Eleventh Circuit Gives Green Light to Broad Discovery in Aid of Foreign Bankruptcies

By Greg Grossman and Francis Curiel, Miami

The Eleventh Circuit recently affirmed a district court’s broad grant of discovery for use in five foreign bankruptcy proceedings to which the discovery applicant was a creditor-party. This article will briefly examine how the (relaxed) standard set forth by this Section 1782 proceeding compares to the (less relaxed) standard set forth by two notable Chapter 15 cases.

In re Petroforte, by now a well-known Chapter 15 case, involved the liquidation of one of Brazil’s largest gas and ethanol distributors. During the liquidation, the Brazilian trustee found evidence of fraudulent transfers made to several entities, which led the Brazilian court to extend the bankruptcy case to include the transferees. The Brazilian trustee commenced a Chapter 15 proceeding in the Southern District of Florida to seek discovery to assist the Brazilian liquidation. The discovery targets objected, arguing that the subpoenas sought broad financial information about the non-debtor targets that exceeded the limits of discovery under Section 1521(a)(4) and Rule 2004. When the court interpreted the scope of “debtor” under Section 1521(a)(4), it held, in part, that the entities that were subject to the Brazilian bankruptcy extension order were “debtors subject to Section 1521’s discovery powers; however, with regard to any third parties who were not subject to the extension order, the trustee was entitled to broad discovery only when the debtor was a majority stockholder in the non-debtor discovery target.

In re SAM likewise dealt with a Chapter 15 proceeding stemming from a Brazilian bankruptcy, wherein the debtor concealed corporate interests by transferring property to family members. The foreign representative sought documents relating to non-debtors who the foreign representative alleged were relevant to his investigation and potential recovery of assets of the foreign estate. The court focused on whether the foreign representative exceeded the proper scope of Rule 2004 discovery. It found that the foreign representative was entitled to discovery relating to (1) the transferees and (2) the non-debtor corporate entities in which the debtor had a majority interest or in those entities already found by the Brazilian courts to have participated in the debtor’s asset concealment scheme. The foreign representative was not entitled to discovery relating to the non-debtor entities whose connections to the debtor had not yet been established in the Brazilian courts. The court further noted that the foreign representative’s inquiries of non-debtors were to be narrowly tailored.

Notably, courts have analogized discovery under Chapter 15 with discovery under 28 U.S.C. § 1782. An incongruity may now exist when comparing Petroforte and In re SAM to the Eleventh Circuit’s recent case, In re Victoria.

In March 2018, Victoria, LLC (Victoria) filed a § 1782 application in the Southern District of Florida, seeking discovery for use in five pending Russian bankruptcy proceedings to which Victoria was a creditor. The bankruptcy proceedings pertained to either (1) Iliya Likhtenfeld (the Debtor) or (2) his Russian companies. Victoria planned to object to the dischargeability of debt, but first needed proof that the Debtor failed to disclose his U.S. assets in the Russian bankruptcies.

To do so, Victoria requested testimony and documents relating to corporate governance, banking, financing, money transfers, business transactions, accounting practices, and the like, from (1) the Debtor; (2) Florida banks with which the Debtor did business; (3) Florida entities that the Debtor allegedly owned or was affiliated with; and (4) individuals affiliated with the Florida entities. To support the existence of these affiliations, Victoria submitted Sunbiz corporate records. Some of these records showed that a woman—who lived at the same address as the Debtor—acted as (either current or former) manager and registered agent of two of the target Florida entities. Notably, the Debtor’s name appeared nowhere on the corporate records of these two Florida entities. Discovery was nonetheless granted for use in the Russian bankruptcies. The shared residence between the Debtor and the manager of these entities proved connection enough.

Moreover, in support of its allegations that the subpoena targets were “closely related” to the Debtor, and that the targets “should have documents and knowledge of assets tied to the Russian [bankruptcies],” Victoria created and submitted a chart showing that many of the Florida entities shared the same address, principals, and registered agents. The entities were thus alleged to be interrelated to each other, although not all directly related to the Debtor himself.

