied any bars on disclosure to the Luxembourg Court or potentially applicable Luxembourg prosecutorial officials.[20]
The Bankruptcy Court’s emphasis on facilitating cross-border cooperation underscores the basis for this decision. Striking a balancing between safeguarding confidentiality and promoting international cooperation, this decision sheds light on the applicability of protective orders in Chapter 15 insolvency proceedings by weighing the interests of all parties involved.
[1] In re Historic & Trophy Buildings Fund FCP-SIF, No. 22-11461-DSJ, 2023 WL 5525044, at *1 (Bankr. S.D.N.Y. Aug. 25, 2023).
[2] Id.
[3] Id. at *1.
[4] Id.
[5] Id.
[6] Id.
[7] Id. at *2 (citing 11 U.S.C. § 1521(a)(4)).
[8] Id. at *3 (citing 11 U.S.C. § 1522(a)).
[9] Id.
[10] Id. at *1.
[11] Id. at *3.
[12] Id. at *2.
[13] Id. at *3.
[14] Id.
[15] Id. at *4.
[16] Id.
[17] Id.
[18] Id.
[19] Id. at *5.
[20] Id. at *6.