In Re: Natalia Mikhailovna Pirogova

Background

Yuri Rozhkov, the foreign trustee and financial administrator in a bankruptcy proceeding in the Commercial Court of the Moscow Region, appealed two orders of the United States Bankruptcy Court for the Southern District of New York. The Russian proceeding began after a Russian creditor alleged that Natalia Pirogova had failed to repay an $18.5 million bank debt. In March 2018, Rozhkov petitioned for recognition of the Russian proceeding under Chapter 15 of the United States Bankruptcy Code.

Recognition can stay the disposition of a foreign debtor’s United States assets and permit a foreign trustee to access and dispose of those assets in the foreign bankruptcy. The Bankruptcy Court denied the petition on the grounds that the Russian proceeding was neither a “foreign main proceeding” nor a “foreign nonmain proceeding.” The Bankruptcy Court later entered an order denying and dismissing the petition with prejudice.

Foreign Main Proceeding

A foreign main proceeding is pending in the country where the debtor has its “center of main interests,” or COMI. An individual’s habitual residence is presumed to be the person’s COMI unless evidence shows otherwise. The party seeking recognition must prove COMI by a preponderance of the evidence, meaning that the evidence must show that the proposition is more likely true than not.

The District Court held that Rozhkov did not meet that burden. Pirogova was a Russian citizen and had kept a Russian passport until at least October 2015, but the evidence did not show that she had recently been in Russia or had used the passport to travel there. She had been a United States permanent resident since 2008 and testified that she intended to remain in the United States. Her Moscow apartment was unfurnished, contained no personal belongings, had been encumbered since 2013, and had unpaid utility bills. She did not have access to her vehicles in Russia, was not shown to be close to family or friends there, and was not shown to be participating in the yacht club she had founded.

The court also rejected reliance on Pirogova’s earlier business activities and related legal exposure in Russia. COMI is determined primarily from circumstances at or around the time of the Chapter 15 petition, not from the debtor’s entire business history. The court further rejected the argument that Pirogova had manipulated her COMI by leaving Russia. It found that the evidence supported the conclusion that she had intended to leave Russia before the Russian insolvency proceeding began and that her departure was not shown to have been an effort to manipulate the recognition process.

Foreign Nonmain Proceeding

A foreign nonmain proceeding is pending in a country where the debtor has an “establishment.” The Bankruptcy Code defines an establishment as a place of operations where the debtor carries out continuing economic activity. The existence of an establishment is a factual question, and there is no presumption that one exists.

The District Court held that Rozhkov did not show that Pirogova had a place of operations or carried out continuing economic activity in Russia when the petition was filed. The Moscow apartment did not qualify because there was no evidence that Pirogova lived in, visited, or managed it. The court rejected the argument that unpaid utility bills showed economic activity. It also concluded that Pirogova’s creditors’ claims, the Russian insolvency proceeding itself, and her ownership of Taurus LLC did not establish current economic activity or a place of operations in Russia. Treating the Russian insolvency proceeding itself as proof of an establishment would, the court said, make the statutory recognition requirements ineffective.

Standard of Review and Ruling

The District Court reviewed the Bankruptcy Court’s factual findings for clear error and its legal conclusions without deference. It concluded that the Bankruptcy Court’s findings and conclusions were correct and that the Russian proceeding did not qualify as either a foreign main or foreign nonmain proceeding.

Judge Lorna G. Schofield affirmed the Bankruptcy Court’s judgment. The Clerk of Court was directed to close the case.