Victoria also submitted two noteworthy declarations in support of its Section 1782 application. The first declarant alleged “upon information and belief” that the Debtor had (1) caused his Russian companies to enter loan agreements with no intention of repaying; (2) failed to repay the borrowed money; and (3) transferred the borrowed money directly or indirectly to his family members or trusted representatives. Ultimately, the declarant “believed” that the borrowed funds found their way into the United States and were used, in part, to support the Debtor’s luxurious lifestyle in Florida. Neither the declarant nor Victoria submitted any other evidence to support these allegations or the connection between the borrowed funds and the Florida corporations. The second declarant stated that the Debtor had not disclosed any of his U.S. assets to the Russian bankruptcy court even though, “based on the [Sunbiz corporate records],” the Debtor owned and/or held officer positions in several Florida entities. Despite the tenuous connections between the Debtor and some subpoena targets, the court granted the broad financial discovery request with few limitations. The aforementioned evidence (or lack thereof) was enough for this grant of discovery to survive through the Eleventh Circuit, which upheld the district court’s ruling.

The disconnect between the above cases poses a noteworthy question—is the Petroforte limitation too narrow in light of the In re Victoria grant of discovery? Victoria, as a creditor seeking discovery assistance for use in foreign bankruptcy proceedings, was granted wide-ranging discovery relating to (1) the Debtor; (2) the Debtor’s banks; (3) non-debtor associates; and (4) non-debtor entities, some of which showed little to no relation to the Debtor besides a shared address with the entities’ manager.

The court did not inquire into the Debtor’s ownership interests (or transfer thereof). Nor did it probe into the foreign courts’ findings. Rather, the grant of discovery was based largely on uncorroborated beliefs and bare allegations. More so, it was based on reasonable suspicion that these target individuals and non-debtor entities were involved in the Debtor’s transfer of assets to the detriment of his creditors. In re Victoria has introduced a more relaxed standard that loosens the restrictions placed on discovery requests for use in foreign bankruptcies. In light of this recent development, perhaps it is time to reassess the scope of discovery in Chapter 15 cases, too.

Click here to read the original PDF.

October 2020 – Latest News from Our Associates

Click below to view the latest news from Sequor Law’s associates, and make sure you join our email list to receive future newsletters.

News: Latest from our Associates

Florida’s New Commercial Real Estate Receivership Act

In July, Florida became the ninth state to adopt the Uniform Commercial Real Estate Receivership Act (“UCRERA”).1

 

Nyana Miller was second chair for a trial that resulted in a judgment for over $22 million in favor of Sequor’s client

The trial team proved that the defendant had wrongly taken money from Sequor’s client, under the guise of an offset against the debt of an unrelated party. The trial court ruled that the conduct amounted to fraud, civil theft and unjust enrichment. The trial team successfully argued that the defendant had not properly pled that the transaction was illegal and persuaded the judge to calculate the exchange rate as of the date of the loss, rather than the date of trial. The defendant had refused to repay 130 million Venezuelan bolivars to Sequor’s client, which was worth about US $8.6 million at the time. However, by the time the case went to trial, it was worth only US $2.30 because of Venezuela’s hyperinflation.

Chambers Litigation Support 2020

Chambers 2020 Litigation Support Guide

Recovering our greatest asset: our creativity!
by Edward H. Davis, Jr. and Cristina Vicens Beard

Although the unprecedented Covid-19 pandemic continues to cause major disruptions and volatility in global markets, economies, and businesses, at least one group of individuals carries on undeterred: fraudsters, con artists, Ponzi schemers, and their ilk. Indeed, these bad actors are exploiting ever-increasing opportunities at a time when millions of people are seeking unemployment benefits, awaiting government financial aid, and desperately seeking to adapt or reinvent themselves in the face of this quickly evolving landscape. When the 2008 financial crisis exploded, it helped expose some of the largest and most infamous fraud schemes in world history, to wit: Madoff and Stanford. Now, as the tide precipitously recedes, many are predicting that it is a pre-cursor to a tsunami of newly discovered frauds, which will allow even more illicit conduct in the aftermath of this tragedy. While this means that asset recovery practitioners are likely to benefit from an influx of business due to newly dis-covered fraudulent schemes and an increase in related reorganization and liquidation proceedings, these new matters will not come without their challenges.

