In a significant decision, In re Fairfield Sentry Limited, 452 B.R. 52, 52 (Bankr. S.D.N.Y. 2011), the United States Bankruptcy Court for the Southern District of New York has held that the tolling provisions available under Section 108 in the U.S. Bankruptcy Code are automatically available to foreign representatives in Chapter 15 cases. This enables foreign representatives trying to marshal assets for distribution to creditors in cross-border cases to get extension of the time to file actions.
In this case, Fairfield Sentry Ltd. was a feeder fund that invested its assets with Bernard Madoff. It was placed into liquidation proceedings in the British Virgin Islands after Mr. Madoff’s fraudulent activities were uncovered. The Bankruptcy Court recognized the British Virgin Islands proceedings as a foreign main proceeding on July 22, 2010, and held that the joint liquidators were the foreign representatives of the debtor. The foreign representatives sought to have the section 108 tolling provision applied from July 22, 2010 in order to have at least an additional two years to investigate and commence actions. The issue to be decided was whether the foreign representatives would receive extensions of the time to bring claims and meet procedural deadlines.
The tolling provisions of Section 108 provide for a (i) two-year extension for a trustee in bankruptcy to commence actions provided that the applicable time period had not expired before the petition was filed, and (ii) for a shorter extension for filing pleadings, curing defaults and performing other acts on behalf of the debtor. The court applied the federal bankruptcy tolling statute to the Chapter 15 cases of the debtors, thereby allowing the foreign representatives to proceed with their Actions, and to investigate claims against additional parties. The Bankruptcy Court granted the foreign representatives the benefit of section 108 because it determined that a foreign representative under chapter 15 is functionally indistinguishable from a bankruptcy trustee.
In re Fairfield Sentry Ltd. is probably the first case to definitively and automatically extend the benefits of section 108 to foreign representatives in chapter 15 cases. The jurisprudential importance of In re Fairfield Sentry Ltd. is the Court’s use of a functionality argument to give foreign representatives the same benefits as trustees under chapter 108.