In re Gee

Decision Date18 October 1985
Docket Number85 B 10457 (TLB).,Bankruptcy No. 85 B 10402 (TLB)
Citation53 BR 891
PartiesIn re Allan GEE, as Official Liquidator of Universal Casualty & Surety Company (In Liquidation) pursuant to the Companies Law of the Cayman Islands, British West Indies. In re UNIVERSAL CASUALTY & SURETY CO. LTD., a/k/a Casualty and Indemnity Co., Ltd., Debtor. UNIVERSAL CASUALTY & SURETY CO. LTD., a/k/a Casualty and Indemnity Co., Ltd., Plaintiff, v. Allan GEE, as Official Liquidator of Universal Casualty and Surety Company Ltd. (In Liquidation) pursuant to The Companies Law of the Cayman Islands, British West Indies, Defendant.
CourtU.S. Bankruptcy Court — Southern District of New York

Booth, Marcus & Pierce, New York City by Edgar H. Booth, for Tansure, Ltd., et al.

Alan W. Faigin, Los Angeles, Cal., for Fremont Indem. Corp. and Maxi Care.

Wofsey, Certilman, Haft, Lebow & Balin, New York City by Martin Brecker, John Preefer, Jeffrey W. Levitan, for debtor.

White & Case, New York City by Allan Gropper, Dwight Healy, Robert S. Herbst, Aldo A. Badini, for Allan Gee.

Cornelius Blackshear, U.S. trustee for the S.D. of N.Y., New York City by Victor Abrunzo.

Oppenheim & Rosenstein, New York City by Jerome Oppenheim, for Shah & Reddy.

Carro, Spanbock, Fass, Geller, Kaster & Cuiffo, New York City by Charles D. Bock, Jeffrey K. Cymbler, for Lloyd's of London and Syndicates 700, 701, 667 and T.L. Clowes.

TINA L. BROZMAN, Bankruptcy Judge.

In this international chess game the players are a defunct Cayman Islands reinsurance company whose management is in New York, creditors are in three continents and records are in Mexico, New York and London and a liquidator of the reinsurance company appointed by the Grand Court of the Cayman Islands. The adversaries have each filed a petition for relief in this court. The liquidator filed one pursuant to section 304 of the Bankruptcy Code ancillary to a pending Cayman Islands liquidation and the reinsurance company countered by filing a chapter 11 petition. To resolve the host of motions pending before the court and presenting an array of novel legal issues, the court must determine the viability of these competing petitions.

Allan Gee ("Gee"), the court-appointed foreign liquidator, moves to dismiss the chapter 11 petition filed by Universal Casualty & Surety Company Ltd. ("Universal"); Universal moves to dismiss Gee's 304 petition. In addition, Gee moves for an order declaring him a foreign representative and approving his ancillary 304 petition; Universal moves for a preliminary injunction restraining Gee from performing his duties, turnover of books and records from him and an accounting. Extensive and numerous memoranda of law were submitted to the court along with some thirty affidavits and books of exhibits. After oral argument by counsel for Gee, Universal, the United States Trustee (which joined in Gee's motions) and various creditors, counsel conceded that there were no disputed material facts and declined to have an evidentiary hearing. Careful scrutiny of the voluminous record and review of the pertinent law have convinced the court that the chapter 11 case should be dismissed and that ancillary relief should be granted to Gee pursuant to section 304 of the Code.


Universal, under a predecessor name, was created on July 29, 1977 pursuant to the laws of the Cayman Islands to engage in the insurance and reinsurance business. Virtually all of its issued shares were issued to a holding company whose ultimate ownership has not been clarified.1 According to its audited financial statements, Universal's capital as of June 30, 1978 consisted of $5,000,000 paid for the issuance of 5,000,000 shares and $5,000,000 of additional paid-in-capital. Gee questions whether this $10,000,000 capital ever existed; Universal contends that it was used to purchase an $11,500,000 reinsurance treaty on August 31, 1984 from an unidentified reinsurer.2 It was partially in an effort to determine what happened to Universal's capital, that Gee commenced his 304 proceeding. From August 2, 1978 until at least September 20, 1983, Vishwa Shah was the sole director of Universal. Because of ill health and a pending merger, he purported to resign on the latter date. No other directors were appointed subsequent to his resignation. Several months prior to his resignation Shah approved, executed and delivered to one Pingle S. Reddy an appointment as attorney-in-fact for Universal. Shah, subsequent to his purported resignation, continued to act as a consultant to Universal or, if his resignation was ineffective, as a director. Both Shah and Reddy have for many years resided in New York City.

