Chapter 15 Petition for Recognition of Foreign Proceeding and Related Relief. Fee Amount $1738 Filed by Warren E. Gluck of Holland & Knight LLP on behalf of FTX DIGITAL MARKETS LTD., Brian C. Simms. (Attachments: # 1 Exhibit 1 - proposed order) (Gluck, Warren)
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Fill in this information to identify the case:
United States Bankruptcy Court for the:
__________
District
of __________
Southern District
of New
York
Check if this is an
Case number (If known): _________________________ Chapter 15
amended filing
Official Form 401
Chapter 15 Petition for Recognition of a Foreign Proceeding
12/15
If more space is needed, attach a separate sheet to this form. On the top of any additional pages, write debtor’s name and case number (if known).
1.
Debtor’s name
2.
Debtor’s unique identifier
FTX Digital Markets Ltd.
_____________________________________________________________________________________________
For non-individual debtors:
Federal Employer Identification Number (EIN)
✔
207269B
Company Registration #
Other ___________________________.
Describe identifier _____________________________.
___ ___ – ___ ___ ___ ___ ___ ___ ___
For individual debtors:
Social Security number:
Individual Taxpayer Identification number (ITIN): 9 xx – xx – ____ ____ ____ ____
Other ___________________________. Describe identifier ______________________________.
xxx – xx– ____ ____ ____ ____
3.
Name of foreign
representative(s)
Brian C. Simms, Kevin G Cambridge, and Peter Greaves
____________________________________________________________________________________________
4.
Foreign proceeding in which
appointment of the foreign
representative(s) occurred
In the Matter of FTX Digital Markets LTD.
____________________________________________________________________________________________
5.
Nature of the foreign
proceeding
Check one:
6.
Evidence of the foreign
proceeding
✔
Foreign main proceeding
Foreign nonmain proceeding
Foreign main proceeding, or in the alternative foreign nonmain proceeding
✔
A certified copy, translated into English, of the decision commencing the foreign proceeding and
appointing the foreign representative is attached.
A certificate, translated into English, from the foreign court, affirming the existence of the foreign
proceeding and of the appointment of the foreign representative, is attached.
Other evidence of the existence of the foreign proceeding and of the appointment of the foreign
representative is described below, and relevant documentation, translated into English, is attached.
_______________________________________________________________________________________
_______________________________________________________________________________________
7.
Is this the only foreign
proceeding with respect to
the debtor known to the
foreign representative(s)?
Official Form 401
No. (Attach a statement identifying each country in which a foreign proceeding by, regarding, or against the
debtor is pending.)
✔
Yes
Chapter 15 Petition for Recognition of a Foreign Proceeding
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Debtor
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FTX
Digital Markets Ltd.
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Case number (if known)_____________________________________
Name
Others entitled to notice
8.
Attach a list containing the names and addresses of:
(i)
all persons or bodies authorized to administer foreign proceedings of the debtor,
(ii)
all parties to litigation pending in the United States in which the debtor is a party at the time of filing of this
petition, and
(iii) all entities against whom provisional relief is being sought under § 1519 of the Bankruptcy Code.
Addresses
9.
Country where the debtor has the center of its
main interests:
The
Bahamas
______________________________________________
Debtor’s registered office:
Bldg. 27, Veridian Corp. Centre W Bay St.
______________________________________________
Number
Street
_______________________________________________
P.O. Box
Nassau
_______________________________________________
ZIP/Postal Code
City
State/Province/Region
The Bahamas
_______________________________________________
Country
10.
Debtor’s website (URL)
11.
Type of debtor
Individual debtor’s habitual residence:
Address of foreign representative(s):
_______________________________________________
Number
Street
3 Bayside Executive Park
_______________________________________________
Number
Street
_______________________________________________
P.O. Box
_______________________________________________
P.O. Box
_______________________________________________
City
State/Province/Region
ZIP/Postal Code
Nassau
_______________________________________________
ZIP/Postal Code
City
State/Province/Region
_______________________________________________
Country
The Bahamas
_______________________________________________
Country
____________________________________________________________________________________________________
Check one:
✔
Official Form 401
Non-individual (check one):
Corporation. Attach a corporate ownership statement containing the information
described in Fed. R. Bankr. P. 7007.1.
Partnership
✔
Private Company Limited (LTD)
Other. Specify: ________________________________________________
Individual
Chapter 15 Petition for Recognition of a Foreign Proceeding
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FTX
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Case number (if known)_____________________________________
Name
12.
Why is venue proper in this
district?
Check one:
✔
Debtor’s principal place of business or principal assets in the United States are in this district.
Debtor does not have a place of business or assets in the United States, but the following
action or proceeding in a federal or state court is pending against the debtor in this district:
___________________________________________________________________________.
If neither box is checked, venue is consistent with the interests of justice and the convenience
of the parties, having regard to the relief sought by the foreign representative, because:
___________________________________________________________________________.
13.
Signature of foreign
representative(s)
I request relief in accordance with chapter 15 of title 11, United States Code.
I am the foreign representative of a debtor in a foreign proceeding, the debtor is eligible for the
relief sought in this petition, and I am authorized to file this petition.
I have examined the information in this petition and have a reasonable belief that the
information is true and correct.
I declare under penalty of perjury that the foregoing is true and correct,
8
________________________________________________
Brian C. Simms
_______________________________________________
Signature of foreign representative
Printed name
11/15/2022
__________________
MM / DD / YYYY
Executed on
8
________________________________________________
_______________________________________________
Signature of foreign representative
Printed name
Executed on
14.
Signature of attorney
__________________
MM / DD / YYYY
8
_________________________________________________
____________
Date
11/15/2022
_________________
Signature of Attorney for foreign representative
MM
/ DD / YYYY
Warren
E. Gluck
_________________________________________________________________________________________________
Printed name
HOLLAND
& KNIGHT LLP
_________________________________________________________________________________________________
Firm name
31
W. 52nd Street
_________________________________________________________________________________________________
Number
Street
New
York
NY
10019
____________________________________________________
__________________________________________
ZIP Code
City
State
(212)
513-3200
____________________________________
Warren.Gluck@hklaw.com
__________________________________________
Email address
Contact phone
4701421
NY
______________________________________________________ ____________
Bar number
Official Form 401
State
Chapter 15 Petition for Recognition of a Foreign Proceeding
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Warren E. Gluck, Esq.
Marie E. Larsen, Esq.
David W. Wirt (Pro Hac Vice Pending)
Jessica Magee (Pro Hac Vice Pending)
Shardul Desai (Pro Hac Vice Pending)
HOLLAND & KNIGHT LLP
31 W. 52nd Street
New York, NY 10019
Telephone: 212-513-3200
Fax: 212-385-9010
Warren.Gluck@hklaw.com
Marie.Larsen@hklaw.com
David.Wirt@hklaw.com
Jessica.Magee@hklaw.com
Shardul.Desai@hklaw.com
Counsel for the Joint Provisional Liquidators of FTX
Digital Markets Ltd. (in Provisional Liquidation)
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
--------------------------------------------------------:
Chapter 15
In re:
:
:
Case No. 22-_______ (___)
FTX DIGITAL MARKETS LTD. (in
:
Provisional Liquidation)
:
:
Debtor in a
:
Foreign
:
1
Proceeding.
:
:
--------------------------------------------------------VERIFIED PETITION FOR RECOGNITION OF
FOREIGN INSOLVENCY PROCEEDING AND RELATED RELIEF
Brian C. Simms, Kevin G Cambridge, and Peter Greaves
(the “Joint Provisional
Liquidators”), in their capacity as the joint provisional liquidators of FTX Digital Markets Ltd.
(“FTX Digital”), in provisional liquidation in the Commonwealth of The Bahamas (the
“Bahamian Liquidation”) pursuant to the Companies (Winding Up Amendment) Act 2011 (the
1
FTX Digital Markets Ltd. (in Provisional Liquidation) was incorporated in the Commonwealth of The Bahamas as
an International Business Company, registered number 207269B.
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“CWUA Act”), by their undersigned United States counsel, Holland & Knight LLP, respectfully
submits the Official Form Petition, this Verified Petition (together, the “Petition”), and the
accompanying Declaration of Brian C. Simms, dated November 15, 2022 (the “Simms
Declaration”), Supplemental Declaration of Brian C. Simms, dated November 15, 2022 (the
“Supplemental Simms Declaration”), and the exhibits thereto, Sophia T. Rolle-Kapousouzoglou,
dated November 15, 2021 (the "STR Declaration"), and the exhibits thereto (collectively, the
“Declarations”), for entry of an Order pursuant to chapter 15 of title 11 of the United States Code,
11 U.S.C. § 101 et seq. (the “Bankruptcy Code”):
(i)
recognizing the Bahamian Liquidation as a foreign main proceeding under 11
U.S.C. §§ 1502, 1517(a) and (b)(1), or, in the alternative, as a foreign nonmain
proceeding pursuant to 11 U.S.C. § 1517(b)(2) of the Bankruptcy Code;
(ii)
appointing the Joint Provisional Liquidators as FTX Digital’s foreign
representatives under 11 U.S.C. §§ 101(24), 1509 and 1517(a);
(iii)
confirming that the Joint Provisional Liquidators have satisfied the requirements of
11 U.S.C. 1515;
(iv)
granting automatic relief pursuant to section 1520 of the Bankruptcy Code;
(v)
granting other and additional relief pursuant to sections 1507 and 1521(a) and (b)
of the Bankruptcy Code as necessary, including authorizing the Joint Provisional
Liquidators to examine witnesses, take evidence, and seek the production of
documents concerning the assets, affairs, rights and/or obligations of FTX Markets;
and
(vi)
granting such other and further relief as the Court may deem just and proper.
I.
PRELIMINARY STATEMENT
FTX Digital is a Bahamian company in provisional liquidation in the Commonwealth of
The Bahamas pursuant to a Petition for Winding Up Order and an Order for Appointment of
Provisional Liquidator issued on November 10, 2022. FTX Digital maintains a registered office
in The Bahamas and has since its formation. Accordingly, the center of main interests for FTX
Digital is presumed to be The Bahamas under 11 U.S.C. § 1516(c).
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As set forth below and in the Declarations, the Bahamian Liquidation is a "foreign main
proceeding" under chapter 15 of the Bankruptcy Code because it is pending in The Bahamas,
where FTX Digital is registered and has its center of main interests.2 The Joint Provisional
Liquidators maintain property in this District under 11 U.S.C. § 109 in the form of a retainer held
in an undrawn attorney-trust account of the undersigned counsel.
The Joint Provisional
Liquidators are the foreign representatives of FTX Digital under 11 U.S.C. § 101(24) because they
administer the assets and liabilities of FTX Digital. The Bahamian Liquidation is consistent with,
and clearly not manifestly contrary to, the public policy of the United States. The discovery and
other relief requested under Section 1521(a) of the Bankruptcy Code is crucial to accurately
identify and protect FTX Digital’s asset position in the United States, and thus to the efficient
administration of its estate. Accordingly, FTX Digital respectfully requests that the Court grant
recognition of the Bahamian Liquidation as a foreign main proceeding and grant related relief.
II.
1.
JURISDICTION, ELIGIBILITY, AND VENUE
This Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157 and 1334,
as well as the Amended Standing Order of Reference dated January 31, 2012, Reference M-431,
In re Standing Order of Reference Re: Title 11, 12 Misc. 00032 (S.D.N.Y. Feb. 2, 2012) (Preska,
C.J.). This is a core proceeding under 28 U.S.C. § 157(b)(2)(P).
2.
Venue is proper in this District pursuant to 28 U.S.C. §§ 109(a) and 1410(1)
because FTX Digital’s principal (and indeed only) assets in the United States are in New York.
FTX Digital has an interest in funds in the amount of $15,000, deposited with Holland & Knight
LLP (“H&K”) and held by H&K in a non-interest bearing client trust account located in New
York, New York (the “H&K Retainer”). Simms Declaration ¶ 61; see also, e.g., In re Olinda
2
In the alternative, the Joint Provisional Liquidators submits that the Bahamian Liquidations is a "foreign nonmain
proceeding" because FTX Digital maintains nontransitory economic activity in The Bahamas.
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Star Ltd., 614 B.R. 28, 39 (Bankr. S.D.N.Y. 2020) (“Courts in this Circuit have held that section
109(a) can be satisfied by bank accounts in the United States, including by an undrawn retainer.”)
(citations omitted); In re Ocean Rig UDW Inc., 570 B.R. 687, 700 (Bankr. S.D.N.Y. 2017) (finding
venue when New York counsel held a debtor’s retainer in a New York account); In re U.S. Steel
Can. Inc., 571 B.R. 600, 610 (Bankr. S.D.N.Y. 2017) (“Some courts, including this one, have held
that an undrawn retainer in a United States bank account qualifies as property in satisfaction of
section 109(a).”).3
3.
The statutory predicates for the relief requested are sections 105(a), 1504, 1506,
1515, 1517, 1520, and 1521 of the Bankruptcy Code. The Joint Provisional Liquidators have
properly commenced this case pursuant to sections 1504 and 1509(a) of the Bankruptcy Code by
filing the Petition for recognition of the Bahamian Liquidation under section 1515 of the
Bankruptcy Code.
3
Petitioner has examined the provisions of section 1410 of the Bankruptcy Code and has concluded that both section
1410(1) and 1410(3) of the Bankruptcy Code counsel in favor of a filing in the Southern District of New York. See
28 U.S.C. §§ 1410(1), (3) (stating that a Chapter 15 bankruptcy case may be commenced, in relevant part, where the
prospective debtor’s principal assets are located in the United States, or “in which venue will be consistent with the
interests of justice and the convenience of the parties, having regard to the relief sought by the foreign representative”).
First, the Foreign Debtor does not have a principal place of business in the United States. As set forth herein, the
Foreign Debtor’s center of main interests, including its headquarters, is in The Bahamas. See infra discussion at ¶ 27.
