In a previous article, The Eagle and the Bear: Russian Proceedings Recognized Under Chapter 15, we discussed In re Poymanov, in which the Bankruptcy Court (SDNY) recognized a Russian foreign proceeding under chapter 15 of the Bankruptcy Code even though the debtor had only nominal assets in the United States (the “Recognition Order”). The Bankruptcy Court had declined to rule upon recognition whether the automatic stay under 11 U.S.C. §§ 362 and 1520 applied to the corporate raiding claims of Sergey Poymanov and his former wife, Irina Podgornaya, purportedly assigned by them to PPF Management LLC (a U.S. fund) and being litigated in the District Court (SDNY) (the “Raider Claims”). Now, in its latest opinion, In re Sergey Petrovich Poymanov, 2017 WL 6607392, No. 17-10516 (MKV) (Bankr. S.D.N.Y. Dec. 27, 2017) (available here), the Bankruptcy Court applied the automatic stay to property within the territorial jurisdiction of the United States in accordance with Russian law as determined by a Russian appellate court (the “Appellate Court”).
In Russia . . .
While the U.S. proceedings were pending, the estate administrator (and Raider Claims defendant) petitioned a Russian commercial court to invalidate the purported assignments of the Raider Claims, which included the rights to pecuniary damages and moral harm inflicted on Poymanov and Podgornaya as a result of the alleged corporate raiding. On the same day the Recognition Order was entered, the Russian commercial court ruled that Podgornaya had validly assigned her claims but that Poymanov had not. Poymanov appealed the decision to the Appellate Court, which concluded that, under Russian law (1) Podgornaya’s claims were validly assigned because they were not marital property and thus not property of Poymanov’s estate, and (2) the assignment of Poymanov’s claims was void because (a) the claims lacked merit and therefore “never existed as legally recognized items” and could not be transferred under Russian law, and (b) even if the claims had merit, they were property of the estate because the purported assignment occurred after Poymanov petitioned for insolvency relief. Under Russian insolvency law, property of the estate is determined as of the date the court declares an individual bankrupt, thereby commencing liquidation of the individual’s assets.
In New York . . .
Meanwhile, in New York, the estate administrator had filed a motion to enforce the automatic stay based on the lower Russian court’s assignment decision. However, the Appellate Court issued its opinion the day before the New York hearing. Compelled by section 1525(a) of the Bankruptcy Code to “cooperate to the maximum extent possible with a foreign court or a foreign representative,” and in the interests of promoting international comity, the New York court adjourned the hearing and requested revised briefing. Consistent with the Russian appellate opinion, the Bankruptcy Court applied the automatic stay to the Poymanov Raider Claims—but not those of Podgornaya.
While claims under various U.S. state laws may be widely assigned without regard to their underlying merits, in Poymanov, despite the fact that the Raider Claims were being litigated in New York, the Bankruptcy Court recognized the Appellate Court’s application of Russian law based on the Poymanov Raider Claims’ merits by partially enforcing a stay of the Raider Claims. Again, the application of chapter 15 by the U.S. bankruptcy courts reaffirms its universalist roots.