This article seeks to provide an overview of the developments, hurdles, and trends in asset tracing and recovery in light of the coronavirus. This comes with a warning, however: as our current situation is so unprecedented and dynamic, it seems inevitable that any attempt to make predictions and identify trends carries with it the simultaneous risk of overstatement and understatement. On the one hand, when one is in the middle of a storm—regardless of its size—it is difficult for one to calculate the magnitude of the storm without a point of reference, or without being able to see the edges of the storm. As well, many of us want to understate the enormity of the changes we are facing as a coping mechanism—that is well within the range of normal human reactions to a crisis—but it should be consciously discount-ed as we attempt to make credible predictions and identify enduring trends. What is unique about this situation is that it is global and, even if you live in an area that is relatively untouched, it affects you due to travel, economic, and social restrictions that did not exist a few short months ago.

Cross-border asset recovery practitioners are usually called to arms when (i) there is a high-value fraud or claim where the proceeds of the fraud may be on the move, and which claim has likely not yet resulted in a judgment or arbitral award (although the issues are just as alive in a post-judgment or post-award setting), (ii) the fraudster (or debtor) or its affiliates have an international footprint, but their assets do not appear to be readily collectible where the fraud was committed and/or where the judgment or award would be rendered, and (iii) there is a concern that the debtor will not have sufficient (or any) assets to satisfy the judgment or award, either in the situs of the fraud or in other jurisdictions where the proceeds may have been secreted. In other instances, cross-border asset recovery practitioners may get involved when (i) a foreign company or individual has entered reorganization or liquidation proceedings, (ii) the debtor’s insolvency was a result of a fraudulent scheme (i.e. corruption, embezzlement, or Ponzi schemes), and (iii) the debtor has assets (including third-party liability claims) in other jurisdictions. Oftentimes, the asset recovery team gets involved before litigation is commenced, or while litigation (sometimes horribly misguided litigation) is ongoing to ensure that, as they identify the path to victory for the victims/creditors, trial counsel also consider a viable post-judgment enforcement strategy. In reality, asset recovery practitioners – whether they be investigators, lawyers, or forensic accountants – are pathfinders, and those paths almost always take us into legal thickets that require legal, investigative, and forensic machetes.

One of the first post-COVID-19 challenges we will face as asset recovery practitioners is non-existent or seriously limited personal contact with our clients, colleagues, witnesses, and the actual targets of our investigations and legal proceedings. In actual practice, asset recovery lawyers usually represent individuals or businesses that have been directly victimized by fraudsters, or court-appointed officers (such as trustees, liquidators, or judicial administrators) who are tasked with unraveling a fraud scheme and recovering value for the victims of their estates. Naturally, these clients are keen on avoiding being re-victimized by opportunistic service providers and, as a result, are more reluctant to trust, and ultimately engage, an experienced and vetted asset recovery team. In pre-COVID times, lawyers and other asset recovery professionals would travel across the globe to participate in scoping and tasking meetings with potential clients (including groups of victims, creditors’ committees, and corporate general counsel) to build relationships face to face and establish trust with the potential clients, who are already wary of having been victimized once. Being in the same room makes it easier to gauge a person’s body language, interpret social cues, and build the human capital that enables the asset recovery team to establish a trusting relationship with clients. This is just as true with witnesses, whistle-blowers, and even the suspects themselves who may feel bolder to tell half-truths, obfuscate, and outright lie as they hide behind technology and distance. Face-to-face meetings also enable the asset recovery team to more effectively “whiteboard” the case, engage in the creative brainstorming sessions, and devise a concrete action plan that will lead to meaningful value recovery for fraud victims and creditors.

Today, when travel restrictions are mostly still in place and many of us are still working from home, it may be a challenge to develop a trusting relationship with the client, convey your expertise, and even land the case. Although many practitioners have embraced virtual solutions such as Zoom, WebEx, and other such technology, the reality is that nothing can truly substitute for an in-person meeting, especially when you are trying to convince a person who has been victimized by a fraudster that he or she should invest their resources and place their trust in you and your team to pursue their claim, enforce their judgment or otherwise recover the value stolen. Though asset recovery practitioners should accept, use, and master new technologies that enable them to participate in virtual meetings with potential clients, the most successful practitioners will be those who, pre-Cov-id, were able to establish and develop strong cross-border networks of experienced and resourceful asset recovery professionals, who, in turn, will be able to act as connectors and vouch for their colleagues’ reputation and expertise. For example, being a member of ICC FraudNet (recognized by Chambers as the world’s leading asset recovery legal net-work with more than 75 members in over 64 countries) has enabled the writers to quickly deploy an experienced team of financial fraud and asset recovery practitioners where the potential clients are located or, if at a later stage of the case, in almost any jurisdiction where assets may have been secreted. It is critical that the members of any such network be thoroughly vetted for their expertise and their ability to work in a team, which will lessen the need for face-to-face meetings.