Second, the Foreign Debtor’s principal assets in the United States, in the form of a retainer held in an undrawn
attorney-trust account of Holland & Knight, LLP, are located in the Southern District of New York. See supra
discussion at ¶ 2. Third, a recent decision under New York Law suggests that certain digital assets have their situs in
New York. See, e.g., LCX AG v. John Does Nos. 1-25, et al., Index No. 154644/2022 (Sup. Ct. 2022). Additionally,
certain relevant agreements are governed by New York law, and certain counterparties of FTX Digital, and investors
in FTX Digital, are located in New York. Finally, there is currently no litigation pending by or against the Foreign
Debtor anywhere in the United States (the FTX Trading and FTX Affiliates bankruptcy cases do not include FTX
Digital as a debtor), so section 1410(2) is inapplicable. See 28 U.S.C. § 1410(2) (stating that a Chapter 15 bankruptcy
case should be commenced in the district in which actions are pending against the Debtor). It is unclear whether FTX
Digital has any property in Delaware. However, this Court has jurisdiction over this matter, as venue is not a
jurisdictional issue. See, e.g., Town & Country Linen Corp. v. Ingenious Designs LLC, Case No. 18-cv-5075, 2022
WL 1515120, at *10 (S.D.N.Y. May 13, 2022) (indicating that venue and jurisdiction involve separate analysis).
Petitioner believes that the Southern District of New York is the appropriate venue based upon its investigation thus
far.
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FACTUAL BACKGROUND
A.
Formation, Registered Office, and Operations of FTX Digital
4.
FTX Digital was incorporated on July 22, 2021 in the Commonwealth of The
Bahamas as an International Business Company, with registration number 207269B.
Simms
Declaration ¶¶ 27, 28. FTX Digital is a company within the meaning of the CWUA Act and is in
provisional liquidation in the Commonwealth of The Bahamas pursuant to a Petition for Winding
Up Order filed by the Securities Commission of The Bahamas and an Order for Appointment of
Provisional Liquidator issued on November 10, 2022. Id. ¶ 2. On that date, FTX Digital’s
principal address and office was Building 27, Veridian Corporate Centre, West Bay Street, Nassau,
N.P., The Bahamas. Id. ¶ 28. Two of the Joint Provisional Liquidators are also residents of the
Bahamas. Id. ¶¶ 7–8.
5.
FTX Digital is registered as a digital asset business under the Digital Assets and
Registered Exchanges Act, 2020 (the “DARE Act”) pursuant to Bahamas law. Id. ¶ 29. Under
the DARE Act, FTX Digital is registered to provide: (i) an exchange between digital assets and
fiat currency and (ii) an exchange between one or more forms of digital assets. Id. It is a subsidiary
of FTX Trading Ltd., a company incorporated in Antiqua and Barbuda, that filed a voluntary
petition for relief under chapter 11 of the Bankruptcy Code on November 11, 2022, in the United
States Bankruptcy Court for District of Delaware, along with 134 affiliate entities.4 Id. ¶¶ 14, 35.
The ultimate beneficial owner of FTX Digital is Samuel Bankman-Fried. Id. ¶ 33.
4
In re FTX Trading Ltd., Case No. 22-11068, in the United States Bankruptcy Court for the District of Delaware (the
“FTX Trading Bankruptcy Case”).
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B.
Events Leading to the Provisional Liquidation and Appointment of the Joint
Provisional Liquidators
1.
6.
Petition for Winding Up Order
The Securities Commission of The Bahamas (“The Bahamas Commission”), is a
regulatory body constituted pursuant to the Securities Industry Act 2011 under the law of The
Bahamas. STR Declaration ¶ 9–10. In its capacity as regulator, The Bahamas Commission may
apply to the Supreme Court, Commercial Division, of the Commonwealth of The Bahamas (the
“Bahamian Court”) to wind up a company under the CWUA Act, if the company is carrying on
a regulated business in the Bahamas for any reason as provided under the regulatory laws or any
other law: CWUA Act §§ 190(1)(d) and (4). Id. ¶ 12. On November 10, 2022, The Bahamas
Commission suspended FTX Digital’s license to conduct business. Id. ¶ 10. The CWUA Act §
186(4) authorizes The Bahamas Commission to petition for the winding up of a company over
which it has regulatory authority and whose license has been suspended. Id. ¶ 15. Further, a
winding up order may be entered if a company is unable to pay its debts as they fall due or is
insolvent. Id. ¶¶ 10, 19. And, the DARE Act permits The Bahamas Commission to apply to the
Bahamian Court for an order to take such action, as The Bahamas Commission considers necessary
to protect the interests of clients or creditors of a regulated company. Id. ¶ 16.
7.
Pending the entry of a winding up order, a provisional liquidator may be appointed
when there is a prima facie case for making a winding up order under CWUA Act § 199(2)(a) and
the appointment of a provisional liquidator is necessary to (i) prevent the dissipation or misuse of
the company’s assets, (ii) to prevent mismanagement or misconduct on the part of the company’s
directors; and/or (iii) it is in the public interest. Id. ¶ 18. On November 10, 2022, The Bahamas
Commission filed a petition in the Bahamian Court for an order directing that FTX Digital be
wound up and for the appointment of a the Provisional Liquidator. Id. ¶ 10. On the same date, the
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Bahamian Court entered its Order for Appointment of Provisional Liquidator (the “Provisional
Liquidation Order”). Id. ¶ 21. On November 14, 2022, the Bahamian Court entered its Order
for Appointment of Joint Provisional Liquidators, appointing Messrs. Kevin G Cambridge and
Peter Greaves as Joint Provisional Liquidators with Brian C. Simms. Id. ¶ 23.
2.
The Provisional Liquidation Order
8.
Under the CWUA Act, a provisional liquidator is authorized to take any action that
he considers fit under the CWUA Act § 199(4) to maintain the value of the assets owned or
managed by the company or to carry out the functions for which he was appointed. Id. ¶ 22. The
authorized powers of a provisional liquidator are quite broad and include, for example, the power:
(i) to bring or defend any action or other legal proceeding in the name and on behalf of the
company; (ii) to carry on the business of the company; (iii) to dispose of any property of the
company to a person who is or was related to the company; and (iv) to sell any of the company's
property by public auction or private contract. Id. ¶ 19.
9. The Provisional Liquidation Order specifically provides:
2. The Provisional Liquidator is hereby authorised to take any action that he
considers fit under the Companies (Winding Up Amendment) Act 2011 (“the
Act”), section 199(4) to maintain the value of the assets owned or managed by the
Company or to carry out the functions for which he was appointed including,
a. with the sanction of the court, those powers contained in Part I of the Fourth
Schedule of the Act; and
b. with or without sanction the exercise of general powers specified in Part II
of the Fourth Schedule of the Act.
…
5. Until further order of this Court the Joint Provisional Liquidators are directed to
take all and any necessary steps that they consider fit to protect the assets of the
Company wheresoever situate including any assets held on trust by the Company.
Id. ¶ 22.
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BASIS FOR RELIEF
FTX Digital is Eligible for Relief under Section 109(a) of the Bankruptcy Code
10.
Foreign debtors seeking relief under chapter 15 must satisfy the debtor eligibility
requirements of 11 U.S.C. § 109(a). See Olinda Star, 614 B.R. at 39. Section 109(a) provides that
“only a person that resides or has a domicile, a place of business, or property in the United States,
or a municipality, may be a debtor” under the Bankruptcy Code. See Drawbridge Special
Opportunities Fund LP v. Barnet (In re Barnet), 77 F.3d 238, 246-48 (2d Cir. 2013). Section
109(a) does not require a specific quantum of property in the United States, nor does it indicate
when or for how long such property must have a United States situs. See, e.g., In re Berau Capital
Res. Pte Ltd., 540 B.R. 80, 82 (Bankr. S.D.N.Y. 2015).
11.
Courts regularly hold that attorney retainers deposited in a New York bank account
satisfy the “property in the United States” eligibility requirement of section 109(a). See Olinda
Star, 614 B.R. at 40 (client trust account held by the debtor at law firm in New York satisfies
109(a)); In re Foreign Econ. Indus. Bank Ltd., “Vneshprombank” Ltd., 607 B.R. 160, 171-72
(Bankr. S.D.N.Y. 2019) (“A foreign debtor may satisfy the section 109(a) property requirement
by having a retainer.”); In re Octaviar Admin. Pty Ltd., 511 B.R. 361, 373-74 (Bankr. S.D.N.Y.
2014) (finding that the debtor “had property in the United States in the form of a retainer [, which]
is sufficient to satisfy the requirements of section 109(a) of the Bankruptcy Code”).
12.
Here, FTX Digital satisfies section 109(a) because it has property in the United
States and in this district in the form of the H&K Retainer. Simms Declaration ¶ 61. The H&K
Retainer remains in the bank account and constitutes FTX Digital’s property (subject to H&K’s
applicable rights). Id.
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B.
The Bahamian Liquidation Should be Recognized under Chapter 15
13.
The Petition should be granted under Chapter 15 because: (1) it concerns a “foreign
proceeding”; (2) it was commenced by the Joint Provisional Liquidators who are duly authorized
“foreign representatives”; and (3) all the required supporting documentation has been filed.
1.
14.
Legal Standards
The Second Circuit holds that “[u]nique to the Bankruptcy Code,” Chapter 15
contains a statement of purpose, which is “to incorporate the Model Law on Cross-Border
Insolvency so as to provide effective mechanisms for dealing with cases of cross-border insolvency
. . . .” In re Fairfield Sentry Ltd.¸ 714 F.3d 127, 132 (2d Cir. 2013) (citing 11 U.S.C. § 1501(a)).
Chapter 15 and the Model Law “are designed to optimize disposition of international insolvencies
by facilitating appropriate access to the court system of a host country (the United States, in the
case of Chapter 15) by a representative of an insolvency proceeding pending in a foreign country.”
In re B.C.I. Fins. Pty Ltd., 583 B.R. 288, 292 (Bankr. S.D.N.Y. 2018) (citations omitted).
15.
Consequently, “Chapter 15 expresses a strong preference for providing assistance
to foreign representatives in appropriate circumstances. That congressional preference is not to
be lightly disturbed.” In re Platinum Partners Value Arbitrage Fund L.P., No. 18CV5176 (DLC), 2018 WL 3207119, *4 (S.D.N.Y. June 29, 2018) (emphasis added and footnote omitted). “Chapter
15 … provides courts with broad, flexible rules to fashion relief that is appropriate to effectuate
the objectives of the chapter[.]” In re Oi S.A., 587 B.R. 253, 264 (Bankr. S.D.N.Y. 2018).
2.
The Bahamian Liquidation is a “Foreign Proceeding”
a.
16.
A Provisional Liquidation is a “Foreign Proceeding”
The Bahamian Liquidation satisfies the definition of “foreign proceeding” as
required by section 1517(a)(1) of the Bankruptcy Code. Under Section 101(23) of the Bankruptcy
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Code, a “foreign proceeding” is defined as “a collective judicial or administrative proceeding in a
foreign country, including an interim proceeding, under a law relating to insolvency or adjustment
of debt in which proceeding the assets and affairs of the debtor are subject to control or supervision
by a foreign court, for the purpose of reorganization or liquidation.”
17.
As referenced above, the Bahamian Liquidation is an involuntary liquidation. It is
well recognized that this type of proceeding is a “foreign proceeding” as defined in 11 U.S.C. §
101(23).
18.
Further, as explained in In re Betcorp Ltd.5, in the context of Chapter 15, “the word
‘proceeding’ requires a broader definition in order to achieve the statutory directive of
interpretation consistent with the understandings and the usages of international law and the
UNCITRAL Model Law.” 400 B.R. at 277. As such:
the “essence of a ‘proceeding’ [is] the acts and formalities set down in law so that
courts, merchants and creditors can know them in advance, and apply them evenly
in practice. In the context of corporate insolvencies, the hallmark of a ‘proceeding’
is a statutory framework that constrains a company’s action and that regulates the
final distribution of a company’s assets.
Id. at 278.
19.
Accordingly, the Bahamian Liquidation a “proceeding” under 11 U.S.C. § 101(23).
The CWUA Act establishes a comprehensive statutory framework for the winding up of a
Bahamian company like FTX Digital. It constrains a company’s actions in liquidation, such as the
cessation of the powers of the corporate directors, and provides broad authority for the Joint
Provisional Liquidators to take actions for the benefit of stakeholders. STR Declaration ¶ 25; see
Betcorp, 400 B.R. at 280 (“The fact that commencing this type of external administration
terminates the authority of the company’s directors, combined with the fact that the winding up
5 400 B.R. 266 (Bankr. D. Nev. 2009).
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cannot be stopped by the equity interest holders once they have passed the special resolution, lends
further support to a finding that this Australian legal process is a proceeding.”).
20.
The CWUA Act also allows the Bahamian court to alter the powers of the Joint
Provisional Liquidators or remove and replace them. STR Declaration ¶ 26. And, the winding up
cannot be reversed absent court intervention. Id.
b.
21.
The Bahamian Liquidation Meets the Elements of 11 U.S.C. §
101(23)
Courts apply seven elements to determine if 11 U.S.C. § 101(23) has been satisfied:
(1) [the existence] of a proceeding; (2) that is judicial or administrative; (3) that is collective in
nature; (4) that is in a foreign country; (5) that is authorized or conducted under a law related to
insolvency or the adjustment of debts; (6) in which the debtor’s assets and affairs are subject to
the control or supervision of a foreign court; and (7) which is for the purposes of reorganization or
liquidation.” See In re ENNIA Caribe Holding N.V., 594 B.R. 631, 638 (Bankr. S.D.N.Y. 2018).
22.
The Bahamian Liquidation satisfies these elements.
23.
First, for the reasons set forth above, the Bahamian Liquidation is a “proceeding.”
24.
Second, the Bahamian Liquidation is a “judicial or administrative proceeding.”
Many of the Joint Provisional Liquidators’ tasks will be administrative in nature, i.e., to carry on
the business of the company - collecting assets, convening meetings, preparing various reports,
and investigating the assets of FTX Digital. See STR Declaration ¶ 26; see also ABC Learning
Ctrs., 445 B.R. at 328. The Bahamian Liquidation is also judicial in character because the
Bahamian Court maintains supervisory authority. STR Declaration ¶¶ 22, 26 (providing until
further order to the Court, Provisional Liquidator is directed . . .); see also ABC Learning Ctrs.,
445 B.R. at 328 (“A winding up becomes judicial in character whenever the Australian Courts
exercises its supervisory powers.”).
