New York (OCTOBER 4, 2017) – The United States Supreme Court denied a petition for certiorari filed by Farnum Place, LLC (“Farnum”), on October 3, handing Brown Rudnick client Kenneth Krys, as liquidator and foreign representative of Fairfield Sentry Limited (in liquidation) (“Sentry”), a definitive final victory after five-plus years of litigation in courts in the British Virgin Islands (“BVI”) and United States concerning Farnum’s attempt to force consummation of a proposed asset sale that was not in the interest of Sentry’s stakeholders and had not been approved under Section 363 of the Bankruptcy Code.

Following the collapse of Bernard L. Madoff Investment Securities LLC (“BLMIS”), Sentry, the largest of the BLMIS “feeder funds,” was placed into liquidation in the BVI, and those proceedings were recognized by the U.S. Bankruptcy Court for the Southern District of New York as a foreign main proceeding under Chapter 15 of the U.S. Bankruptcy Code.

In December 2010, Sentry entered into a trade confirmation with Farnum Place LLC (a special purpose vehicle created by The Baupost Group) to sell Sentry’s allowed $230 million customer claim in the BLMIS liquidation proceedings for the then-existing market price of approximately 32% of its face amount.  Days after the contract was signed, the BLMIS trustee, Irving Picard, reached a settlement with the estate of Jeffry Picower, under which $5 billion would be paid to the BLMIS trustee.  The amount of the Picower settlement far exceeded market expectations, and the market value of BLMIS customer claims doubled overnight.

While the BVI court approved the contract under BVI insolvency law and over Krys’s objection in March 2012, the court directed Krys to bring before the U.S. Bankruptcy Court the question of whether Bankruptcy Code Section 363 applied and required disapproval of the sale.  In January 2013, the late Bankruptcy Judge Burton Lifland rejected Krys’s application for disapproval, declining to conduct a Section 363 review of the sale, and the District Court affirmed.  In a seminal opinion delivered in 2014, the Second Circuit reversed, holding that Section 363 applied and remanding the case for a Section 363 review.  In so doing, the Second Circuit provided guidance on the Section 363 standard and instructed the court below to consider the substantial increase in value of the asset following entry into the trade confirmation.
In 2015, on remand, Bankruptcy Judge Stuart Bernstein granted the request of Krys to disapprove the proposed sale, noting that the change in value of the claim “plainly weighs against the approval of the sale” and rejecting arguments that comity required deference to the BVI Court’s earlier approval of the sale.  The District Court affirmed.  On May 22, 2017, the Second Circuit, before which Krys was represented by Brown Rudnick and Molo Lamken, affirmed through a summary order. 

Today’s denial by the Supreme Court of Farnum’s certiorari petition conclusively ends this litigation in the Sentry liquidator’s favor, with Sentry expecting to realize for its stakeholders amounts up to $100 million or more over what it would have received had it been forced to consummate the sale to Farnum. 

Brown Rudnick partner David Molton, who has led Brown Rudnick’s representation of Krys since this dispute began, said, “Today’s outcome brings clarity and predictability to the increasingly important Chapter 15 cross-border insolvency architecture, as it confirms that foreign liquidators selling U.S. assets enjoy the same rights that trustees in domestic Chapter 7 and 11 cases have long held, the ability to reject, prior to Bankruptcy Court approval, a sale that indisputably is no longer is in the best interests of the estate’s stakeholders.  Here, the Sentry liquidator utilized that right to reject a sale that no longer made any commercial sense and bring back to his estate approximately $100 million in value that otherwise would have been lost.”


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Brown Rudnick, an international law firm with offices in the United States and Europe, represents clients from around the world in high-stakes litigation, international arbitration and complex business transactions. Clients include public and private corporations, multinational Fortune 100 businesses and start-up enterprises. The Firm also represents investors, as well as official and ad hoc creditors’ committees in today’s largest corporate restructurings, both domestically and abroad. Founded more than 60 years ago, Brown Rudnick has more than 240 lawyers providing advice and services across key areas of the law. Beyond the United States, the Firm regularly serves clients in Europe, the Middle East, North Africa, the Caribbean and Latin America. With its Brown Rudnick Center for the Public Interest, the Firm has created an innovative model combining its pro bono, charitable giving and community volunteer efforts.


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