This aspect of Covid-19 also presents another upside. Courts are becoming more nimble and accessible as they move to technology-driven hearings and solutions. This will lessen response times, as obtaining a hearing date and coordinating schedules is less complicated when everyone’s feet are nailed to the floor. More accessible and responsive courts also mean that the cost of asset recovery will go down, as practitioners can focus more on the case and less on travel, which adds to the cost and stress of these heavily front-loaded and time-intensive cases. As well, fraudsters, Ponzi schemers, and confidence tricksters (con artists) are going to adapt, as they too will be limited in their interpersonal contacts due to the pandemic. So we should assume that more and more of this type of fraud will be internet-based, or at least rely heavily on non-personal con-tact based attempts to build affinity with their victims. This requires asset recovery practitioners to become more adept at computer-based forensics. We will also have to lead the charge to make changes to the legal environment that allows a level of anonymity on the internet, which protects, but also exposes, users. Legal regimes will have to evolve to a more balanced state that can protect privacy, but also recognize exceptions when there is sufficient cause to bring down the “wall” to retrieve evidence of fraud and corruption. Today, electronic communications are capable of being embedded with a level of confidentiality that far exceeds that which is available for the otherwise written word.

The coronavirus has also impacted the gathering of intelligence and evidence. In reality, investigations have always, even in pre-COVID times, incorporated a mixture of in-person tactics and electronic data gathering techniques. The current (and future) shutdowns are less impactful when investigators are able to use sophisticated databases. Indeed, investigators continue to make use of personal, financial, real estate, and business-related databases to assess the viability of enforcement strategies. In fact, most clients are now more likely to request comprehensive preliminary asset investigations before deciding whether to commence legal proceedings against a target. After all, without a plan built around value recovery, a plan (or even a judgment for that matter) is just a piece of paper. This situation will hopefully lead to more comprehensive databases now that the economics will favor their creation and upkeep, and will force investigators to use them more creatively to look for intelligence and evidence that assists the goal of the asset recovery plan.

Nevertheless, electronic research alone rarely cracks any case by itself but is most effective when combined with intelligence gathered in person, via interviews, surveillance, and conversations with industry leaders. Before, asset recovery practitioners in a cross-border fraud case would likely have had to travel to multiple countries to interview fact witnesses and experts in person. Now, with travel restrictions in place, most fact-gathering interviews have shifted almost seamlessly to virtual spaces and are progressing as strongly as before (at least with respect to non-adversarial witnesses). Surveillance, however, is trickier. Because the circumstances of the pandemic have forced many to self-isolate at home, in some respects, some targets are easy to locate and surveil. Others, after stealing millions of dollars from their victims, are able to hide behind gates, robust security systems, or in off-the-grid remote getaways. Just recently, a fugitive art dealer, who is alleged to have defrauded numerous art collectors in a form of a Ponzi scheme, was arrested on the Pacific island of Vanuatu! One has to believe that he was limited in his escape route options due to the pandemic and, once “stuck” in Vanuatu, literally had nowhere else to run. Therefore, one positive aspect may be that, with less opportunity to travel freely, many fraudsters and targets of investigations are leaving behind a discover-able digital footprint that will later assist the investigators and asset recovery teams in their enforcement and recovery efforts, as well as to locate the fraudster.

The process of gathering evidence, as opposed to intelligence, is also going to have to be streamlined to allow the leveling of the playing field between victim and fraudster. Typically, victims are disadvantaged by a monstrous information deficit. The fraudster knows exactly what happened and where everything (including the evidence) is located. On the other hand, the victims feel as if they have been run over by a truck and then thrown into a dark room, and have first to find the light switch before they can even begin to “get the license plate” of that truck! That has to change, and courts and governments are going to have to lower the bar to obtain information once the appropriate showing is made of the victim’s status and injuries.