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Third, the FTX Liquidation is “collective in nature.” This factor is typically
evaluated in the context of the benefits granted to creditors, but the court can also examine “the
law governing the foreign action and the parameters of the particular proceeding[.]” In re PT
Bakrie Telecom TBk, 601 B.R. 707, 720 (Bankr. S.D.N.Y. 2019) (quoting In re Ashapura
Minechem Ltd., 480 B.R. 129, 136-37 (S.D.N.Y. 2014)). Here, the CWUA Act grants the Joint
Provisional Liquidators the power, with the sanction of the Court, to pay any class of creditors in
full. STR Declaration ¶ 27. And, one purpose of the appointment of the Joint Provisional
Liquidators was “to protect the interests of investors and creditors of FTX Digital. . . .” Id. ¶ 27.
26.
Notably, the Third Circuit in ABC Learning held that the Australian foreign
proceeding was collective even though the foreign representative had no assets to distribute to
creditors. See 728 F.3d at 309. In this case, FTX Digital has assets as a registered digital asset
business, and the Joint Provisional Liquidators are acting for the benefit of creditors. STR
Declaration ¶ 27.
27.
Fourth, the Bahamian Liquidation is occurring in The Bahamas, a foreign country.
FTX Digital is a Bahamian company and maintains a registered office there. Id. ¶ 38. The
Bahamian Liquidation operates under Bahamian law and is governed by the CWUA Act. Id. ¶ 28.
Two of the Joint Provisional Liquidators are residents of The Bahamas. Simms Declaration ¶¶ 7–
8. And, the Bahamian Court holds supervisory authority over the Bahamian Liquidation. STR
Declaration ¶ 28; see also, e.g., ABC Learning Ctrs., 445 B.R. at 330; Manley Toys, 580 B.R. at
643.
28.
Fifth, the Bahamian Liquidation proceeds under the auspices of the CWUA Act,
which is a statutory scheme “relating to insolvency or adjustment of debt” pursuant to 11 U.S.C.
§ 101(23). In other words, the proceeding “must be authorized by a statute that deals with
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corporate insolvency or the adjustment of corporate debts. Here, one of the bases for the winding
up and the appointment of the Joint Provisional Liquidators under the CWUA Act is the asserted
insolvency of FTX Digital. STR Declaration ¶ 29. The CWUA Act authorizes the entry of a
winding up order, the appointment of a provisional liquidator, and outlines the provisional
liquidator’s powers and responsibilities for the benefit of stakeholders on account of a company’s
insolvency. Id. ¶ 29. And, the provisional nature of the liquidation changes upon the entry of a
winding up order. Id.; see Ashapura, 480 B.R. at 144 (the ability to “alternate between various
remedial measures” is emblematic of satisfaction of this factor); Betcorp, 400 B.R. at 282 (noting
that “the statutory ability to shift among various forms of dissolution given changing
circumstances, demonstrate[s] that winding up is achieved under a law relating to insolvency or
the adjustment of debts”).
29.
As the Southern District of New York has explained,
Supervision or control of the company’s affairs is not a demanding standard. The
foreign court need not control the day-to-day operations with the debtor. It is
sufficient, for instance, that the body monitor compliance with the repayment plan
negotiated by the debtors and creditors … the fact that actions in a foreign court
related to the proceeding are typically imitated by interested parties and that
liquidators proceed with most of their duties without court involvement was found
‘not [to] undermine the … court[‘s] supervisory role.
Ashapura, 480 B.R. at 138 (quoting ABC Learning Ctrs., 445 B.R. at 332).
30.
The provisions of the CWUA Act and terms of the Provisional Liquidation Order
clearly illustrate that the Bahamian Liquidation is under the supervision of the Bahamian Court,
notwithstanding the powers granted to the Joint Provisional Liquidators.
The Provisional
Liquidation Order permits the Court to alter the power granted to the Joint Provisional Liquidators,
and limits the powers of directors and management. STR Declaration ¶ 30; see ABC Learning
Ctrs., 445 B.R. at 331 (Removal and replacement of director is evidence of court supervision.).
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Finally, the Bahamian Liquidation exists “for the purpose of reorganization or
liquidation.” The express purposes of the CWUA Act is to permit and facilitate liquidation. STR
Declaration ¶ 31; see Cell C, 571 B.R. at 553; ABC Learning Ctrs., 445 B.R. at 332. The Petition
for Winding Up Order commenced the process of liquidation. See STR Declaration ¶ 11; Simms
Declaration ¶ 57.
32.
For these reasons, the Bahamian Liquidation is a “foreign proceeding” in
satisfaction of 11 U.S.C. § 1517(a)(1).
3.
33.
The Joint Provisional Liquidators are the “Foreign Representatives”
of FTX Digital
A chapter 15 case is commenced by the filing of a petition by a “foreign
representative.” See 11 U.S.C. § 1515(a). The Bankruptcy Code defines a “foreign representative”
as “a person or body, including a person or body appointed on an interim basis, authorized in a
foreign proceeding to administer the reorganization or the liquidation of the debtor’s assets or
affairs or to act as a representative of such foreign proceeding.” 11 U.S.C. § 101(24).6
34.
The requirement that a foreign representative be authorized in a foreign proceeding
is “not an onerous one.” PT Bakrie, 601 B.R. at 717. Section 101(24) does not require that the
foreign representative be appointed by a “foreign tribunal.” See Cell C, 571 B.R. at 550.
35.
The Provisional Liquidation Order specifically gave the Liquidator authority over
FTX Digital’s assets and, with sanction of the Court, the power to pay creditors. STR Declaration
¶ 35; see Cell C, 571 B.R. at 553 (person appointed by resolution is a foreign representative); In
re OAS S.A., 533 B.R. 83, 98-100 (Bankr. S.D.N.Y. 2015) (appointing foreign representative by
board resolution that conferred authority to administer assets and liabilities). The Joint Provisional
6
The “foreign representative” can be an individual. See Ascot Fund.¸ 603 B.R. at 278 (citing 11 U.S.C. § 101(41)).
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Liquidators are the representatives of FTX Digital authorized to act under the Bahamian Court’s
order to carry out the powers under the CWUA Act. STR Declaration ¶ 35.
36.
The Joint Provisional Liquidators are thus proper “foreign representatives” within
the meaning of section 101(24) with respect to FTX Digital, and section 1517(a)(2) is satisfied.
4.
37.
The Joint Provisional Liquidators Properly Filed this Case
The Joint Provisional Liquidators duly and properly filed this proceeding as
required by section 1504 of the Bankruptcy Code by filing the petition pursuant to 11 U.S.C. §
1515(a).
38.
The Petition was accompanied by all documents required by subsections 1515(b)
and 1515(c), including the Provisional Liquidation Order, and the Federal Rules of Bankruptcy
Procedure. See Olinda Star, 614 B.R. at 45.
39.
Accordingly, the Joint Provisional Liquidators satisfied the requirements set forth
in section 1515 of the Bankruptcy Code and the Bankruptcy Rules. This Chapter 15 case has been
properly commenced.
C.
The Bahamian Liquidation is a “Foreign Main Proceeding.”
40.
Section 1517(b)(1) of the Bankruptcy Code provides that a foreign proceeding shall
be recognized as a “foreign main proceeding” if it is pending in the country where the debtor has
its center of main interests (“COMI”) as of the date of the petition for recognition. 11 U.S.C. §
1502(4); see also Fairfield Sentry, 714 F.3d at 127. A debtor has only one COMI. See In re
Millennium Glob. Emerging Credit Master Fund Ltd., 458 B.R. 63, 79 (Bankr. S.D.N.Y 2011)
(“[E]very entity has a center of main interests.”).
41.
Courts in this district have developed a list of non-exclusive, but “widely adopted”
factors that may be considered when determining COMI:
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(1) the location of the debtor’s headquarters; (2) the location of those who actually
manage the debtor; (3) the location of the debtor’s primary assets; (4) the location
of the debtor’s creditors or of a majority of the creditors who would be affected by
the case; and/or (5) the jurisdiction whose law would apply to most disputes.
Olinda Star, 614 B.R. at 41 (citation omitted); see also In re Serviços de Petróleo Constellation
S.A., 600 B.R. 237, 272-73 (Bankr. S.D.N.Y. 2019). The Second Circuit has also emphasized the
importance of criteria that are both objective and ascertainable to third parties to determine a
debtor’s COMI. See Fairfield Sentry, 714 F.3d at 136-37. An objective determination of COMI
results from an examination of factors “in the public domain.” Id. at 137 (citation omitted).
42.
Absent evidence to the contrary, a debtor’s registered office is presumed to be its
COMI. 11 U.S.C. § 1516(c). The legislative history indicates that this presumption was “designed
to make recognition as simple and expedient as possible” in cases, as here, where COMI is not
controversial. H. Rep. 109-31 pt. 1, at 112-13 (2005). When determining a debtor’s COMI, the
Bankruptcy Code provides “considerable but not complete discretion.” Serviços de Petróleo, 600
B.R. at 278 (citation omitted).
43.
FTX Digital is incorporated under the laws of The Bahamas, and since its
incorporation, maintained a registered office in The Bahamas, creating a presumption that The
Bahamas is its center of main interests. Simms Declaration ¶¶ 1, 27; 11 U.S.C. § 1516(c). The
registered office presumption is not rebutted, but rather confirmed, on the facts of this case.
44.
It is objectively ascertainable by third parties that the COMI of FTX Digital is The
Bahamas. FTX Digital’s operations are directed from the Bahamas. Simms Declaration ¶¶ 33,
43.
45.
Further, two of the Joint Provisional Liquidators are residents of The Bahamas. Id.
¶¶ 7–8; see, e.g., Betcorp, 400 B.R. at 292 (finding COMI in Australia “[t]he location of those that
manage Betcorp -- the liquidators” were located); Ascot Fund, 603 B.R. at 280 (factor supports a
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COMI finding of the Cayman Islands when the “JOLs are based in the Cayman Islands … and
they, along with their staff … have directed and conducted the [debtor’s] liquidation in the Cayman
Islands”).
46.
With respect to FTX Digital’s assets, it is a registered digital asset business. Simms
Declaration ¶ 29. Its business involves effecting exchanges between digital assets and fiat currency
and exchanges between one or more forms of digital assets. Id. Digital assets, which exist and
are transacted on a digital ledger also known as a blockchain, have unique features that include
attributes of bearer instruments. Id. ¶ 29. To the extent a customer or account holder has control
over a wallet’s private key, the account holder can conduct immutable transactions of the digital
assets held within the wallet. Id. ¶ 18. However, commercial exchanges often store its customers’
digital currencies in pooled wallets, wherein the customer does not have control over the pooled
wallet’s private key; rather, the customer’s assets are recorded on internal ledgers external to the
blockchain. Id. ¶¶ 21, 24. In these circumstances, customers can conduct transactions only via
requests to the commercial exchange. Id. ¶ 24. The assets on an exchange can be removed from
the exchange much like cash can be withdrawn from a traditional bank account – however, in this
case, from a digital wallet. See id. ¶ 24; see also Ascot Fund, 603 B.R. at 285 (rejecting the
argument that the location of the asset is the “key piece of evidence ‘ascertainable by third
parties.’”); Ocean Rig, 570 B.R. at 704 (although existence of assets outside the jurisdiction of
liquidation “complicated” the analysis, the prevailing evidence was that the liquidators “have
engaged in various activities supporting their COMI in the Cayman Islands for a year”).
47.
At a minimum, FTX Digital’s creditors include all account holders with assets
stored in the exchange’s custodial wallets. Simms Declaration ¶ 60. And, there are likely
additional creditors that have not yet been fully identified. See id.
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Finally, by virtue of its incorporation in The Bahamas, FTX Digital is subject to
Bahamian laws, regulations, and its jurisdiction, including with respect to disputes. See Olinda
Star, 614 B.R. at 43-44. Specifically, the Bahamian Liquidation is conducted pursuant to the
CWUA Act, meaning that Bahamian law would apply to most disputes. See Betcorp, 400 B.R. at
292 (“The voluntary winding up is being conducted pursuant to the Australian [insolvency laws]
and therefore this is the law that would apply to most disputes.”). Even if FTX Digital is subject
to the laws of other jurisdictions, this does not necessarily weigh against a finding of COMI in The
Bahamas. See Olinda Star, 614 B.R. at 43-44 (weighing this factor in favor of debtor even if “it
may be subject to other regulatory regimes”).
D.
Alternatively, the Bahamian Liquidation is a Foreign Nonmain
Proceeding
49.
Although the Joint Provisional Liquidators submit that the Bahamian Liquidation
is a “foreign main proceeding,” in the alternative, the Joint Provisional Liquidators seek
recognition of the Bahamian Liquidation as a “foreign nonmain proceeding.”
Courts will
recognize a foreign proceeding as a “foreign nonmain proceeding” if “the debtor has an
establishment within the meaning of section 1502 in the foreign country where the proceeding is
pending.” 11 U.S.C. § 1517(b)(2). “Establishment” is defined in Chapter 15 as “any place of
operations where the debtor carries out a nontransitory economic activity.” 11 U.S.C. § 1502(5);
see Serviços de Petróleo, 600 B.R. at 277 (“[T]he foreign debtor must establish a degree of stable
connections with the jurisdiction to constitute a nontransitory ‘establishment.’”). Courts require
proof of more than a “mail-drop presence.” Id.
50.
Several factors “contribute to identify an establishment: the economic impact of the
debtor’s operations on the market, the maintenance of a ‘minimum level of organization’ for period
of time, and the objective appearance to creditors whether the debtor has a local presence.”
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Millennium Glob., 458 B.R. at 85. A “local effect on the marketplace” is evidenced by, among
other things, engagement of local counsel. Id. at 86-87. At least one court holds that the presence
of the liquidators is relevant to the determination of whether the debtor has an establishment in
that location. Id. at 86.
51.
In this case, The Bahamas is not merely a letter-box jurisdiction for FTX Digital.
Its liquidation is centralized in The Bahamas, where two of the Joint Provisional Liquidators
reside. The situs–the power to transfer the digital assets held by the exchange–is centralized in
The Bahamas. Simms Declaration ¶ 43. Further, with a registered and principal address in The
Bahamas, this supports a finding of the “establishment” in The Bahamas.
52.
For these reasons, in the event the Court concludes that the Bahamian Liquidation
is not a foreign main proceeding, the Bahamian Liquidation should be recognized as a foreign
nonmain proceeding.
E.
The Requested Relief Accords with the Bankruptcy Code and U.S.
Public Policy
53.
