In re Millennium Global Emerging Credit Master Fund Ltd.

Decision Date26 August 2011
Docket NumberNo. 11–13171.,11–13171.
Citation66 Collier Bankr.Cas.2d 583,55 Bankr.Ct.Dec. 101,458 B.R. 63
PartiesIn re MILLENNIUM GLOBAL EMERGING CREDIT MASTER FUND LIMITED, et al., Debtors in Foreign Proceedings.
CourtU.S. Bankruptcy Court — Southern District of New York

OPINION TEXT STARTS HERE

Quinn Emanuel Urquhart & Sullivan, LLP, By: Susheel Kirpalani, Scott C. Shelley, Robert K. Dakis, New York, NY, for Millennium Global Emerging Credit Master Fund Limited, et al.Baker & Hostetler LLP, By: Marc D. Powers, Oren J. Warshavsky, Natacha Carbajal, New York, NY, for BCP Securities, LLC.Kobre & Kim LLP, By: Jonathan D. Cogan, New York, NY, for GlobeOp Financial Services, LLC.

MEMORANDUM OF DECISION ON PETITION FOR RECOGNITION AND RELATED RELIEF

ALLAN L. GROPPER, Bankruptcy Judge.

INTRODUCTION

Before the Court are chapter 15 petitions filed by the joint liquidators (the “Liquidators” or Petitioners) of Millennium Global Emerging Credit Master Fund Limited and Millennium Global Emerging Credit Fund Limited (respectively, the “Master Fund” and “Feeder Fund” and collectively the “Funds”), seeking recognition of Bermuda liquidation proceedings as foreign main proceedings or, alternatively, foreign nonmain proceedings.1 The Liquidators seek recognition in order to investigate the Funds' financial affairs, conduct discovery related to potential causes of action against parties in the United States, and ultimately provide for a distribution of recovered property to creditors. Verified Petition of Foreign Representatives Michael W. Morrison, Charles Thresh and Richard Heis at ¶ 38, Dkt. No. 2 (Verified Petition). Recognition of the Bermuda proceedings is opposed by BCP Securities, LLC (“BCP” or “the Objectant”) on the ground that Bermuda is not the Funds' center of main interests (“COMI”) or a place of nontransitory economic activity of the Funds. A separate objection by GlobeOp Financial Services, LLC was withdrawn after an agreement between the parties that if recognition were granted, the automatic stay would not prevent GlobeOp from pursuing any claims it may have against the Funds outside the United States.

An evidentiary hearing regarding recognition was held on July 27, 2011, at which one of the Liquidators of the Funds, Michael Morrison, testified. By consent, the Petitioners' case was presented by admitting into evidence the verified petitions, the declarations in support of the petitions filed by Morrison and the Funds' Bermuda counsel, Robin J. Mayor, and the Offering Memorandum for the Feeder Fund (“Offering Memorandum”). Declaration of Robert K. Dakis, Ex. A., Dkt. No. 38. BCP cross-examined Morrison and introduced the confidential information memorandum of Millennium Global Emerging Credit Fund, L.P., a Delaware Limited Partnership (the “Delaware Fund”). Declaration of Marc D. Powers, Ex. 2, Dkt. No. 16.2 The facts as summarized below are based on the record and were substantially undisputed.

At the conclusion of the hearing, the Court informed the parties that it would enter an order recognizing the Bermuda proceedings as foreign main proceedings, with a written decision to follow.

FACTS

The Funds were incorporated in Bermuda for the purpose of creating an offshore investment fund that would invest in sovereign and corporate debt instruments from developing countries. Declaration of Michael Morrison (“Morrison Declaration”) at ¶ 4, Dkt. No. 4. The Feeder Fund was incorporated in Bermuda on October 12, 2006, and the Master Fund was incorporated in Bermuda on September 20, 2007. Id. at ¶¶ 12, 19. The Feeder Fund began operations in December 2006 as a Bermuda Institutional Scheme under the Bermuda Investment Funds Act of 2006. Id. at ¶¶ 12–14. The Master Fund was incorporated in order to create a master-feeder structure that could facilitate investment from certain classes of foreign investors, and it operated under the Bermuda Investment Funds Act as a private fund with fewer than 20 participants. Id. at ¶¶ 18–20. In fact, the Feeder Fund and the Delaware Fund were its only participants. At the time of the Master Fund's incorporation, the Feeder Fund transferred substantially all its assets to it in exchange for a 97% ownership interest in the Master Fund, with the other 3% held by the Delaware Fund, and all the service agreements of the Feeder Fund were novated in favor of the Master Fund. Id.

