In March 2021, Dentons published, “Fairfield Sentry: A look into the application of the US safe harbor provisions and the Hague Convention to foreign claims,” (available here) which examined the December 14, 2020 memorandum decision issued by now-retired Judge Stuart Bernstein of the US Bankruptcy Court for the Southern District of New York (the “Court”) in In re Fairfield Sentry Ltd. (the “Fairfield Sentry Decision”).¹ Specifically, the Court (as such, the “Fairfield Sentry Court”) held that the safe harbor provisions of the US Bankruptcy Code apply in chapter 15 cases to bar foreign law avoidance claims arising under BVI law to the extent they are analogous to the categories of US avoidance claims which are exempted as safe-harbored.² The Fairfield Sentry Court found certain of the BVI avoidance claims, which alleged insufficient assets and insolvency at the time of transaction, and in exchange for no or insufficient consideration, to be barred as the Court found them to be analogous to fraudulent transfer claims that are safe harbored from avoidance under the Bankruptcy Code. ³

On April 29, 2021, in examining Norwegian avoidance claims in In re Bankruptcy Estate of Norske Skogindustrier ASA, Judge Martin Glenn of the same Court (as such, the “Norske Court”) “respectfully disagree[d] with the analysis in Fairfield Sentry,” asserting that the Fairfield Sentry Decision “sets up a strawman that is wholly inapposite when considering foreign law avoidance claims . . . .”⁴ The Norske Court reads the Bankruptcy Code most notably as follows:

• Section 546(e) of the Bankruptcy Code expressly preempts state law avoidance claims but does not directly apply to foreign law claims.⁵  
• Section 561(d) of the Bankruptcy Code makes the safe harbor provisions applicable in chapter 15 cases “to limit avoidance powers to the same extent as in a proceeding under chapter 7 or 11,” but not more.⁶
• The Bankruptcy Code exempts from safe harbor foreign claims that are analogous to section 548(a)(1)(A) intentional fraudulent transfer claims even if the law governing the foreign avoidance claim does not require the same proof of intent element if the allegations themselves satisfy the 548(a)(1)(A) claim elements.⁷

Ultimately, based on these readings, the Norske Court “decline[d] to adopt a rigid rule barring foreign law avoidance claims or requiring the foreign statute to use language virtually identical to section 548(a)(1)(A) to except the challenged transaction from the section 546(e) safe harbor,” and granted plaintiff leave to “amend the complaint to allege facts demonstrating that the transferor acted with the required intent, either directly or by imputation—the standard ordinarily required by section 548(a)(1)(A).”⁸ The Norske Court did this even though Norwegian law only requires a plaintiff to “plead and prove that the transfer was ‘improper,’” which plaintiff's expert “state[d] can be analogized to ‘badges of fraud,’ which is an accepted way of establishing the requisite intent under section 548(a)(1)(A) of the Bankruptcy Code.”⁹

At bottom, the flexibility or rigidity of the application aside, the risk for foreign avoidance claims remains that they may be subject to and barred by the Bankruptcy Court safe harbor provision, and that the facts through analogy will be central to such judicial determination.

1. Fairfield Sentry Ltd. v. Theodoor GGC Amsterdam (In re Fairfield Sentry Ltd.), Adv. Proc. No. 10-03496 (SMB), 2020 WL 7345988, at *1 (Bankr. S.D.N.Y. December 14, 2020), motion for reconsideration denied, 2021 WL 771677 (Feb. 23, 2021). Fairfield Sentry’s foreign representatives subsequently appealed the Fairfield Sentry Decision.↩
2. Id. at *5 (citing 11 U.S.C. § 561(d)). ↩
3. Sections 544, 545, 547, 548, 549, and 553 of title 11 of the United States Code, 11 U.S.C. § 101, et seq. (the “Bankruptcy Code”) provide a debtor or debtor’s representative with the ability to avoid or claw back certain transfers upon entering a proceeding filed under the Bankruptcy Code. However, section 546(e) of the Bankruptcy Code provides for certain of those otherwise voidable transfers to be “safe harbored” or insulated from avoidance.↩
4. The Bankruptcy Estate of Norske Skoginindustrier ASA v. Cyrus Capital Partners, L.P. (The Bankruptcy Estate of Norske Skoginindustrier ASA), Adv. Pro. No. 18-01846 (MG), --- B.R. ----, 2021 WL 1687903, *35 (Bankr. S.D.N.Y. Apr. 29, 2021).↩
5. Id. at *35.↩
6. Id. (emphasis in original) (“If Congress intended to bar assertion of foreign law avoidance claims in chapter 15 cases, . . . it could have said so simply and clearly. It did not.”).↩
7. Id. at *35-36 (““If Congress intended . . . to require that foreign statutes use the same language contained in section 548(a)(1)(A), it could have said so simply and clearly. It did not. . . . The inquiry whether the foreign statute is sufficiently analogous to section 548(a)(1)(A) must therefore be a flexible one, taking into account not only the language of the statute but also the broader context of the foreign legal regime, rather than a rigid comparison of the language in the foreign statute and our own.”).↩
8. Id.↩
9. Id.↩