A bankruptcy court may refuse to grant recognition under chapter 15 if the action
“would be manifestly contrary to the public policy of the United States.” 11 U.S.C. § 1506; see
also Fairfield Sentry, 714 F.3d at 139 (“[T]he word ‘manifestly’ in international usage restricts the
public policy exception to the most fundamental policies of the United States.”) (emphasis in
original). Courts “interpret this exception as a narrow one that should be applied sparingly.”
ENNIA Caribe, 594 B.R. at 640 (citation omitted). The proper focus is on whether a foreign
proceeding violates “fundamental standards” of procedural “fairness.” In re Metcalfe & Mansfield
Alt. Invs., 421 B.R. 685, 697 (Bankr. S.D.N.Y. 2010).
54.
The Bahamian Liquidation is clearly not “manifestly contrary to the public policy
of the United States.” The CWUA Act is consistent with approaches to liquidation in other
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countries, including with respect to the power to dispose of property, compromise claims and pay
creditor classes. See also ENNIA Caribe, 594 B.R. at 640-41 (rejecting “due process concerns” in
part because of a “variety of legal procedures” permitted to challenge the foreign proceeding);
ABC Learning Ctrs., 728 F.3d at 310 (pro rata distribution among levels of priority emblematic
of a foreign proceeding that does not violate United States public policy).
55.
Indeed, recognizing the Bahamian Liquidation will assist the orderly administration
of FTX Digital’s liquidation, consistent with the public policy of the United States that the
Bankruptcy Code embodies.
V.
THE COURT SHOULD GRANT THE JOINT PROVISIONAL
LIQUIDATORS’ REQUEST FOR DISCRETIONARY RELIEF PURSUANT
TO SECTION 1521 THE BANKRUPTCY CODE
56.
Section 1521(a) provides in relevant part that “[u]pon recognition of a foreign
proceeding, whether main or nonmain, where necessary to effectuate the purpose of this chapter
and to protect the assets of the debtor or the interests of the creditors, the court may, at the request
of the foreign representative, grant any appropriate relief including . . . (4) providing for the
examination of witnesses, the taking of evidence or the delivery of information concerning the
debtor’s assets, affairs, rights, obligations or liabilities[.]” See In re Inversora Eléctrica de Buenos
Aires, 560 B.R. 650, 655 (Bankr. S.D.N.Y. 2016) (in the context of section 1521(a), the
“Bankruptcy Code confers exceedingly broad discretion … that would further the purposes of
chapter 15 and protect the debtor’s assets and the interests of creditors”); see also Millennium
Glob., 471 B.R. at 346 (citation and footnote omitted) (“Section 1521(a)(4) provides specifically
that the Court may enter an order providing for ‘the taking of evidence or the delivery of
information concerning the debtor’s assets, affairs, rights, obligations or liabilities.’ … By its
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terms, this provision enables a Foreign Representative to take broad discovery concerning the
property and affairs of a debtor.”).7
57.
Courts have recognized that the scope of discovery sought via 11 U.S.C. §
1521(a)(4) is particularly broad when the foreign representative is “gathering information which
will enable them to comply with their duties.” Id. at 390 (quoting In re Platinum Partners Value
Arbitrage Fund L.P., 583 B.R. 803, 821 (Bankr. S.D.N.Y. 2018)).8
58.
Pursuant to section 1507, the Court may also grant discretionary relief to provide
additional assistance beyond that permitted under section 1521 to a foreign representative. 11
U.S.C. § 1507(a). In exercising discretion to grant relief under this section, courts are guided by
the standards set forth in section 1507(b), which provides that a court:
[i]n determining whether to provide additional assistance ... shall consider whether
such additional assistance, consistent with the principles of comity, will reasonably
assure—(1) just treatment of all holders of claims against or interests in the debtor’s
property; (2) protection of claim holders in the United States against prejudice and
inconvenience in the processing of claims in such foreign proceeding; (3)
prevention of preferential or fraudulent dispositions of property of the debtor; (4)
distribution of proceeds of the debtor’s property substantially in accordance with
the order prescribed by this title; and (5) if appropriate, the provision of an
opportunity for a fresh start for the individual that such foreign proceeding
concerns.9
A foreign nonmain proceeding can be “granted nearly identical relief as the relief provided to a main proceeding.”
Id. at 272.
7
Discovery sought via 11 U.S.C. § 1521(a)(4) is “not limited to documents in the United States. Permissible discovery
extends to documents in the possession, custody or control of a party, including documents held by a party’s attorneys
or agents” and the court “may order the production of documents from outside the United States.” See In re Markus¸ 607 B.R. 379, 389-390 (Bankr. S.D.N.Y. 2019), vacated sub nom. in part on other grounds, Markus v. Rozhkov, 615
B.R. 679 (Bankr. S.D.N.Y. Apr. 3, 2020). To that end, “[b]y its nature, chapter 15 involves parties located outside
the United States. Absent some express language in chapter 15 of any geographical limitation on the scope of
discovery, there is no basis for [a bankruptcy court] … to impose such a limitation.” Id. at 390.
8
Courts in this District have indicated that the “interplay between the relief available under sections 1507 and 1521 is
far from clear.” Olinda Star, 614 B.R. at 46 (quoting In re Acanti Comm’cns Grp., 682 B.R. 603, 615-16 (Bankr.
S.D.N.Y. 2018)). The Fifth Circuit held that a court must “first consider the specific relief enumerated under § 1521(a)
and (b). If the relief is explicitly provided for there, a court should then consider … § 1521’s grant of any appropriate
relief … [which is] relief previously available under Chapter 15’s predecessor, § 304. Only if a court determines that
the requested relief was not formerly available under § 304 should a court consider whether relief would be appropriate
as “additional assistance” under § 1507.” In re Vitro S.A.B. de CV, 701 F.3d 1031, 1054.
9
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Additionally, section 105(a) of the Bankruptcy Code provides that the “court may
issue any order, process, or judgment that is necessary to carry out the provisions of this title.”
60.
“In deciding whether to grant appropriate relief or additional assistance under
chapter 15, courts are guided by principles of comity and cooperation with foreign courts.” Avanti,
582 B.R. at 616.
61.
As set forth in the Declarations and in the Emergency Motion for Provisional Relief
Pursuant to 11 U.S.C. § 105(a), 1519, and 1521 (the “Provisional Relief Motion”), filed
contemporaneously herewith, the immediate grant of the authority described in this Section V on
a provisional basis pursuant to section 1519(a) of the Bankruptcy Code aids in the prevention of
irreparable harm to FTX Digital and the enablement of the Joint Provisional Liquidators to carry
out their duties under the CWUA Act, in connection with the Joint Provisional Liquidators’
ongoing attempts to obtain information regarding FTX Digital’s assets. To that end, the Joint
Provisional Liquidators will likely need to conduct discovery in the FTX Trading Bankruptcy Case
in order to determine whether they hold claims against its affiliates based on intercompany
transfers of digital assets. Simms Declaration ¶ 68. Further, the Joint Provisional Liquidators will
need to conduct discovery regarding insider transactions relating to the business’ cash and digital
assets, and will need to access information relating to U.S. Dollar-denominated wire and fund
transfers maintained by correspondent or intermediary banks. See id. ¶¶ 67–68.
62.
Given this, and pursuant to the authority of the Provisional Liquidation Order, the
Joint Provisional Liquidators determined that filing this Petition is in the best interests of FTX
Digital, and necessary to enable the Joint Provisional Liquidators to obtain discovery in order to
accurately identify and protect assets in the United States.
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Accordingly, in light of the aim of chapter 15 to “optimize disposition of
international insolvencies” by providing foreign representatives appropriate access to the U.S.
court system, see B.C.I. Fins. Pty Ltd., 583 B.R. at 292, and the clear, ongoing risk of diminution
in value and/or diversion of FTX Digital’s assets in the United States, the Joint Provisional
Liquidators respectfully submit that the requested discovery authority is appropriate and necessary
“to effectuate the purposes of [chapter 15] and to protect the assets of the debtor.” 11 U.S.C. §
1521(a)(4).
64.
Moreover, relief under section 1521(a) may be granted if the interests of “the
creditors and the other interested entities, including the debtor, are sufficiently protected.” 11
U.S.C. § 1522(a). While the Bankruptcy Code does not provide a definition of “sufficient
protection,” the legislative history of section 1522 suggests that this requirement is meant to
prevent the rights of United States creditors of the foreign debtor from being “seriously and
unjustifiably injur[ed].” H. Rep. No. 109-31, pt. 1, 109th Cong., 1st Sess. 116 (2005). As such,
courts have “great leeway” in determining whether the rights of all relevant parties are “sufficiently
protected” and will generally consider a balancing of competing interests. See In re Toft, 453 B.R.
186, 196 n.11 (Bankr. S.D.N.Y. 2011) (“[A] court should tailor relief balancing the interest of the
foreign representative and those affected by the relief.”).
65.
The Joint Provisional Liquidators submit that all parties in interest are sufficiently
protected here, because the requested relief pertains to information directly bearing upon the
Debtor’s assets and interests in the United States, which are central to the administration of the
Bahamian Liquidation.
66.
Further, as noted above and as set forth in the STR Declaration and the Simms
Declaration, the Joint Provisional Liquidators seek discovery authority in order to issue subpoenas
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for asset-tracing purposes, concerning, inter alia, accurately tracing and re-creating the flow of
digital assets and funds pertaining to wire transfer transactions denominated in U.S. Dollars
processed by the IBD Subjects. Simms Declaration ¶ 67.
67.
To that end, this Court routinely orders similar relief pursuant to section 1521(a)(4),
including specifically for the wire transfer and account information. See id.; see also, e.g.,
Platinum Partners, 583 B.R. at 811 (authorizing discovery in support of liquidation of Cayman
Islands-based funds because its auditors had a “unique set of documents and analyses concerning
the Funds’ assets, liabilities and financial affairs which would assist the liquidators’ investigation
and understanding of the Funds’ affairs for the two years immediately prior to the Funds’
liquidations”); In re Frontera Caucasus Corp., No. 19-13418-mew (Bankr. S.D.N.Y. 2019)
(recognizing Cayman Islands proceeding as a foreign main proceeding and authorizing issuance
of subpoenas concerning suspect transfers and transactions to debtor’s accountants and
executives); In re Archetype Investments Fund SPC Ltd., No. 19-11996-shl (Bankr. S.D.N.Y.
2019) (recognizing British Virgin Islands liquidation as a foreign main proceeding and authorizing
issuance of subpoenas to New York Banks); In re Pinnacle Glob. Partners Fund I Ltd., No. 1911573-rg (Bankr. S.D.N.Y. 2019) (recognizing Cayman Islands liquidation as a foreign main
proceeding and authorizing issuance of subpoenas to New York Banks); In re HiTs Africa Ltd.,
No. 18-11822-mew (Bankr. S.D.N.Y. 2018) (same).
68.
As such, the Joint Provisional Liquidators submit that the additional relief requested
under section 1521(a)(4) authorizing them to examine witnesses, take evidence and obtain
information concerning the Debtor’s assets, affairs, rights, obligations and/or liabilities, is
necessary and warranted under the circumstances.
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REQUEST FOR WAIVER OF LOCAL BANKRUPTCY RULE 9013-1(a)
It is respectfully requested that this Court waive and dispense with the requirement
set forth in Rule 9013-l(a) of the Local Rules for the United States Bankruptcy Court for the
Southern District of New York that any motion filed shall be accompanied by a memorandum of
law on the grounds that the relevant authorities in support of the Petition are contained herein.
VII.
70.
HEARING DATES AND NOTICES
Section 1517(c) of the Bankruptcy Code requires that “[A] petition for recognition
of a foreign proceeding shall be decided upon at the earliest possible time.” Bankruptcy Rule 2002
sets forth a twenty-one day notice requirement to parties in interest with certain exceptions to
approve the Petition. If no objections to this Petition are filed by the date ordered for such
objections, the Joint Provisional Liquidators request that the Court enter the proposed order
recognizing the Bahamian Liquidation as a foreign main proceeding without a hearing pursuant to
Local Rule 2002-2; however, the Joint Provisional Liquidators and counsel are of course willing
to appear and will be prepared to answer any questions that the Court may have.
71.
Subsection (q)(1) of Rule 2002 governs notice of a petition for recognition of a
foreign proceeding. Contemporaneously herewith, the Debtor has filed the Motion for Order
Specifying Form and Manner of Service of Notice. The Joint Provisional Liquidators propose to
provide service and notice of this Petition in accordance with Fed. R. Bankr. P. 2002(q), and the
procedures and deadlines specified in the proposed Order Specifying Form and Manner of Service
and Notice, which the Joint Provisional Liquidators respectfully submit constitutes sufficient
service and notice of this Petition.
72.
No previous application for the relief requested in this Petition has been made in
this or any other court in the United States.
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CONCLUSION
WHEREFORE, the Joint Provisional Liquidators respectfully request that this Court enter
an Order, substantially in the form of Exhibit 1 to this Petition, granting the relief requested herein
and such other and further relief as may be just and proper.
Dated: November 15, 2022
New York, New York
HOLLAND & KNIGHT LLP
/s/ Warren E. Gluck________
Warren E. Gluck, Esq.
Marie E. Larsen, Esq.
David W. Wirt (Pro Hac Vice Pending)
Jessica Magee (Pro Hac Vice Pending)
Shardul Desai (Pro Hac Vice Pending)
HOLLAND & KNIGHT LLP
31 W. 52nd Street
New York, NY 10019
Telephone: 212-513-3200
Fax: 212-385-9010
Warren.Gluck@hklaw.com
Marie.Larsen@hklaw.com
David.Wirt@hklaw.com
Jessica.Magee@hklaw.com
Sardul.Desai@hklaw.com
Counsel for the Joint Provisional Liquidators of FTX
Digital Markets Ltd. (in Provisional Liquidation)
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VERIFICATION
Pursuant to 28 U.S.C. § 1746, Brian C. Simms declares as follows:
I am a duly appointed Joint Provisional Liquidator of FTX Digital Markets Ltd. (in
Provisional Liquidation), which is in provisional liquidation pursuant to the Companies (Winding
Up Amendment) Act 2011. I have full authority to verify the foregoing Verified Petition for
Recognition of Foreign Insolvency Proceeding and Related Relief (the “Verified Petition”). I
have read the Verified Petition, and I am informed, and believe that the allegations contained
therein are true and accurate to the best of my knowledge, information, and belief.
I declare under penalty of perjury under the laws of the United States of America that the
foregoing is true and correct.
Executed this _15___ day of November, 2022 in _The Bahamas________________________.
