19 Jun If the Pro-Fit Doesn’t Fit . . .
In a decision released Monday, Central District of California Bankruptcy Judge Robert Kwan clarified some uncertainty over the standard necessary to impose of the automatic stay immediately after the commencement of a Chapter 15 case, but before recognition is granted to a foreign representative under US law.
An earlier decision issued in the same district, In re Pro-Fit Holdings Ltd., 391 B.R. 850 (Bankr. C.D. Cal. 2008), imposed the automatic stay on an interim basis under Bankruptcy Code section 1519(a) without requiring that the requesting party meet the standards of a preliminary injunction, as the language of section 1519(a) seems to require.
Of the 10 or so published decisions citing Pro-Fit , none follows or even mentions this reasoning, though one unpublished decision does. See In re SIVEC SRL., 2011 WL 2445754 (Bankr. E.D. Ok., June 15, 2011).
Recently, the appointed foreign representative and liquidator of Worldwide Education Services, Inc. relied on Pro-Fit to request a stay of impending trials in California’s Central District Court, ostensibly as a means of preserving whatever assets the company – which has been in a “wind-down” mode for nearly three years – might have left. In reviewing the liquidator’s request, Judge Kwan declined to follow Pro-Fit – and, in fact, specifically held that Pro-Fit was wrongly decided.
Though Pro-Fit held that a motion for provisional relief requesting a temporary application of the automatic stay under Section 1519(a) does not need to meet the requirements for injunctive relief, either procedural or substantive, Judge Kwan held that, in fact, the statute does require a motion for provisional relief to meet those standards.
Further, he found that the liquidator had filed to satisfy the injunction standards, and thus provisional application of the automatic stay was inappropriate in this case.
The decision, though not controversial, nevertheless helps to harmonize the law within the Circuit – and nationwide – on the question of what a foreign representative must show in order to obtain provisional relief. A copy of the unpublished slip opinion is here.