One example of how evidence gathering has been stream-lined in the United States to assist offshore litigation (this is especially true in asset recovery cases) involves the device colloquially referred to as “Section 1782,” which is codified at 28 U.S.C. § 1782. Section 1782 allows interested parties to request judicial assistance from US federal courts to obtain US-style discovery for use in foreign proceedings. As well, the UNCITRAL Model Law on Cross-Border Insolvency (“Model Law”), as codified in Chapter 15 of the US Bankruptcy Code, is another powerful tool for use by victims and of-fice holders who are representing them. The Model Law is very useful in all jurisdictions in which it has been adopted and fully enacted—not just the United States. Among other things, Chapter 15 allows a foreign liquidator or trustee to seek recognition as such in the United States, which enables the liquidator to realize and administer the debtor’s assets in the United States and to take broad discovery relating to the debtor. Both of these devices allow victims and officeholders to obtain documentary and testimonial evidence in furtherance of their asset tracking and recovery efforts and, sometimes, those efforts can be sealed and gagged when circumstances permit, to allow stealthy stalking of the fraudster and the proceeds of the fraud. Asset recovery law-yers are still regularly deploying these evidence-gathering tools, and the effectiveness of those tools has not been diminished by the consequences of the pandemic. To the contrary, because most civil courts have closed for in-person business, judges are deciding Section 1782 and Chapter 15 petitions “on the papers,” and hearings, if and when necessary, are conducted virtually, which translates into reduced fees and costs for the clients as well as demonstrably faster action. Subsequently, when courts authorize the issuance of subpoenas, third-party witnesses, such as banks and other professional associations, have put in place systems to receive alternative service (via mail, for example), which further streamlines the discovery process.

In the short term, courts have been able to adapt and continue delivering justice to their constituencies, but the physical closure of courts for most in-person business also presents obstacles, particularly when it comes to enforcement of domestic or international orders or judgments. For example, except in criminal cases, most state authorities and the US Marshal’s office stopped carrying out seizure orders and, when they start reopening, they expect to have large backlogs. This may present serious difficulties in cases where urgent relief is needed because there is evidence of the dissipation of assets or other circumstances. On the other hand, a slow-down of the courts’ docket may be the perfect opportunity for savvy asset recovery practitioners to take a step back, reassess the objectives, identify new opportunities and targets, and collaborate with investigators, forensic accountants, insolvency practitioners, and others to achieve a full recovery for their clients.

Although uncertainty abounds in the era of the coronavirus, at least one thing is clear: lawyers, forensic accountants, investigators, litigation funders, insolvency practitioners, and other professionals in the asset tracing and recovery field are more likely to achieve substantial recoveries for their clients when they have access to a robust cadre of cross-border professionals and when they (and their clients) are willing to employ tremendous creativity, flexibility, and relentless resolve. While the coronavirus pandemic looks like it is here to stay, and will have an impact on all of our personal and professional lives, we can find solutions, collectively, to limit how fraudsters benefit from the current circumstances, and we can develop new tools to make recoveries more attainable if we creatively apply ourselves as a unified community with an open-minded exchange of ideas.

Click here to read the original PDF.

Business Law Section to Diversify its Education Program Panels

By Jim Ash

Underscoring its commitment to diversity, the Business Law Section will soon mandate that its CLE program professional panels include members from underrepresented groups.

The new BLS “CLE Diversity Policy,” approved by the executive council September 4, will apply to all CLE programs sponsored or co-sponsored by the section after January 1, according to BLS Chair Leyza Blanco.

The new policy was developed jointly by members of the section’s Inclusion, Mentoring and Fellowship Committee and The Florida Bar Diversity and Inclusion Committee, Blanco said.

“Our Inclusion Mentoring Fellowship Committee did extensive work reviewing similar policies for organizations around the U.S. in developing this policy,” Blanco said.

Under the policy, individual programs with “faculty” of three or four panel participants, including the moderator, would require at least one diverse member, and panels with five to eight members, including the moderator, would require at least two diverse members. Panels with nine or more members, including the moderator, would require three diverse members.

“The BLS will not sponsor, co-sponsor, or seek CLE accreditation for any program failing to comply with this policy unless an exception or appeal is granted,” the policy states.

The policy will be enforced by the IMF Committee.

An exception would be granted if “previously confirmed diverse speakers or moderators withdraw or become unable to attend,” and “insufficient time exists to replace them and maintain a diverse panel.”

The only other exemption would apply if, “After a diligent search and inquiry, the proponents of the CLE have affirmed they have been unable to obtain the participation of the requisite diverse members of the CLE panel.”