_______________________________
Brian C. Simms, in his capacity as Joint
Provisional Liquidator of FTX Digital
Markets, Ltd. (in Provisional
Liquidation)
27
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Fill in this information to identify the case:
United States Bankruptcy Court for the:
__________
District
of __________
Southern District
of New
York
Check if this is an
Case number (If known): _________________________ Chapter 15
amended filing
Official Form 401
Chapter 15 Petition for Recognition of a Foreign Proceeding
12/15
If more space is needed, attach a separate sheet to this form. On the top of any additional pages, write debtor’s name and case number (if known).
1.
Debtor’s name
2.
Debtor’s unique identifier
FTX Digital Markets Ltd.
_____________________________________________________________________________________________
For non-individual debtors:
Federal Employer Identification Number (EIN)
✔
207269B
Company Registration #
Other ___________________________.
Describe identifier _____________________________.
___ ___ – ___ ___ ___ ___ ___ ___ ___
For individual debtors:
Social Security number:
Individual Taxpayer Identification number (ITIN): 9 xx – xx – ____ ____ ____ ____
Other ___________________________. Describe identifier ______________________________.
xxx – xx– ____ ____ ____ ____
3.
Name of foreign
representative(s)
Brian C. Simms, Kevin G Cambridge, and Peter Greaves
____________________________________________________________________________________________
4.
Foreign proceeding in which
appointment of the foreign
representative(s) occurred
In the Matter of FTX Digital Markets LTD.
____________________________________________________________________________________________
5.
Nature of the foreign
proceeding
Check one:
6.
Evidence of the foreign
proceeding
✔
Foreign main proceeding
Foreign nonmain proceeding
Foreign main proceeding, or in the alternative foreign nonmain proceeding
✔
A certified copy, translated into English, of the decision commencing the foreign proceeding and
appointing the foreign representative is attached.
A certificate, translated into English, from the foreign court, affirming the existence of the foreign
proceeding and of the appointment of the foreign representative, is attached.
Other evidence of the existence of the foreign proceeding and of the appointment of the foreign
representative is described below, and relevant documentation, translated into English, is attached.
_______________________________________________________________________________________
_______________________________________________________________________________________
7.
Is this the only foreign
proceeding with respect to
the debtor known to the
foreign representative(s)?
Official Form 401
No. (Attach a statement identifying each country in which a foreign proceeding by, regarding, or against the
debtor is pending.)
✔
Yes
Chapter 15 Petition for Recognition of a Foreign Proceeding
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Case number (if known)_____________________________________
Name
Others entitled to notice
8.
Attach a list containing the names and addresses of:
(i)
all persons or bodies authorized to administer foreign proceedings of the debtor,
(ii)
all parties to litigation pending in the United States in which the debtor is a party at the time of filing of this
petition, and
(iii) all entities against whom provisional relief is being sought under § 1519 of the Bankruptcy Code.
Addresses
9.
Country where the debtor has the center of its
main interests:
The
Bahamas
______________________________________________
Debtor’s registered office:
Bldg. 27, Veridian Corp. Centre W Bay St.
______________________________________________
Number
Street
_______________________________________________
P.O. Box
Nassau
_______________________________________________
ZIP/Postal Code
City
State/Province/Region
The Bahamas
_______________________________________________
Country
10.
Debtor’s website (URL)
11.
Type of debtor
Individual debtor’s habitual residence:
Address of foreign representative(s):
_______________________________________________
Number
Street
3 Bayside Executive Park
_______________________________________________
Number
Street
_______________________________________________
P.O. Box
_______________________________________________
P.O. Box
_______________________________________________
City
State/Province/Region
ZIP/Postal Code
Nassau
_______________________________________________
ZIP/Postal Code
City
State/Province/Region
_______________________________________________
Country
The Bahamas
_______________________________________________
Country
____________________________________________________________________________________________________
Check one:
✔
Official Form 401
Non-individual (check one):
Corporation. Attach a corporate ownership statement containing the information
described in Fed. R. Bankr. P. 7007.1.
Partnership
✔
Private Company Limited (LTD)
Other. Specify: ________________________________________________
Individual
Chapter 15 Petition for Recognition of a Foreign Proceeding
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Case number (if known)_____________________________________
Name
12.
Why is venue proper in this
district?
Check one:
✔
Debtor’s principal place of business or principal assets in the United States are in this district.
Debtor does not have a place of business or assets in the United States, but the following
action or proceeding in a federal or state court is pending against the debtor in this district:
___________________________________________________________________________.
If neither box is checked, venue is consistent with the interests of justice and the convenience
of the parties, having regard to the relief sought by the foreign representative, because:
___________________________________________________________________________.
13.
Signature of foreign
representative(s)
I request relief in accordance with chapter 15 of title 11, United States Code.
I am the foreign representative of a debtor in a foreign proceeding, the debtor is eligible for the
relief sought in this petition, and I am authorized to file this petition.
I have examined the information in this petition and have a reasonable belief that the
information is true and correct.
I declare under penalty of perjury that the foregoing is true and correct,
8
________________________________________________
Brian C. Simms
_______________________________________________
Signature of foreign representative
Printed name
11/15/2022
__________________
MM / DD / YYYY
Executed on
8
________________________________________________
_______________________________________________
Signature of foreign representative
Printed name
Executed on
14.
Signature of attorney
__________________
MM / DD / YYYY
8
_________________________________________________
____________
Date
11/15/2022
_________________
Signature of Attorney for foreign representative
MM
/ DD / YYYY
Warren
E. Gluck
_________________________________________________________________________________________________
Printed name
HOLLAND
& KNIGHT LLP
_________________________________________________________________________________________________
Firm name
31
W. 52nd Street
_________________________________________________________________________________________________
Number
Street
New
York
NY
10019
____________________________________________________
__________________________________________
ZIP Code
City
State
(212)
513-3200
____________________________________
Warren.Gluck@hklaw.com
__________________________________________
Email address
Contact phone
4701421
NY
______________________________________________________ ____________
Bar number
Official Form 401
State
Chapter 15 Petition for Recognition of a Foreign Proceeding
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Warren E. Gluck, Esq.
Marie E. Larsen, Esq.
David W. Wirt (Pro Hac Vice Pending)
Jessica Magee (Pro Hac Vice Pending)
Shardul Desai (Pro Hac Vice Pending)
HOLLAND & KNIGHT LLP
31 W. 52nd Street
New York, NY 10019
Telephone: 212-513-3200
Fax: 212-385-9010
Warren.Gluck@hklaw.com
Marie.Larsen@hklaw.com
David.Wirt@hklaw.com
Jessica.Magee@hklaw.com
Shardul.Desai@hklaw.com
Counsel for the Joint Provisional Liquidators of FTX
Digital Markets Ltd. (in Provisional Liquidation)
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
--------------------------------------------------------:
Chapter 15
In re:
:
:
Case No. 22-_______ (___)
FTX DIGITAL MARKETS LTD. (in
:
Provisional Liquidation)
:
:
Debtor in a
:
Foreign
:
1
Proceeding.
:
:
--------------------------------------------------------VERIFIED PETITION FOR RECOGNITION OF
FOREIGN INSOLVENCY PROCEEDING AND RELATED RELIEF
Brian C. Simms, Kevin G Cambridge, and Peter Greaves
(the “Joint Provisional
Liquidators”), in their capacity as the joint provisional liquidators of FTX Digital Markets Ltd.
(“FTX Digital”), in provisional liquidation in the Commonwealth of The Bahamas (the
“Bahamian Liquidation”) pursuant to the Companies (Winding Up Amendment) Act 2011 (the
1
FTX Digital Markets Ltd. (in Provisional Liquidation) was incorporated in the Commonwealth of The Bahamas as
an International Business Company, registered number 207269B.
1
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“CWUA Act”), by their undersigned United States counsel, Holland & Knight LLP, respectfully
submits the Official Form Petition, this Verified Petition (together, the “Petition”), and the
accompanying Declaration of Brian C. Simms, dated November 15, 2022 (the “Simms
Declaration”), Supplemental Declaration of Brian C. Simms, dated November 15, 2022 (the
“Supplemental Simms Declaration”), and the exhibits thereto, Sophia T. Rolle-Kapousouzoglou,
dated November 15, 2021 (the "STR Declaration"), and the exhibits thereto (collectively, the
“Declarations”), for entry of an Order pursuant to chapter 15 of title 11 of the United States Code,
11 U.S.C. § 101 et seq. (the “Bankruptcy Code”):
(i)
recognizing the Bahamian Liquidation as a foreign main proceeding under 11
U.S.C. §§ 1502, 1517(a) and (b)(1), or, in the alternative, as a foreign nonmain
proceeding pursuant to 11 U.S.C. § 1517(b)(2) of the Bankruptcy Code;
(ii)
appointing the Joint Provisional Liquidators as FTX Digital’s foreign
representatives under 11 U.S.C. §§ 101(24), 1509 and 1517(a);
(iii)
confirming that the Joint Provisional Liquidators have satisfied the requirements of
11 U.S.C. 1515;
(iv)
granting automatic relief pursuant to section 1520 of the Bankruptcy Code;
(v)
granting other and additional relief pursuant to sections 1507 and 1521(a) and (b)
of the Bankruptcy Code as necessary, including authorizing the Joint Provisional
Liquidators to examine witnesses, take evidence, and seek the production of
documents concerning the assets, affairs, rights and/or obligations of FTX Markets;
and
(vi)
granting such other and further relief as the Court may deem just and proper.
I.
PRELIMINARY STATEMENT
FTX Digital is a Bahamian company in provisional liquidation in the Commonwealth of
The Bahamas pursuant to a Petition for Winding Up Order and an Order for Appointment of
Provisional Liquidator issued on November 10, 2022. FTX Digital maintains a registered office
in The Bahamas and has since its formation. Accordingly, the center of main interests for FTX
Digital is presumed to be The Bahamas under 11 U.S.C. § 1516(c).
2
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As set forth below and in the Declarations, the Bahamian Liquidation is a "foreign main
proceeding" under chapter 15 of the Bankruptcy Code because it is pending in The Bahamas,
where FTX Digital is registered and has its center of main interests.2 The Joint Provisional
Liquidators maintain property in this District under 11 U.S.C. § 109 in the form of a retainer held
in an undrawn attorney-trust account of the undersigned counsel.
The Joint Provisional
Liquidators are the foreign representatives of FTX Digital under 11 U.S.C. § 101(24) because they
administer the assets and liabilities of FTX Digital. The Bahamian Liquidation is consistent with,
and clearly not manifestly contrary to, the public policy of the United States. The discovery and
other relief requested under Section 1521(a) of the Bankruptcy Code is crucial to accurately
identify and protect FTX Digital’s asset position in the United States, and thus to the efficient
administration of its estate. Accordingly, FTX Digital respectfully requests that the Court grant
recognition of the Bahamian Liquidation as a foreign main proceeding and grant related relief.
II.
1.
JURISDICTION, ELIGIBILITY, AND VENUE
This Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157 and 1334,
as well as the Amended Standing Order of Reference dated January 31, 2012, Reference M-431,
In re Standing Order of Reference Re: Title 11, 12 Misc. 00032 (S.D.N.Y. Feb. 2, 2012) (Preska,
C.J.). This is a core proceeding under 28 U.S.C. § 157(b)(2)(P).
2.
Venue is proper in this District pursuant to 28 U.S.C. §§ 109(a) and 1410(1)
because FTX Digital’s principal (and indeed only) assets in the United States are in New York.
FTX Digital has an interest in funds in the amount of $15,000, deposited with Holland & Knight
LLP (“H&K”) and held by H&K in a non-interest bearing client trust account located in New
York, New York (the “H&K Retainer”). Simms Declaration ¶ 61; see also, e.g., In re Olinda
2
In the alternative, the Joint Provisional Liquidators submits that the Bahamian Liquidations is a "foreign nonmain
proceeding" because FTX Digital maintains nontransitory economic activity in The Bahamas.
3
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Star Ltd., 614 B.R. 28, 39 (Bankr. S.D.N.Y. 2020) (“Courts in this Circuit have held that section
109(a) can be satisfied by bank accounts in the United States, including by an undrawn retainer.”)
(citations omitted); In re Ocean Rig UDW Inc., 570 B.R. 687, 700 (Bankr. S.D.N.Y. 2017) (finding
venue when New York counsel held a debtor’s retainer in a New York account); In re U.S. Steel
Can. Inc., 571 B.R. 600, 610 (Bankr. S.D.N.Y. 2017) (“Some courts, including this one, have held
that an undrawn retainer in a United States bank account qualifies as property in satisfaction of
section 109(a).”).3
3.
The statutory predicates for the relief requested are sections 105(a), 1504, 1506,
1515, 1517, 1520, and 1521 of the Bankruptcy Code. The Joint Provisional Liquidators have
properly commenced this case pursuant to sections 1504 and 1509(a) of the Bankruptcy Code by
filing the Petition for recognition of the Bahamian Liquidation under section 1515 of the
Bankruptcy Code.
3
Petitioner has examined the provisions of section 1410 of the Bankruptcy Code and has concluded that both section
1410(1) and 1410(3) of the Bankruptcy Code counsel in favor of a filing in the Southern District of New York. See
28 U.S.C. §§ 1410(1), (3) (stating that a Chapter 15 bankruptcy case may be commenced, in relevant part, where the
prospective debtor’s principal assets are located in the United States, or “in which venue will be consistent with the
interests of justice and the convenience of the parties, having regard to the relief sought by the foreign representative”).
First, the Foreign Debtor does not have a principal place of business in the United States. As set forth herein, the
Foreign Debtor’s center of main interests, including its headquarters, is in The Bahamas. See infra discussion at ¶ 27.
Second, the Foreign Debtor’s principal assets in the United States, in the form of a retainer held in an undrawn
attorney-trust account of Holland & Knight, LLP, are located in the Southern District of New York. See supra
discussion at ¶ 2. Third, a recent decision under New York Law suggests that certain digital assets have their situs in
New York. See, e.g., LCX AG v. John Does Nos. 1-25, et al., Index No. 154644/2022 (Sup. Ct. 2022). Additionally,
certain relevant agreements are governed by New York law, and certain counterparties of FTX Digital, and investors
in FTX Digital, are located in New York. Finally, there is currently no litigation pending by or against the Foreign
Debtor anywhere in the United States (the FTX Trading and FTX Affiliates bankruptcy cases do not include FTX
Digital as a debtor), so section 1410(2) is inapplicable. See 28 U.S.C. § 1410(2) (stating that a Chapter 15 bankruptcy
case should be commenced in the district in which actions are pending against the Debtor). It is unclear whether FTX
Digital has any property in Delaware. However, this Court has jurisdiction over this matter, as venue is not a
jurisdictional issue. See, e.g., Town & Country Linen Corp. v. Ingenious Designs LLC, Case No. 18-cv-5075, 2022
WL 1515120, at *10 (S.D.N.Y. May 13, 2022) (indicating that venue and jurisdiction involve separate analysis).