The registered office of both Funds was in Bermuda at all times, at the address of their common administrator. As set forth in the Offering Memorandum, during the course of the Funds' operations they had no employees other than their three directors, Michael Collins, James Keyes, and Deborah Sebire, who each served on the boards of directors of both Funds. Id. at ¶¶ 15, 19. Collins and Keyes are both residents of Bermuda, and Sebire is said to be a resident of the Bailiwick of Guernsey (Channel Islands). Id. Both funds retained the same administrator in Bermuda, Argonaut, Limited (“Argonaut”), a Bermuda company, as well as the same bank, Butterfield Trust (Bermuda) Limited, a subsidiary of Bank of NT Butterfield & Son Ltd. (“Butterfield Bank”). Id. The Funds had approximately BD$900,000 on deposit at Butterfield Bank at the time of the opening of the Liquidation in 2008. 3

The Master Fund had a “manager,” Millennium Asset Management Limited (the “Manager”), responsible for “management, administration, back office activities, marketing and investment activities”; it was said to be located in Guernsey. Offering Memorandum at 29. The Manager in turn appointed as investment manager Millennium Global Investments Limited, which was described as London-based. Id. at 30. The Funds maintained prime brokerage accounts with Credit Suisse Securities (Europe) Limited and Citigroup, Inc., through which the investment manager conducted securities transactions. Transcript of Recognition Hearing, Held on July 27, 2011, Dkt. No. 43 at 45; Offering Memorandum at 58. The Funds also conducted derivative and hedging transactions under standard ISDA contracts with various counterparties. Morrison Declaration at ¶ 23.4 The Offering Materials indicate that subscriptions of investors would be invested in the Master Fund, which was identified as a Bermuda entity, and that the Master Fund would set investment objectives for the Funds, exercise direct authority to oversee the investment manager's decisions, and replace the investment manager if necessary. The Offering Materials contain a directory that identifies the key parties involved in the management of the Funds, including: (i) the directors, located in Bermuda and Guernsey; (ii) the manager, located in Guernsey; (iii) the investment manager, apparently located in London; (iv) the administrator, located in Bermuda; (v) the prime broker, apparently located in London; (vi) the custodian, located in Bermuda; (vii) the auditors, located in Bermuda; (viii) the valuation agents, located in the United States; (ix) the legal advisors, located in Bermuda, the United Kingdom, and the United States; and (x) the Feeder Fund's banker, located in Bermuda. The Offering Materials direct potential investors to direct subscription documents to the administrator in Bermuda and cash to Butterfield Bank in Bermuda.

The liquidation of the Funds commenced as a result of their inability to meet a margin call of the Master Fund's prime broker, Credit Suisse, on October 6, 2008. Morrison Declaration at ¶ 25–26. A default notice was issued by Credit Suisse on October 16, 2008, and on the same day the directors petitioned the Bermuda Court for an order directing the wind-up of the Funds. Id. The Bermuda Court's order commencing the liquidation divested the directors of all authority over the Funds and caused the appointment of Michael W. Morrison, Charles Thresh, and Richard Heis, all of KPMG Advisory Ltd. or KPMG LLP, as provisional liquidators with full managerial authority over the Funds. Id. The provisional liquidators were appointed as joint liquidators of the Master Fund on March 5, 2009 and of the Feeder Fund on April 16, 2009. Committees of inspection, which appear to be similar to the creditors' committee in a chapter 11 case, were formed by the Bermuda Court in both foreign proceedings. Id. at ¶¶ 28–30.5

As of the commencement of the liquidation, subscriptions to the Funds totaled $390 million, and the Liquidators estimate that as of September 30, 2008 the value of the Funds' portfolio was $738,209,753. Id. at ¶¶ 17, 35. However, subsequent to the closure of the prime brokerage accounts, the Funds' prime brokers asserted that there was a $170 million deficiency owed by the Funds. Id. Although the prime brokers ultimately asserted claims against the Funds, there was an initial return of cash totaling $21.85 million, of which $10 million was allocated to the Feeder Fund and $11.85 million to the Master Fund. Id. at 32. Approximately three years later, the Funds now have on hand close to $7 million held by the Feeder Fund and $7.5 million held by the Master Fund. Id. at 40. Morrison testified that expenses to date have been exclusively for administration of the estates, including the fees of the Liquidators and for counsel in Bermuda, the United Kingdom, and the United States, and that all expenses have been subject to oversight by the committees of inspection and the Bermuda Court.

As a consequence of the decline in value of the Funds' portfolio, the Liquidators currently have at least one litigation pending in the United Kingdom and are pursuing an investigation of potential causes of action against parties in the United States. The filing of the chapter 15 petition on June 30, 2011 was authorized by the Feeder Fund Committee and approved by the Bermuda Court on June 22, 2011, with the stated purpose to pursue discovery against parties in the United States, commence litigation if indicated, and in the meantime, if possible, obtain relief from the expiration of any statutes of limitations.

The Objectant is one of the parties that was...

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