To implement the policy, the IMF Committee has been directed to create a “Diverse Speakers Directory.”

According to the policy, the directory will include a database of legal experts that “self-identify from a race, ethnicity, gender and gender identity, sexual orientation, disability and multicultural perspective.”

Click here to read the original article.

Business Law Section Updates Pro Bono Guide

If Spider-Man can do it, then so can the Business Law Section and other Florida lawyers.

That’s the logic of section Chair Leyza Blanco, explaining the section’s long-standing web of support for pro bono activities, just reinforced with the new revision of its Pro Bono Best Practices Guide.

“It goes back to the Peter Parker principle, ‘with great power comes great responsibility,’” Blanco said.

But there are also hard numbers and practical reasons. The section’s mission is “to promote business-friendly initiatives” and pro bono falls squarely into that mission, she said, because studies have shown each dollar of civil legal services provided to low-income clients yields $7.19 of economic benefits.

Carlos Sardi, chair of the section’s Pro Bono Committee, said the new guide covers the Supreme Court’s 2017 approval of Bar Rule 4-6.6, which addresses conflicts of interest affecting short-term pro bono representations. The Pro Bono Best Practices Guide has been posted for free on the section’s website at https://www.flabizlaw.org/files/bestpractices.pdf.

“One of the things that we’re trying to instill not only in our members but to all of our colleagues is there are tools out there that can help” in providing pro bono, Sardi said. “It’s a starting point for such efforts or to retool and rethink their pro bono policy to encourage their colleagues to do the right thing and provide pro bono services to the most-needy members of our community.

“This tool provides the mechanisms all the way from intake to representation, even if it’s on a short term based on the safe harbor in Rule 4-6.6.”

The updating is the first freshening of the guide since 2014, Sardi said, and was prompted in part by the Supreme Court’s adoption in 2017 of Bar Rule 4-6.6.

“It provides a safe harbor for those who provide short-term, limited legal services [such as at a legal clinic]…for them to be able to provide services on a short term without being on the hook for representing a client,” he said. “We included that new rule into our guide basically for our members to be aware of the impact it has on your internal checking and intake mechanism that you use to run conflict searches.”

According to a November 15, 2017, Bar News column by Assistant Ethics Counsel Hey-Yen Cam Bailey the rule “applies to lawyers who provide short-term limited legal services through a program sponsored by a nonprofit organization, court, government agency, bar association, or ABA-accredited law school. Although attorney-client relationships are still established through these programs, neither the lawyer nor client expect the relationship to last beyond that short-term representation. Under the rule, a lawyer participating in these programs will only be subject to Rules 4-1.7 and 4-1.9(a), conflict of interest rules regarding current and former clients, if the lawyer knows that the representation involves a conflict of interest.”

The guide addresses intake, initial interviews, engagement letters, opening a file, deciding what is pro bono, the safe harbor in Rule 4-6.6, how pro bono credit is determined, using nonlawyer employees for pro bono cases, determining if costs will be charged, and dividing fees, costs, and awards that may come from a pro bono case. Also covered are having law firm staff dedicated to pro bono work to satisfy the guidelines in Rule 4-6.1(c) and getting such plans approved by circuit pro bono committees.

Aside from presenting the considerations in outline form, there is also extensive commentary on important points and issues.

Working with legal aid offices and pro bono circuit committees is important, Sardi said, because “you can always be more sensitive to the immediate pro bono needs in your community.

“The pro bono needs may be completely different in northern Florida than in the southern part of our state. Obviously that connectivity with the local area is very important in setting your pro bono firm-wide policy.”

Support for pro bono is in the DNA of the section, as shown by the handbook and other efforts.

“I’ve been an active member of the Business Law Section since 2006. I don’t remember a time where the Pro Bono Committee was not present and pro bono services were not promoted,” Sardi said. “One of the missions of the Pro Bono Committee is to achieve 100% participation of our members. Last year, when we took on the task of reviewing how well we are doing, well over 60% of our members in one way or another provided pro bono services. It’s a work in progress but it’s a fantastic achievement by our members. We continue to promote our pro bono heroes and services.”

Members may also take to heart Blanco’s point that effective pro bono is good for the business community.

She cited a 2016 study, Economic Impacts of Civil Legal Aid Organization in Florida conducted by The Resource for Great Programs, which found that in 2015 civil legal aid had garnered for Floridians $120.6 million in Social Security benefits, $70.7 million in Medicare and Medicaid payments, and $2.7 million in veterans benefits.

