News about the Cayman Islandsfrom around the World
InverWorld Bankruptcy casein Cayman's Court
San Antonio Express-News
by Bill Day
San Antonio isn't The Hague, and the lawyers working on thelong-running InverWorld bankruptcy case aren't international lawexperts.
But because InverWorld is subject to legal proceedings in boththe United States and the Cayman Islands, and because the majorityof InverWorld investors live in Mexico, San Antonio could helpwrite new international laws.
InverWorld, a former investment brokerage with operations in SanAntonio, went under last summer. Investors lost about $425 million,and InverWorld and its various subsidiaries were put under court-orderedliquidation proceedings. The company and its executives also arethe subjects of civil and criminal fraud investigations.
Because there's little international law governing bankruptcy,the parties in the various InverWorld proceedings drafted theirown guidelines.
Their document, called the First Amended Stipulation RegardingCross- Border Insolvency Protocol - commonly called "theprotocol," if only for brevity's sake - could wind up beingused as a model in other international bankruptcy cases.
"This protocol goes a long way toward allocating tasks betweencourts, which is fairly unique," said Pat Neligan, an attorneyfor InverWorld's liquidator, PriceWaterhouseCoopers.
Neligan said bankruptcy court Judge Leif Clark, who has extensiveexperience in international insolvency cases, spurred the protocolsformation.
"We looked at different options, and it struck us that therehad been protocols in other cases, and we used them as guidelines,"Clark said.
To avoid repetition and high cost, the protocol divides dutiesbetween U.S. bankruptcy courts and courts in the Cayman Islands.
The U.S. courts have authority over sales of InverWorld assetsnot in Caymans and will decide whether creditors can claim proprietaryrights on certain InverWorld assets. They also will oversee claimamounts and professional fees.
Plus, any disputes between the U.S. and Cayman courts will beresolved in the United States.
Cayman's court will oversee asset sales in the Cayman Islandsand will prioritize creditors' claims. Once assets are identifiedand liquidated, the Cayman's court is responsible for distributingthem to investors and creditors.
The Cayman and U.S. courts each retain jurisdiction over claimsin their territory against InverWorld executives or third parties.
Adopting such a protocol keeps creditors from tying up the casewith multiple filings in various countries. The lawyers who wrotethe protocol believe it could influence international law currentlybeing drafted.
Insol International, a gathering of bankruptcy lawyers and accountantsfrom about 50 countries, has proposed common insolvency statutesit would like to see adopted worldwide. Robert Hartzberg, a lawyerin Detroit and vice president of Insol, says the group has studiedprotocols like the one adopted in the InverWorld case.
"We're finding more and more bankruptcies where cross-borderissues come up," Hartzberg said. "We need protocolsuntil countries start passing model laws."
That has been pending for several years. The House and Senatehave passed separate amendments to the federal bankruptcy code,called Chapter 15, that would govern international cases. Butuntil a joint version is agreed upon and passed in a larger bankruptcyreform bill, the United States has little in the way of internationalguidelines.
Even if international statutes are adopted, InverWorld liquidatorLen Blackwell said, they likely won't be as detailed as a protocol.
That means protocols - and specifically the one adopted in theInverWorld case - will probably survive, putting San Antonio atthe forefront of international insolvency cases.
"San Antonio may not be the first place that would come toanyone's mind when it comes to international bankruptcy, but JudgeClark has a great interest in it," Blackwell said. "Nowwe have an enormous amount of momentum."