Petitioner believes that the Southern District of New York is the appropriate venue based upon its investigation thus
far.
4
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FACTUAL BACKGROUND
A.
Formation, Registered Office, and Operations of FTX Digital
4.
FTX Digital was incorporated on July 22, 2021 in the Commonwealth of The
Bahamas as an International Business Company, with registration number 207269B.
Simms
Declaration ¶¶ 27, 28. FTX Digital is a company within the meaning of the CWUA Act and is in
provisional liquidation in the Commonwealth of The Bahamas pursuant to a Petition for Winding
Up Order filed by the Securities Commission of The Bahamas and an Order for Appointment of
Provisional Liquidator issued on November 10, 2022. Id. ¶ 2. On that date, FTX Digital’s
principal address and office was Building 27, Veridian Corporate Centre, West Bay Street, Nassau,
N.P., The Bahamas. Id. ¶ 28. Two of the Joint Provisional Liquidators are also residents of the
Bahamas. Id. ¶¶ 7–8.
5.
FTX Digital is registered as a digital asset business under the Digital Assets and
Registered Exchanges Act, 2020 (the “DARE Act”) pursuant to Bahamas law. Id. ¶ 29. Under
the DARE Act, FTX Digital is registered to provide: (i) an exchange between digital assets and
fiat currency and (ii) an exchange between one or more forms of digital assets. Id. It is a subsidiary
of FTX Trading Ltd., a company incorporated in Antiqua and Barbuda, that filed a voluntary
petition for relief under chapter 11 of the Bankruptcy Code on November 11, 2022, in the United
States Bankruptcy Court for District of Delaware, along with 134 affiliate entities.4 Id. ¶¶ 14, 35.
The ultimate beneficial owner of FTX Digital is Samuel Bankman-Fried. Id. ¶ 33.
4
In re FTX Trading Ltd., Case No. 22-11068, in the United States Bankruptcy Court for the District of Delaware (the
“FTX Trading Bankruptcy Case”).
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B.
Events Leading to the Provisional Liquidation and Appointment of the Joint
Provisional Liquidators
1.
6.
Petition for Winding Up Order
The Securities Commission of The Bahamas (“The Bahamas Commission”), is a
regulatory body constituted pursuant to the Securities Industry Act 2011 under the law of The
Bahamas. STR Declaration ¶ 9–10. In its capacity as regulator, The Bahamas Commission may
apply to the Supreme Court, Commercial Division, of the Commonwealth of The Bahamas (the
“Bahamian Court”) to wind up a company under the CWUA Act, if the company is carrying on
a regulated business in the Bahamas for any reason as provided under the regulatory laws or any
other law: CWUA Act §§ 190(1)(d) and (4). Id. ¶ 12. On November 10, 2022, The Bahamas
Commission suspended FTX Digital’s license to conduct business. Id. ¶ 10. The CWUA Act §
186(4) authorizes The Bahamas Commission to petition for the winding up of a company over
which it has regulatory authority and whose license has been suspended. Id. ¶ 15. Further, a
winding up order may be entered if a company is unable to pay its debts as they fall due or is
insolvent. Id. ¶¶ 10, 19. And, the DARE Act permits The Bahamas Commission to apply to the
Bahamian Court for an order to take such action, as The Bahamas Commission considers necessary
to protect the interests of clients or creditors of a regulated company. Id. ¶ 16.
7.
Pending the entry of a winding up order, a provisional liquidator may be appointed
when there is a prima facie case for making a winding up order under CWUA Act § 199(2)(a) and
the appointment of a provisional liquidator is necessary to (i) prevent the dissipation or misuse of
the company’s assets, (ii) to prevent mismanagement or misconduct on the part of the company’s
directors; and/or (iii) it is in the public interest. Id. ¶ 18. On November 10, 2022, The Bahamas
Commission filed a petition in the Bahamian Court for an order directing that FTX Digital be
wound up and for the appointment of a the Provisional Liquidator. Id. ¶ 10. On the same date, the
6
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Bahamian Court entered its Order for Appointment of Provisional Liquidator (the “Provisional
Liquidation Order”). Id. ¶ 21. On November 14, 2022, the Bahamian Court entered its Order
for Appointment of Joint Provisional Liquidators, appointing Messrs. Kevin G Cambridge and
Peter Greaves as Joint Provisional Liquidators with Brian C. Simms. Id. ¶ 23.
2.
The Provisional Liquidation Order
8.
Under the CWUA Act, a provisional liquidator is authorized to take any action that
he considers fit under the CWUA Act § 199(4) to maintain the value of the assets owned or
managed by the company or to carry out the functions for which he was appointed. Id. ¶ 22. The
authorized powers of a provisional liquidator are quite broad and include, for example, the power:
(i) to bring or defend any action or other legal proceeding in the name and on behalf of the
company; (ii) to carry on the business of the company; (iii) to dispose of any property of the
company to a person who is or was related to the company; and (iv) to sell any of the company's
property by public auction or private contract. Id. ¶ 19.
9. The Provisional Liquidation Order specifically provides:
2. The Provisional Liquidator is hereby authorised to take any action that he
considers fit under the Companies (Winding Up Amendment) Act 2011 (“the
Act”), section 199(4) to maintain the value of the assets owned or managed by the
Company or to carry out the functions for which he was appointed including,
a. with the sanction of the court, those powers contained in Part I of the Fourth
Schedule of the Act; and
b. with or without sanction the exercise of general powers specified in Part II
of the Fourth Schedule of the Act.
…
5. Until further order of this Court the Joint Provisional Liquidators are directed to
take all and any necessary steps that they consider fit to protect the assets of the
Company wheresoever situate including any assets held on trust by the Company.
Id. ¶ 22.
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BASIS FOR RELIEF
FTX Digital is Eligible for Relief under Section 109(a) of the Bankruptcy Code
10.
Foreign debtors seeking relief under chapter 15 must satisfy the debtor eligibility
requirements of 11 U.S.C. § 109(a). See Olinda Star, 614 B.R. at 39. Section 109(a) provides that
“only a person that resides or has a domicile, a place of business, or property in the United States,
or a municipality, may be a debtor” under the Bankruptcy Code. See Drawbridge Special
Opportunities Fund LP v. Barnet (In re Barnet), 77 F.3d 238, 246-48 (2d Cir. 2013). Section
109(a) does not require a specific quantum of property in the United States, nor does it indicate
when or for how long such property must have a United States situs. See, e.g., In re Berau Capital
Res. Pte Ltd., 540 B.R. 80, 82 (Bankr. S.D.N.Y. 2015).
11.
Courts regularly hold that attorney retainers deposited in a New York bank account
satisfy the “property in the United States” eligibility requirement of section 109(a). See Olinda
Star, 614 B.R. at 40 (client trust account held by the debtor at law firm in New York satisfies
109(a)); In re Foreign Econ. Indus. Bank Ltd., “Vneshprombank” Ltd., 607 B.R. 160, 171-72
(Bankr. S.D.N.Y. 2019) (“A foreign debtor may satisfy the section 109(a) property requirement
by having a retainer.”); In re Octaviar Admin. Pty Ltd., 511 B.R. 361, 373-74 (Bankr. S.D.N.Y.
2014) (finding that the debtor “had property in the United States in the form of a retainer [, which]
is sufficient to satisfy the requirements of section 109(a) of the Bankruptcy Code”).
12.
Here, FTX Digital satisfies section 109(a) because it has property in the United
States and in this district in the form of the H&K Retainer. Simms Declaration ¶ 61. The H&K
Retainer remains in the bank account and constitutes FTX Digital’s property (subject to H&K’s
applicable rights). Id.
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B.
The Bahamian Liquidation Should be Recognized under Chapter 15
13.
The Petition should be granted under Chapter 15 because: (1) it concerns a “foreign
proceeding”; (2) it was commenced by the Joint Provisional Liquidators who are duly authorized
“foreign representatives”; and (3) all the required supporting documentation has been filed.
1.
14.
Legal Standards
The Second Circuit holds that “[u]nique to the Bankruptcy Code,” Chapter 15
contains a statement of purpose, which is “to incorporate the Model Law on Cross-Border
Insolvency so as to provide effective mechanisms for dealing with cases of cross-border insolvency
. . . .” In re Fairfield Sentry Ltd.¸ 714 F.3d 127, 132 (2d Cir. 2013) (citing 11 U.S.C. § 1501(a)).
Chapter 15 and the Model Law “are designed to optimize disposition of international insolvencies
by facilitating appropriate access to the court system of a host country (the United States, in the
case of Chapter 15) by a representative of an insolvency proceeding pending in a foreign country.”
In re B.C.I. Fins. Pty Ltd., 583 B.R. 288, 292 (Bankr. S.D.N.Y. 2018) (citations omitted).
15.
Consequently, “Chapter 15 expresses a strong preference for providing assistance
to foreign representatives in appropriate circumstances. That congressional preference is not to
be lightly disturbed.” In re Platinum Partners Value Arbitrage Fund L.P., No. 18CV5176 (DLC),
2018 WL 3207119, *4 (S.D.N.Y. June 29, 2018) (emphasis added and footnote omitted). “Chapter
15 … provides courts with broad, flexible rules to fashion relief that is appropriate to effectuate
the objectives of the chapter[.]” In re Oi S.A., 587 B.R. 253, 264 (Bankr. S.D.N.Y. 2018).
2.
The Bahamian Liquidation is a “Foreign Proceeding”
a.
16.
A Provisional Liquidation is a “Foreign Proceeding”
The Bahamian Liquidation satisfies the definition of “foreign proceeding” as
required by section 1517(a)(1) of the Bankruptcy Code. Under Section 101(23) of the Bankruptcy
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Code, a “foreign proceeding” is defined as “a collective judicial or administrative proceeding in a
foreign country, including an interim proceeding, under a law relating to insolvency or adjustment
of debt in which proceeding the assets and affairs of the debtor are subject to control or supervision
by a foreign court, for the purpose of reorganization or liquidation.”
17.
As referenced above, the Bahamian Liquidation is an involuntary liquidation. It is
well recognized that this type of proceeding is a “foreign proceeding” as defined in 11 U.S.C. §
101(23).
18.
Further, as explained in In re Betcorp Ltd.5, in the context of Chapter 15, “the word
‘proceeding’ requires a broader definition in order to achieve the statutory directive of
interpretation consistent with the understandings and the usages of international law and the
UNCITRAL Model Law.” 400 B.R. at 277. As such:
the “essence of a ‘proceeding’ [is] the acts and formalities set down in law so that
courts, merchants and creditors can know them in advance, and apply them evenly
in practice. In the context of corporate insolvencies, the hallmark of a ‘proceeding’
is a statutory framework that constrains a company’s action and that regulates the
final distribution of a company’s assets.
Id. at 278.
19.
Accordingly, the Bahamian Liquidation a “proceeding” under 11 U.S.C. § 101(23).
The CWUA Act establishes a comprehensive statutory framework for the winding up of a
Bahamian company like FTX Digital. It constrains a company’s actions in liquidation, such as the
cessation of the powers of the corporate directors, and provides broad authority for the Joint
Provisional Liquidators to take actions for the benefit of stakeholders. STR Declaration ¶ 25; see
Betcorp, 400 B.R. at 280 (“The fact that commencing this type of external administration
terminates the authority of the company’s directors, combined with the fact that the winding up
5
400 B.R. 266 (Bankr. D. Nev. 2009).
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cannot be stopped by the equity interest holders once they have passed the special resolution, lends
further support to a finding that this Australian legal process is a proceeding.”).
20.
The CWUA Act also allows the Bahamian court to alter the powers of the Joint
Provisional Liquidators or remove and replace them. STR Declaration ¶ 26. And, the winding up
cannot be reversed absent court intervention. Id.
b.
21.
The Bahamian Liquidation Meets the Elements of 11 U.S.C. §
101(23)
Courts apply seven elements to determine if 11 U.S.C. § 101(23) has been satisfied:
(1) [the existence] of a proceeding; (2) that is judicial or administrative; (3) that is collective in
nature; (4) that is in a foreign country; (5) that is authorized or conducted under a law related to
insolvency or the adjustment of debts; (6) in which the debtor’s assets and affairs are subject to
the control or supervision of a foreign court; and (7) which is for the purposes of reorganization or
liquidation.” See In re ENNIA Caribe Holding N.V., 594 B.R. 631, 638 (Bankr. S.D.N.Y. 2018).
22.
The Bahamian Liquidation satisfies these elements.
23.
First, for the reasons set forth above, the Bahamian Liquidation is a “proceeding.”
24.
Second, the Bahamian Liquidation is a “judicial or administrative proceeding.”
Many of the Joint Provisional Liquidators’ tasks will be administrative in nature, i.e., to carry on
the business of the company - collecting assets, convening meetings, preparing various reports,
and investigating the assets of FTX Digital. See STR Declaration ¶ 26; see also ABC Learning
Ctrs., 445 B.R. at 328. The Bahamian Liquidation is also judicial in character because the
Bahamian Court maintains supervisory authority. STR Declaration ¶¶ 22, 26 (providing until
further order to the Court, Provisional Liquidator is directed . . .); see also ABC Learning Ctrs.,
445 B.R. at 328 (“A winding up becomes judicial in character whenever the Australian Courts
exercises its supervisory powers.”).
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Third, the FTX Liquidation is “collective in nature.” This factor is typically
evaluated in the context of the benefits granted to creditors, but the court can also examine “the
law governing the foreign action and the parameters of the particular proceeding[.]” In re PT
Bakrie Telecom TBk, 601 B.R. 707, 720 (Bankr. S.D.N.Y. 2019) (quoting In re Ashapura
Minechem Ltd., 480 B.R. 129, 136-37 (S.D.N.Y. 2014)). Here, the CWUA Act grants the Joint
Provisional Liquidators the power, with the sanction of the Court, to pay any class of creditors in
full. STR Declaration ¶ 27. And, one purpose of the appointment of the Joint Provisional
Liquidators was “to protect the interests of investors and creditors of FTX Digital. . . .” Id. ¶ 27.