That in turn boosted business income by $274.8 million, created 2,243 jobs and avoided $2.9 million in emergency shelter costs, $50.6 million in foreclosure costs, and $6.9 million in domestic violence costs.

“Pro bono work provides a benefit to the Florida legal community that may not otherwise be available,” Blanco said. “The members of our section have skills that are in short supply and in great need.”

Click here to read the original article.

The 2020 Lawdragon 500 Leading U.S. Bankruptcy & Restructuring Lawyers

24 July 2020

Sequor Law Partners Leyza BlancoEdward H. Davis, Jr.Gregory S. Grossman and Arnoldo “Arnie” Lacayo were named to the inaugural Lawdragon 500 Leading US Bankruptcy & Restructuring Lawyers guide. Included in the Global guide are lawyers with leading cross-border practices that “bring remarkable skills in financing, structuring, litigating and creating a pathway forward” for their clients.

 

Chapter 11 - Procedimento, Requisitos E Benefícios

22 July 2020

Sequor Law attorney Nyana Abreu Miller shared a presentation, in Portuguese, comparing chapters 11 and 15 of the US Bankruptcy Code on an all-star panel of Brazilian insolvency experts for the Center for Women in Business Restructuring (CMR Empresarial).

Click here to view the webinar.

The UN’s latest attempt to assist international insolvency practitioners

13 July 2020

Miami-based Sequor Law shareholder Leyza Blanco and attorney Carolina Goncalves summarise the UNCITRAL Working Group’s Model Law on the Recognition and Enforcement of Insolvency-Related Judgments.

As the world’s economy becomes increasingly transnational, and debtors, their assets, and creditors are scattered across multiple jurisdictions, the need for consistency and efficiency in the cross-border administration of insolvency proceedings has become more pressing. Variations among legal systems have resulted in inconsistent, duplicative, time-consuming and costly efforts to recognise and enforce insolvency-related judgments in different jurisdictions, creating legal uncertainty and other complications in the administration of cross-border insolvency proceedings.

The United Nations Commission on International Trade Law (UNCITRAL) attempted to foster international cooperation in the administration of cross-border insolvencies through its Model Law on Cross-Border Insolvency (MLCBI), but there remained an ambiguity in the recognition and enforcement of judgments related to insolvency proceedings, especially where enforcement of the foreign judgment was inconsistent with local law.


The Model Law

As a result, in 2014, UNCITRAL gave a mandate to its Working Group V on Insolvency Law to develop a model law that specifically provides for the recognition and enforcement of insolvency-related judgments. The Working Group collaborated with UNCITRAL’s 60 member states and the representatives of 31 observer states and 34 inter-governmental and non-governmental organisations to develop the Model Law on Recognition and Enforcement of Insolvency-Related Judgments .

On 2 July 2018, UNCITRAL adopted the Model Law, which is designed to address both the gap in international law regarding the cross-border recognition and enforcement of judgments that arise as a consequence of, or are materially associated with, insolvency proceedings; and the uncertainty in interpreting certain provisions of the MLCBI “in terms of providing the necessary authority for such recognition and enforcement as a form of relief available on recognition of a foreign insolvency proceeding.”


How the Model Law works

The Model Law seeks to address these issues through its primary characteristics: harmonisation and flexibility. It offers enacting states a “simple, straightforward and harmonised procedure for recognition and enforcement of insolvency-related judgments” while remaining flexible in its integration into each enacting state’s legal system. Importantly, the Model Law is intended to supplement the MLCBI, and in fact mirrors its provisions and definitions in many respects, as well as the existing legal frameworks of the enacting states.

For example, as international insolvency practitioners, we know the terminology used in insolvency proceedings can vary by jurisdiction. Where a term or expression is likely to vary among enacting states, the Model Law offers more inclusive defined terms, such as “insolvency proceeding” (as opposed to liquidation, reorganisation or bankruptcy) and “insolvency representative” (rather than trustee, foreign representative, liquidator, judicial administrator etc). It also describes terms or expressions in brackets as placeholders for jurisdiction-specific information – like the name of the court, body, or authority designated to perform the specified function – allowing the enacting state’s legislators to use the term specific to that jurisdiction.