Universal conducted business as a reinsurance company until approximately two years ago when its insurer's license was suspended by the Superintendent of Insurance of the Cayman Islands. At the time that Universal was created, the conduct of insurance business within the Cayman Islands was virtually wholly unregulated. In 1980, the Office of Superintendent of Insurance was established and a licensing system was created. Universal applied for, and obtained, a license which was suspended on July 13, 1983 for a number of reasons including Universal's failure to obtain a Cayman Island licensed underwriting manager, its inability to provide certain kinds of financial records retroactively and its failure to have appointed two new directors with insurance expertise.

After the Cayman Islands terminated Universal's license, Universal attempted to merge with Reaseguros del Golfo, S.A. ("Golfo"), a Liberian company with an office in Mexico. The purpose for the merger was to obtain a new domicile for Universal out of which it could continue to write new insurance. In furtherance of its aim, Universal sent its books and records to Mexico. The merger was attempted without the approval of the Superintendent of Insurance; when the Superintendent ultimately refused to approve the merger, Golfo backed out.

On September 16, 1984, Maxicare Health Plans, Inc. of Hawthorne, California, a creditor of Universal, filed a petition in the Grand Court of the Cayman Islands in George Town, Grand Cayman, alleging that Universal was insolvent and unable to pay its debts and requesting the court to order Universal's winding-up under the Cayman Islands Companies Law ("Companies Law"). The petition was duly served on Universal. Notice of its filing was published in a local newspaper as well as the London Financial Times and the Wall Street Journal. Numerous creditors supported the petition; none opposed. Neither did Universal. An order was issued on October 1, 1984 granting the relief sought and appointing Gee as official liquidator. Universal never appealed.

In his capacity as official liquidator, Gee on March 27, 1984 commenced a proceeding ancillary to the Cayman Islands bankruptcy by filing in this district a petition pursuant to section 304 of the Code. The petition seeks various forms of relief including discovery, preliminary injunctions prohibiting Shah, Reddy and various other persons from disposing of assets and books and records, and orders directing Shah, Reddy and other persons to turn over to Gee all of Universal's property and its books and records. The petition includes allegations that there are books and records of Universal in New York and that assets may be in New York or may have been fraudulently transferred out of New York.

The petition was accompanied by a proposed order to show cause which sought ex parte temporary restraining orders and discovery as well as the eventual entry of the preliminary injunction requested in the 304 petition. The court entered the proposed order.3 Hours before the hearing on the preliminary injunction, Reddy filed a chapter 11 petition for Universal, setting the stage for the issues now before the court. At the conclusion of the hearing, the court ruled that Gee on the affidavits produced had failed to carry the burden necessary for the issuance of preliminary injunctions and that the injunctions were largely unnecessary since Universal, as a fiduciary debtor in possession, could not freely transfer and dispose of its assets. However, the court granted Gee the right to conduct examinations pursuant to Rule 2004 of the Federal Rules of Bankruptcy Procedure of virtually all of the persons whom he had sought to depose.4 In addition, the court directed Universal to produce at the examination those of its books and records located in the New York metropolitan area and to bring into New York City as soon as practicable such of its books and records as were necessary for the conduct of its chapter 11 case.5

With the cases in that posture, the antagonists moved to dismiss each others' petitions and for the additional relief described above. Gee argues that the chapter 11 petition should be dismissed under section 305 of the Code since there is a pending foreign proceeding and the factors set forth in section 304(c) warrant dismissal; under section 1112(b) for cause since Universal is not an eligible debtor under section 109 and since the petition was filed in bad faith; and because Reddy lacked authority to file it. The United States Trustee joined in Gee's motion arguing that Universal is not an eligible debtor and that Gee's appointment as liquidator divested Universal of the power to file its petition. Universal moves to dismiss the 304 petition on the grounds that the good faith filing of a valid chapter 11 petition supersedes and precludes ancillary jurisdiction under section 304; the criteria of section 304(c) have not been met, most particularly, because comity should not be afforded; and if Universal is not a debtor eligible to file a chapter 11 petition, its liquidator cannot qualify for ancillary relief.6

Universal's plea that comity should not be afforded and that its chapter 11 case should survive is grounded in Universal's contention that it was denied a fair opportunity to defend itself...

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