26.
Notably, the Third Circuit in ABC Learning held that the Australian foreign
proceeding was collective even though the foreign representative had no assets to distribute to
creditors. See 728 F.3d at 309. In this case, FTX Digital has assets as a registered digital asset
business, and the Joint Provisional Liquidators are acting for the benefit of creditors. STR
Declaration ¶ 27.
27.
Fourth, the Bahamian Liquidation is occurring in The Bahamas, a foreign country.
FTX Digital is a Bahamian company and maintains a registered office there. Id. ¶ 38. The
Bahamian Liquidation operates under Bahamian law and is governed by the CWUA Act. Id. ¶ 28.
Two of the Joint Provisional Liquidators are residents of The Bahamas. Simms Declaration ¶¶ 7–
8. And, the Bahamian Court holds supervisory authority over the Bahamian Liquidation. STR
Declaration ¶ 28; see also, e.g., ABC Learning Ctrs., 445 B.R. at 330; Manley Toys, 580 B.R. at
643.
28.
Fifth, the Bahamian Liquidation proceeds under the auspices of the CWUA Act,
which is a statutory scheme “relating to insolvency or adjustment of debt” pursuant to 11 U.S.C.
§ 101(23). In other words, the proceeding “must be authorized by a statute that deals with
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corporate insolvency or the adjustment of corporate debts. Here, one of the bases for the winding
up and the appointment of the Joint Provisional Liquidators under the CWUA Act is the asserted
insolvency of FTX Digital. STR Declaration ¶ 29. The CWUA Act authorizes the entry of a
winding up order, the appointment of a provisional liquidator, and outlines the provisional
liquidator’s powers and responsibilities for the benefit of stakeholders on account of a company’s
insolvency. Id. ¶ 29. And, the provisional nature of the liquidation changes upon the entry of a
winding up order. Id.; see Ashapura, 480 B.R. at 144 (the ability to “alternate between various
remedial measures” is emblematic of satisfaction of this factor); Betcorp, 400 B.R. at 282 (noting
that “the statutory ability to shift among various forms of dissolution given changing
circumstances, demonstrate[s] that winding up is achieved under a law relating to insolvency or
the adjustment of debts”).
29.
As the Southern District of New York has explained,
Supervision or control of the company’s affairs is not a demanding standard. The
foreign court need not control the day-to-day operations with the debtor. It is
sufficient, for instance, that the body monitor compliance with the repayment plan
negotiated by the debtors and creditors … the fact that actions in a foreign court
related to the proceeding are typically imitated by interested parties and that
liquidators proceed with most of their duties without court involvement was found
‘not [to] undermine the … court[‘s] supervisory role.
Ashapura, 480 B.R. at 138 (quoting ABC Learning Ctrs., 445 B.R. at 332).
30.
The provisions of the CWUA Act and terms of the Provisional Liquidation Order
clearly illustrate that the Bahamian Liquidation is under the supervision of the Bahamian Court,
notwithstanding the powers granted to the Joint Provisional Liquidators.
The Provisional
Liquidation Order permits the Court to alter the power granted to the Joint Provisional Liquidators,
and limits the powers of directors and management. STR Declaration ¶ 30; see ABC Learning
Ctrs., 445 B.R. at 331 (Removal and replacement of director is evidence of court supervision.).
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Finally, the Bahamian Liquidation exists “for the purpose of reorganization or
liquidation.” The express purposes of the CWUA Act is to permit and facilitate liquidation. STR
Declaration ¶ 31; see Cell C, 571 B.R. at 553; ABC Learning Ctrs., 445 B.R. at 332. The Petition
for Winding Up Order commenced the process of liquidation. See STR Declaration ¶ 11; Simms
Declaration ¶ 57.
32.
For these reasons, the Bahamian Liquidation is a “foreign proceeding” in
satisfaction of 11 U.S.C. § 1517(a)(1).
3.
33.
The Joint Provisional Liquidators are the “Foreign Representatives”
of FTX Digital
A chapter 15 case is commenced by the filing of a petition by a “foreign
representative.” See 11 U.S.C. § 1515(a). The Bankruptcy Code defines a “foreign representative”
as “a person or body, including a person or body appointed on an interim basis, authorized in a
foreign proceeding to administer the reorganization or the liquidation of the debtor’s assets or
affairs or to act as a representative of such foreign proceeding.” 11 U.S.C. § 101(24).6
34.
The requirement that a foreign representative be authorized in a foreign proceeding
is “not an onerous one.” PT Bakrie, 601 B.R. at 717. Section 101(24) does not require that the
foreign representative be appointed by a “foreign tribunal.” See Cell C, 571 B.R. at 550.
35.
The Provisional Liquidation Order specifically gave the Liquidator authority over
FTX Digital’s assets and, with sanction of the Court, the power to pay creditors. STR Declaration
¶ 35; see Cell C, 571 B.R. at 553 (person appointed by resolution is a foreign representative); In
re OAS S.A., 533 B.R. 83, 98-100 (Bankr. S.D.N.Y. 2015) (appointing foreign representative by
board resolution that conferred authority to administer assets and liabilities). The Joint Provisional
6
The “foreign representative” can be an individual. See Ascot Fund.¸ 603 B.R. at 278 (citing 11 U.S.C. § 101(41)).
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Liquidators are the representatives of FTX Digital authorized to act under the Bahamian Court’s
order to carry out the powers under the CWUA Act. STR Declaration ¶ 35.
36.
The Joint Provisional Liquidators are thus proper “foreign representatives” within
the meaning of section 101(24) with respect to FTX Digital, and section 1517(a)(2) is satisfied.
4.
37.
The Joint Provisional Liquidators Properly Filed this Case
The Joint Provisional Liquidators duly and properly filed this proceeding as
required by section 1504 of the Bankruptcy Code by filing the petition pursuant to 11 U.S.C. §
1515(a).
38.
The Petition was accompanied by all documents required by subsections 1515(b)
and 1515(c), including the Provisional Liquidation Order, and the Federal Rules of Bankruptcy
Procedure. See Olinda Star, 614 B.R. at 45.
39.
Accordingly, the Joint Provisional Liquidators satisfied the requirements set forth
in section 1515 of the Bankruptcy Code and the Bankruptcy Rules. This Chapter 15 case has been
properly commenced.
C.
The Bahamian Liquidation is a “Foreign Main Proceeding.”
40.
Section 1517(b)(1) of the Bankruptcy Code provides that a foreign proceeding shall
be recognized as a “foreign main proceeding” if it is pending in the country where the debtor has
its center of main interests (“COMI”) as of the date of the petition for recognition. 11 U.S.C. §
1502(4); see also Fairfield Sentry, 714 F.3d at 127. A debtor has only one COMI. See In re
Millennium Glob. Emerging Credit Master Fund Ltd., 458 B.R. 63, 79 (Bankr. S.D.N.Y 2011)
(“[E]very entity has a center of main interests.”).
41.
Courts in this district have developed a list of non-exclusive, but “widely adopted”
factors that may be considered when determining COMI:
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(1) the location of the debtor’s headquarters; (2) the location of those who actually
manage the debtor; (3) the location of the debtor’s primary assets; (4) the location
of the debtor’s creditors or of a majority of the creditors who would be affected by
the case; and/or (5) the jurisdiction whose law would apply to most disputes.
Olinda Star, 614 B.R. at 41 (citation omitted); see also In re Serviços de Petróleo Constellation
S.A., 600 B.R. 237, 272-73 (Bankr. S.D.N.Y. 2019). The Second Circuit has also emphasized the
importance of criteria that are both objective and ascertainable to third parties to determine a
debtor’s COMI. See Fairfield Sentry, 714 F.3d at 136-37. An objective determination of COMI
results from an examination of factors “in the public domain.” Id. at 137 (citation omitted).
42.
Absent evidence to the contrary, a debtor’s registered office is presumed to be its
COMI. 11 U.S.C. § 1516(c). The legislative history indicates that this presumption was “designed
to make recognition as simple and expedient as possible” in cases, as here, where COMI is not
controversial. H. Rep. 109-31 pt. 1, at 112-13 (2005). When determining a debtor’s COMI, the
Bankruptcy Code provides “considerable but not complete discretion.” Serviços de Petróleo, 600
B.R. at 278 (citation omitted).
43.
FTX Digital is incorporated under the laws of The Bahamas, and since its
incorporation, maintained a registered office in The Bahamas, creating a presumption that The
Bahamas is its center of main interests. Simms Declaration ¶¶ 1, 27; 11 U.S.C. § 1516(c). The
registered office presumption is not rebutted, but rather confirmed, on the facts of this case.
44.
It is objectively ascertainable by third parties that the COMI of FTX Digital is The
Bahamas. FTX Digital’s operations are directed from the Bahamas. Simms Declaration ¶¶ 33,
43.
45.
Further, two of the Joint Provisional Liquidators are residents of The Bahamas. Id.
¶¶ 7–8; see, e.g., Betcorp, 400 B.R. at 292 (finding COMI in Australia “[t]he location of those that
manage Betcorp -- the liquidators” were located); Ascot Fund, 603 B.R. at 280 (factor supports a
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COMI finding of the Cayman Islands when the “JOLs are based in the Cayman Islands … and
they, along with their staff … have directed and conducted the [debtor’s] liquidation in the Cayman
Islands”).
46.
With respect to FTX Digital’s assets, it is a registered digital asset business. Simms
Declaration ¶ 29. Its business involves effecting exchanges between digital assets and fiat currency
and exchanges between one or more forms of digital assets. Id. Digital assets, which exist and
are transacted on a digital ledger also known as a blockchain, have unique features that include
attributes of bearer instruments. Id. ¶ 29. To the extent a customer or account holder has control
over a wallet’s private key, the account holder can conduct immutable transactions of the digital
assets held within the wallet. Id. ¶ 18. However, commercial exchanges often store its customers’
digital currencies in pooled wallets, wherein the customer does not have control over the pooled
wallet’s private key; rather, the customer’s assets are recorded on internal ledgers external to the
blockchain. Id. ¶¶ 21, 24. In these circumstances, customers can conduct transactions only via
requests to the commercial exchange. Id. ¶ 24. The assets on an exchange can be removed from
the exchange much like cash can be withdrawn from a traditional bank account – however, in this
case, from a digital wallet. See id. ¶ 24; see also Ascot Fund, 603 B.R. at 285 (rejecting the
argument that the location of the asset is the “key piece of evidence ‘ascertainable by third
parties.’”); Ocean Rig, 570 B.R. at 704 (although existence of assets outside the jurisdiction of
liquidation “complicated” the analysis, the prevailing evidence was that the liquidators “have
engaged in various activities supporting their COMI in the Cayman Islands for a year”).
47.
At a minimum, FTX Digital’s creditors include all account holders with assets
stored in the exchange’s custodial wallets. Simms Declaration ¶ 60. And, there are likely
additional creditors that have not yet been fully identified. See id.
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Finally, by virtue of its incorporation in The Bahamas, FTX Digital is subject to
Bahamian laws, regulations, and its jurisdiction, including with respect to disputes. See Olinda
Star, 614 B.R. at 43-44. Specifically, the Bahamian Liquidation is conducted pursuant to the
CWUA Act, meaning that Bahamian law would apply to most disputes. See Betcorp, 400 B.R. at
292 (“The voluntary winding up is being conducted pursuant to the Australian [insolvency laws]
and therefore this is the law that would apply to most disputes.”). Even if FTX Digital is subject
to the laws of other jurisdictions, this does not necessarily weigh against a finding of COMI in The
Bahamas. See Olinda Star, 614 B.R. at 43-44 (weighing this factor in favor of debtor even if “it
may be subject to other regulatory regimes”).
D.
Alternatively, the Bahamian Liquidation is a Foreign Nonmain
Proceeding
49.
Although the Joint Provisional Liquidators submit that the Bahamian Liquidation
is a “foreign main proceeding,” in the alternative, the Joint Provisional Liquidators seek
recognition of the Bahamian Liquidation as a “foreign nonmain proceeding.”
Courts will
recognize a foreign proceeding as a “foreign nonmain proceeding” if “the debtor has an
establishment within the meaning of section 1502 in the foreign country where the proceeding is
pending.” 11 U.S.C. § 1517(b)(2). “Establishment” is defined in Chapter 15 as “any place of
operations where the debtor carries out a nontransitory economic activity.” 11 U.S.C. § 1502(5);
see Serviços de Petróleo, 600 B.R. at 277 (“[T]he foreign debtor must establish a degree of stable
connections with the jurisdiction to constitute a nontransitory ‘establishment.’”). Courts require
proof of more than a “mail-drop presence.” Id.
50.
Several factors “contribute to identify an establishment: the economic impact of the
debtor’s operations on the market, the maintenance of a ‘minimum level of organization’ for period
of time, and the objective appearance to creditors whether the debtor has a local presence.”
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Millennium Glob., 458 B.R. at 85. A “local effect on the marketplace” is evidenced by, among
other things, engagement of local counsel. Id. at 86-87. At least one court holds that the presence
of the liquidators is relevant to the determination of whether the debtor has an establishment in
that location. Id. at 86.
51.
In this case, The Bahamas is not merely a letter-box jurisdiction for FTX Digital.
Its liquidation is centralized in The Bahamas, where two of the Joint Provisional Liquidators
reside. The situs–the power to transfer the digital assets held by the exchange–is centralized in
The Bahamas. Simms Declaration ¶ 43. Further, with a registered and principal address in The
Bahamas, this supports a finding of the “establishment” in The Bahamas.
52.
For these reasons, in the event the Court concludes that the Bahamian Liquidation
is not a foreign main proceeding, the Bahamian Liquidation should be recognized as a foreign
nonmain proceeding.
E.
The Requested Relief Accords with the Bankruptcy Code and U.S.
Public Policy
53.
A bankruptcy court may refuse to grant recognition under chapter 15 if the action
“would be manifestly contrary to the public policy of the United States.” 11 U.S.C. § 1506; see
also Fairfield Sentry, 714 F.3d at 139 (“[T]he word ‘manifestly’ in international usage restricts the
public policy exception to the most fundamental policies of the United States.”) (emphasis in
original). Courts “interpret this exception as a narrow one that should be applied sparingly.”