Additionally, the Model Law offers optional provisions, such as one allowing the enacting state to refuse the recognition of an insolvency-related judgment when it originates from a state whose “insolvency proceeding” would not be subject to recognition under the MLCBI.

The Model Law also contains two noteworthy exceptions to recognising and enforcing insolvency-related judgments. Enacting states may refrain from taking any action that would be “manifestly contrary” to their public policy. Further, the Model Law enumerates the following specific grounds for the refusal of recognition and enforcement:

  • improper notice to the defendant in the proceeding that gave rise to the insolvency-related judgment;
  • the judgment was obtained by fraud;
  • the judgment is inconsistent with a judgment entered in the enacting state involving the same parties;
  • the judgment is consistent with an earlier judgment entered in another state involving the same parties and subject matter;
  • recognition and enforcement would interfere with the administration of the debtor’s insolvency proceeding;
  • the judgment materially affects the rights of creditors generally and their interests were not adequately protected in the proceeding that led to the judgment; and
  • the court issuing the judgment did not have jurisdiction.


Defining an “insolvency-related judgment”

As its name suggests, the Model Law’s distinguishing feature is that it applies to “insolvency-related judgments”, which previously had not been fully addressed by other UNCITRAL insolvency texts. The Model Law provides a broad definition of “judgment” to include any decision, such as a decree, order, or determination of costs and expenses, “issued by a court or administrative authority”. To fall within the Model Law’s scope, an insolvency-related judgment must “arise… as a consequence of or [be] materially associated with an insolvency proceeding”, and be “issued on or after the commencement of that insolvency proceeding”. Importantly, the judgment must have been rendered in a proceeding in a state other than the enacting state in which recognition and enforcement is sought; the location of the insolvencyproceeding to which the judgment relates is immaterial.

The Model Law’s Guide to Enactment provides a non-exhaustive list of judgments that fall within the definition of “insolvency-related judgment”, including judgments dealing with the constitution and disposal of assets in the insolvency estate; judgments determining whether a transaction involving the debtors or assets of its insolvency estate should be avoided because it was a preferential transaction or a transaction at an undervalue; judgments involving director or representative liability for the debtor’s actions while insolvent or in the period approaching insolvency; judgments determining that sums are owed to or by the debtor or the insolvency estate; judgments confirming or varying a plan of reorganisation or liquidation or approving a voluntary or out-of-court restructuring agreement; and judgments for the examination of a director of the debtor, where that director is located in a third jurisdiction.

Decisions or orders commencing insolvency proceedings and interim measures of protection are explicitly excluded from the Model Law’s scope. Further, it is unclear whether insolvency-related arbitral decisions are considered “insolvency-related judgments” under the Model Law, as they may not come from an “administrative authority.”


The Model Law’s impact and success

While it is still too early to evaluate the Model Law’s impact and success, its design as a supplement to the MLCBI and the enacting state’s existing legal structure, rather than an overhaul of existing insolvency frameworks, suggests that it will succeed (at least partially) in making the recognition and enforcement of insolvency-related judgments more consistent and efficient. Moreover, though the Model Law intends to respect the insolvency schemes of the respective enacting states, UNCITRAL cautions against excessively modifying the Model Law and frequently invoking its exceptions. That said, enacting states are still free to make the necessary modifications to protect their own legal processes and domestic creditors, which could result in the very complications the Model Law was intended to eliminate.

The Model Law’s success also depends on the number of states that enact it. By way of comparison, over 45 jurisdictions have adopted the MLCBI, including Australia, Canada, Colombia, Japan, Kenya, Mexico, New Zealand, the Republic of Korea, Singapore, South Africa, the UK, BVI, Gibraltar and the US; however, several European nations have not adopted it and are governed by the separate EU regulation (EC No. 1346/2000) on insolvency proceedings. This same EU regulation provides for the recognition and enforcement of judgments that “derive directly from and are closely linked to… insolvency proceedings”.  Because this EU regulation seems to address the recognition and enforcement of insolvency-related judgments, and several European nations have opted to implement its framework and rejected the MLCBI, it is unlikely that these same nations will adopt the Model Law.

Finally, as mentioned above, it is unclear whether insolvency-related arbitral decisions fall within the scope of the Model Law. As the law develops and the Working Group continues to issue guidance on its enactment, practitioners should expect to see developments on this issue.

The Model Law and its accompanying Guide to Enactment are available here.

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