Success for KRyS Global on Fairfield Sentry Limited court ruling

New York – –

The United States Court of Appeals for the Second Circuit today affirmed a decision in favor of Brown Rudnick client Kenneth Krys of KRyS Global, the Liquidator of Fairfield Sentry Limited (in liquidation) (“Fairfield Sentry”), that recognized Fairfield Sentry’s liquidation proceeding in the British Virgin Islands (“BVI”) as a “foreign main proceeding” within the meaning of Chapter 15 of the U.S. Bankruptcy Code.

Fairfield Sentry was the largest of the “feeder funds” that invested with Bernard L. Madoff Investment Securities LLC (“BLMIS”). Over $7 billion (approximately 95%) of Fairfield Sentry’s assets were invested with BLMIS. When Fairfield Sentry entered liquidation in the BVI in 2009, a BVI court appointed Kenneth Krys as liquidator.

Today’s ruling, the first decision of the Second Circuit addressing issues under Chapter 15 of the Bankruptcy Code (governing cross-border insolvency cases), affirms the decision of the United States District Court for the Southern District of New York, which had affirmed the U.S. Bankruptcy Court’s decision granting foreign main proceeding recognition to Fairfield Sentry’s liquidation taking place in the BVI. Chapter 15 recognition is the gateway to a foreign liquidator’s access to the U.S. courts for relief in aid of a foreign insolvency proceeding.

The Second Circuit’s decision provides clarity and certainty as to the Liquidator’s ability to use the tools of Chapter 15 to assist his cross-border recovery efforts for the stakeholders of Fairfield Sentry – all of which are victims of the Madoff fraud. More generally, the decision confirms that the doors to Chapter 15 relief and U.S. courts are not closed to offshore funds in liquidation proceedings (like Fairfield Sentry).

Liquidator Kenneth Krys commented: “We are obviously pleased that we were successful in having the Second Circuit affirm the recognition of Fairfield Sentry’s BVI liquidation proceeding as a ‘foreign main proceeding.’ The decision of the Court of Appeals paves the way for me to continue efforts to pursue and realize recoveries for Fairfield Sentry’s stakeholders in the United States, and specifically, in the U.S. courts.”

Brown Rudnick partner David Molton, who argued the appeal before the Second Circuit, said, “In affirming Bankruptcy Judge Burton Lifland’s order recognizing the BVI liquidation proceeding of Fairfield Sentry as a foreign main proceeding, cross-border insolvency practitioners worldwide should be pleased that the Second Circuit has provided guidance to courts nationwide as to several critical and often hotly contested Chapter 15 gating issues, including the ‘center of main interests’ concept for foreign main proceeding recognition and the ‘public policy’ exception to recognition and assistance. Significantly, the opinion also makes it clear that liquidators of offshore funds will not be summarily precluded from access to and relief from US courts under Chapter 15, a fear that arose from some earlier lower court cases.”

In addition to Mr. Molton, the Brown Rudnick team included Daniel Saval, May Orenstein, Rebecca Fordon and Ben Chapman.