ENNIA Caribe, 594 B.R. at 640 (citation omitted). The proper focus is on whether a foreign
proceeding violates “fundamental standards” of procedural “fairness.” In re Metcalfe & Mansfield
Alt. Invs., 421 B.R. 685, 697 (Bankr. S.D.N.Y. 2010).
54.
The Bahamian Liquidation is clearly not “manifestly contrary to the public policy
of the United States.” The CWUA Act is consistent with approaches to liquidation in other
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countries, including with respect to the power to dispose of property, compromise claims and pay
creditor classes. See also ENNIA Caribe, 594 B.R. at 640-41 (rejecting “due process concerns” in
part because of a “variety of legal procedures” permitted to challenge the foreign proceeding);
ABC Learning Ctrs., 728 F.3d at 310 (pro rata distribution among levels of priority emblematic
of a foreign proceeding that does not violate United States public policy).
55.
Indeed, recognizing the Bahamian Liquidation will assist the orderly administration
of FTX Digital’s liquidation, consistent with the public policy of the United States that the
Bankruptcy Code embodies.
V.
THE COURT SHOULD GRANT THE JOINT PROVISIONAL
LIQUIDATORS’ REQUEST FOR DISCRETIONARY RELIEF PURSUANT
TO SECTION 1521 THE BANKRUPTCY CODE
56.
Section 1521(a) provides in relevant part that “[u]pon recognition of a foreign
proceeding, whether main or nonmain, where necessary to effectuate the purpose of this chapter
and to protect the assets of the debtor or the interests of the creditors, the court may, at the request
of the foreign representative, grant any appropriate relief including . . . (4) providing for the
examination of witnesses, the taking of evidence or the delivery of information concerning the
debtor’s assets, affairs, rights, obligations or liabilities[.]” See In re Inversora Eléctrica de Buenos
Aires, 560 B.R. 650, 655 (Bankr. S.D.N.Y. 2016) (in the context of section 1521(a), the
“Bankruptcy Code confers exceedingly broad discretion … that would further the purposes of
chapter 15 and protect the debtor’s assets and the interests of creditors”); see also Millennium
Glob., 471 B.R. at 346 (citation and footnote omitted) (“Section 1521(a)(4) provides specifically
that the Court may enter an order providing for ‘the taking of evidence or the delivery of
information concerning the debtor’s assets, affairs, rights, obligations or liabilities.’ … By its
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terms, this provision enables a Foreign Representative to take broad discovery concerning the
property and affairs of a debtor.”).7
57.
Courts have recognized that the scope of discovery sought via 11 U.S.C. §
1521(a)(4) is particularly broad when the foreign representative is “gathering information which
will enable them to comply with their duties.” Id. at 390 (quoting In re Platinum Partners Value
Arbitrage Fund L.P., 583 B.R. 803, 821 (Bankr. S.D.N.Y. 2018)).8
58.
Pursuant to section 1507, the Court may also grant discretionary relief to provide
additional assistance beyond that permitted under section 1521 to a foreign representative. 11
U.S.C. § 1507(a). In exercising discretion to grant relief under this section, courts are guided by
the standards set forth in section 1507(b), which provides that a court:
[i]n determining whether to provide additional assistance ... shall consider whether
such additional assistance, consistent with the principles of comity, will reasonably
assure—(1) just treatment of all holders of claims against or interests in the debtor’s
property; (2) protection of claim holders in the United States against prejudice and
inconvenience in the processing of claims in such foreign proceeding; (3)
prevention of preferential or fraudulent dispositions of property of the debtor; (4)
distribution of proceeds of the debtor’s property substantially in accordance with
the order prescribed by this title; and (5) if appropriate, the provision of an
opportunity for a fresh start for the individual that such foreign proceeding
concerns.9
A foreign nonmain proceeding can be “granted nearly identical relief as the relief provided to a main proceeding.”
Id. at 272.
7
Discovery sought via 11 U.S.C. § 1521(a)(4) is “not limited to documents in the United States. Permissible discovery
extends to documents in the possession, custody or control of a party, including documents held by a party’s attorneys
or agents” and the court “may order the production of documents from outside the United States.” See In re Markus¸
607 B.R. 379, 389-390 (Bankr. S.D.N.Y. 2019), vacated sub nom. in part on other grounds, Markus v. Rozhkov, 615
B.R. 679 (Bankr. S.D.N.Y. Apr. 3, 2020). To that end, “[b]y its nature, chapter 15 involves parties located outside
the United States. Absent some express language in chapter 15 of any geographical limitation on the scope of
discovery, there is no basis for [a bankruptcy court] … to impose such a limitation.” Id. at 390.
8
Courts in this District have indicated that the “interplay between the relief available under sections 1507 and 1521 is
far from clear.” Olinda Star, 614 B.R. at 46 (quoting In re Acanti Comm’cns Grp., 682 B.R. 603, 615-16 (Bankr.
S.D.N.Y. 2018)). The Fifth Circuit held that a court must “first consider the specific relief enumerated under § 1521(a)
and (b). If the relief is explicitly provided for there, a court should then consider … § 1521’s grant of any appropriate
relief … [which is] relief previously available under Chapter 15’s predecessor, § 304. Only if a court determines that
the requested relief was not formerly available under § 304 should a court consider whether relief would be appropriate
as “additional assistance” under § 1507.” In re Vitro S.A.B. de CV, 701 F.3d 1031, 1054.
9
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Additionally, section 105(a) of the Bankruptcy Code provides that the “court may
issue any order, process, or judgment that is necessary to carry out the provisions of this title.”
60.
“In deciding whether to grant appropriate relief or additional assistance under
chapter 15, courts are guided by principles of comity and cooperation with foreign courts.” Avanti,
582 B.R. at 616.
61.
As set forth in the Declarations and in the Emergency Motion for Provisional Relief
Pursuant to 11 U.S.C. § 105(a), 1519, and 1521 (the “Provisional Relief Motion”), filed
contemporaneously herewith, the immediate grant of the authority described in this Section V on
a provisional basis pursuant to section 1519(a) of the Bankruptcy Code aids in the prevention of
irreparable harm to FTX Digital and the enablement of the Joint Provisional Liquidators to carry
out their duties under the CWUA Act, in connection with the Joint Provisional Liquidators’
ongoing attempts to obtain information regarding FTX Digital’s assets. To that end, the Joint
Provisional Liquidators will likely need to conduct discovery in the FTX Trading Bankruptcy Case
in order to determine whether they hold claims against its affiliates based on intercompany
transfers of digital assets. Simms Declaration ¶ 68. Further, the Joint Provisional Liquidators will
need to conduct discovery regarding insider transactions relating to the business’ cash and digital
assets, and will need to access information relating to U.S. Dollar-denominated wire and fund
transfers maintained by correspondent or intermediary banks. See id. ¶¶ 67–68.
62.
Given this, and pursuant to the authority of the Provisional Liquidation Order, the
Joint Provisional Liquidators determined that filing this Petition is in the best interests of FTX
Digital, and necessary to enable the Joint Provisional Liquidators to obtain discovery in order to
accurately identify and protect assets in the United States.
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Accordingly, in light of the aim of chapter 15 to “optimize disposition of
international insolvencies” by providing foreign representatives appropriate access to the U.S.
court system, see B.C.I. Fins. Pty Ltd., 583 B.R. at 292, and the clear, ongoing risk of diminution
in value and/or diversion of FTX Digital’s assets in the United States, the Joint Provisional
Liquidators respectfully submit that the requested discovery authority is appropriate and necessary
“to effectuate the purposes of [chapter 15] and to protect the assets of the debtor.” 11 U.S.C. §
1521(a)(4).
64.
Moreover, relief under section 1521(a) may be granted if the interests of “the
creditors and the other interested entities, including the debtor, are sufficiently protected.” 11
U.S.C. § 1522(a). While the Bankruptcy Code does not provide a definition of “sufficient
protection,” the legislative history of section 1522 suggests that this requirement is meant to
prevent the rights of United States creditors of the foreign debtor from being “seriously and
unjustifiably injur[ed].” H. Rep. No. 109-31, pt. 1, 109th Cong., 1st Sess. 116 (2005). As such,
courts have “great leeway” in determining whether the rights of all relevant parties are “sufficiently
protected” and will generally consider a balancing of competing interests. See In re Toft, 453 B.R.
186, 196 n.11 (Bankr. S.D.N.Y. 2011) (“[A] court should tailor relief balancing the interest of the
foreign representative and those affected by the relief.”).
65.
The Joint Provisional Liquidators submit that all parties in interest are sufficiently
protected here, because the requested relief pertains to information directly bearing upon the
Debtor’s assets and interests in the United States, which are central to the administration of the
Bahamian Liquidation.
66.
Further, as noted above and as set forth in the STR Declaration and the Simms
Declaration, the Joint Provisional Liquidators seek discovery authority in order to issue subpoenas
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for asset-tracing purposes, concerning, inter alia, accurately tracing and re-creating the flow of
digital assets and funds pertaining to wire transfer transactions denominated in U.S. Dollars
processed by the IBD Subjects. Simms Declaration ¶ 67.
67.
To that end, this Court routinely orders similar relief pursuant to section 1521(a)(4),
including specifically for the wire transfer and account information. See id.; see also, e.g.,
Platinum Partners, 583 B.R. at 811 (authorizing discovery in support of liquidation of Cayman
Islands-based funds because its auditors had a “unique set of documents and analyses concerning
the Funds’ assets, liabilities and financial affairs which would assist the liquidators’ investigation
and understanding of the Funds’ affairs for the two years immediately prior to the Funds’
liquidations”); In re Frontera Caucasus Corp., No. 19-13418-mew (Bankr. S.D.N.Y. 2019)
(recognizing Cayman Islands proceeding as a foreign main proceeding and authorizing issuance
of subpoenas concerning suspect transfers and transactions to debtor’s accountants and
executives); In re Archetype Investments Fund SPC Ltd., No. 19-11996-shl (Bankr. S.D.N.Y.
2019) (recognizing British Virgin Islands liquidation as a foreign main proceeding and authorizing
issuance of subpoenas to New York Banks); In re Pinnacle Glob. Partners Fund I Ltd., No. 1911573-rg (Bankr. S.D.N.Y. 2019) (recognizing Cayman Islands liquidation as a foreign main
proceeding and authorizing issuance of subpoenas to New York Banks); In re HiTs Africa Ltd.,
No. 18-11822-mew (Bankr. S.D.N.Y. 2018) (same).
68.
As such, the Joint Provisional Liquidators submit that the additional relief requested
under section 1521(a)(4) authorizing them to examine witnesses, take evidence and obtain
information concerning the Debtor’s assets, affairs, rights, obligations and/or liabilities, is
necessary and warranted under the circumstances.
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VI.
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REQUEST FOR WAIVER OF LOCAL BANKRUPTCY RULE 9013-1(a)
It is respectfully requested that this Court waive and dispense with the requirement
set forth in Rule 9013-l(a) of the Local Rules for the United States Bankruptcy Court for the
Southern District of New York that any motion filed shall be accompanied by a memorandum of
law on the grounds that the relevant authorities in support of the Petition are contained herein.
VII.
70.
HEARING DATES AND NOTICES
Section 1517(c) of the Bankruptcy Code requires that “[A] petition for recognition
of a foreign proceeding shall be decided upon at the earliest possible time.” Bankruptcy Rule 2002
sets forth a twenty-one day notice requirement to parties in interest with certain exceptions to
approve the Petition. If no objections to this Petition are filed by the date ordered for such
objections, the Joint Provisional Liquidators request that the Court enter the proposed order
recognizing the Bahamian Liquidation as a foreign main proceeding without a hearing pursuant to
Local Rule 2002-2; however, the Joint Provisional Liquidators and counsel are of course willing
to appear and will be prepared to answer any questions that the Court may have.
71.
Subsection (q)(1) of Rule 2002 governs notice of a petition for recognition of a
foreign proceeding. Contemporaneously herewith, the Debtor has filed the Motion for Order
Specifying Form and Manner of Service of Notice. The Joint Provisional Liquidators propose to
provide service and notice of this Petition in accordance with Fed. R. Bankr. P. 2002(q), and the
procedures and deadlines specified in the proposed Order Specifying Form and Manner of Service
and Notice, which the Joint Provisional Liquidators respectfully submit constitutes sufficient
service and notice of this Petition.
72.
No previous application for the relief requested in this Petition has been made in
this or any other court in the United States.
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CONCLUSION
WHEREFORE, the Joint Provisional Liquidators respectfully request that this Court enter
an Order, substantially in the form of Exhibit 1 to this Petition, granting the relief requested herein
and such other and further relief as may be just and proper.
Dated: November 15, 2022
New York, New York
HOLLAND & KNIGHT LLP
/s/ Warren E. Gluck________
Warren E. Gluck, Esq.
Marie E. Larsen, Esq.
David W. Wirt (Pro Hac Vice Pending)
Jessica Magee (Pro Hac Vice Pending)
Shardul Desai (Pro Hac Vice Pending)
HOLLAND & KNIGHT LLP
31 W. 52nd Street
New York, NY 10019
Telephone: 212-513-3200
Fax: 212-385-9010
Warren.Gluck@hklaw.com
Marie.Larsen@hklaw.com
David.Wirt@hklaw.com
Jessica.Magee@hklaw.com
Sardul.Desai@hklaw.com
Counsel for the Joint Provisional Liquidators of FTX
Digital Markets Ltd. (in Provisional Liquidation)
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VERIFICATION
Pursuant to 28 U.S.C. § 1746, Brian C. Simms declares as follows:
I am a duly appointed Joint Provisional Liquidator of FTX Digital Markets Ltd. (in
Provisional Liquidation), which is in provisional liquidation pursuant to the Companies (Winding
Up Amendment) Act 2011. I have full authority to verify the foregoing Verified Petition for
Recognition of Foreign Insolvency Proceeding and Related Relief (the “Verified Petition”). I
have read the Verified Petition, and I am informed, and believe that the allegations contained
therein are true and accurate to the best of my knowledge, information, and belief.
I declare under penalty of perjury under the laws of the United States of America that the
foregoing is true and correct.
Executed this _15___ day of November, 2022 in _The Bahamas________________________.
_______________________________
Brian C. Simms, in his capacity as Joint
Provisional Liquidator of FTX Digital
Markets, Ltd. (in Provisional
Liquidation)
27
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