Tradex Swiss AG

1Prior to adjudication of their status, the foreign representatives were referred to
by the Court as the foreign liquidators.
2The Chapter 7 petition was filed on November 7, 2007; the Chapter 15 petition
was filed November 26, 2007. Judge Somma, who initially presided over these cases,
UNITED STATES BANKRUPTCY COURT
DISTRICT OF MASSACHUSETTS
In re 	: 	Chapter 7
TRADEX SWISS AG 	: 	CASE NO. 07-17180-JBR
DEBTOR 	:
In re 	: 	Chapter 15
TRADEX SWISS AG 	: 	CASE NO. 07-17518-JBR
DEBTOR 	:
MEMORANDUM OF DECISION ON 07-17180:
CHAPTER 7 INVOLUNTARY PETITION [#1]; ANSWER OF FOREIGN
REPRESENTATIVES AND APPLICATION FOR RECOGNITION OF FOREIGN
PROCEEDING [#11]; MOTION OF FOREIGN REPRESENTATIVES TO
CONSOLIDATE LEAD CASE 07-17180 WITH 07-17518 AND CONVERT THE
CONSOLIDATED CASE TO CHAPTER 15 [#13]; OPPOSITION TO PETITION FOR
RECOGNITION [#24]; AND MOTIONS OF PETITIONING CREDITOR CHENG SONG
QI TO JOIN INVOLUNTARY PETITION [#56 AND #57];
AND
ON 07-17518 :
PETITION FOR RECOGNITION OF FOREIGN PROCEEDING [#2]; MOTION TO
CONSOLIDATE LEAD CASE 07-17180 WITH 07-17518 [#3]; AND OPPOSITION TO
CHAPTER 15 PETITION [#9]
These cases came before the Court for a continued evidentiary hearing on
various pleadings by which the self-styled “foreign representatives” 1 challenge the
commencement of the involuntary Chapter 7 case and seek consolidation of the
involuntary case with the Chapter 15 proceeding while the petitioning creditors in the
involuntary case (“Petitioning Creditors”) seek to deny recognition of a foreign
proceeding. 2 The crux of the dispute is whether the proceeding commenced against
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determined that the Motion to Consolidate and Convert [07-17180, #13] was essentially
a motion to dismiss the involuntary proceeding under 11 U.S.C. § 305 and should be
treated as such. [07-17180, #33: Memorandum of Decision dated December 12, 2007].
A Certification Pursuant to Fed. R. Bankr. P. 9028 was executed by Judge Joel
Rosenthal in each of the above cases.
3AG is the abbreviation for “aktiengesellschaft” and signifies that the entity is a
corporation.
2
Tradex Swiss AG by the Swiss Federal Banking Commission (“SFBC”) is a “foreign
proceeding” within the meaning of the United States Bankruptcy Code, 11 U.S.C. §§
101 et seq., and if so, whether the foreign proceeding is a “foreign main proceeding” or
a “foreign non-main proceeding.” The Debtor has not responded to any of the pleadings
and did not participate in the hearing.
At the conclusion of the evidentiary hearing, the Court announced its decision
and a brief statement of the reasons on the record and noted it would supplement its
rationale with a written decision. The following constitutes the Court’s findings and
conclusions pursuant to Fed. R. Bankr. P. 7052.
Facts
The material facts are largely undisputed. On July 3, 2007 the SFBC appointed
Dr. Peter Lutz and Romeo Da Rugna to investigate the activities of Tradex Swiss AG
(“Tradex”), 3 and Swiss Garant AG (“Garant”). The SFBC is the chief Swiss regulatory
authority for banks and securities brokers. According to the SFBC Report of January
2008 and reiterated in the testimony of Mr. Da Rugna, the SFBC oversees individuals
and entities performing banking or securities broker functions, whether licensed to carry
out such functions or not, including acting as a bankruptcy court for the restructuring or
liquidation of banks and securities brokers pursuant to Articles 25(1) and 33(1) of the
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4The German version of the SFBC January 2008 Report is Exhibit 2 to the
Certification of Romeo Da Rugna [07-17180, #54]. An English translation was
subsequently marked as Exhibit 3 at trial.
5The English translation of the Investigative Report appears as # 51 on the 07-
17180 docket. With two edits noted in the Certification of Romeo Da Rugna, the
Investigative Report was admitted at trial, subject to the Petitioning Creditors’ objection
to hearsay contained therein.
3
Swiss Banking Act.4 The Report notes that appeals from decisions of the SFBC may
and have been taken to the Federal Administrative Court although apparently none
have successfully challenged the SFBC’s decisions. 	It is unclear from the Report
whether the Federal Administrative Court has determined the SFBC’s authority over
unauthorized banks and brokers. Appeals from the Federal Administrative Court may
be taken to the Federal Supreme Court. In response to an inquiry from the Court, Mr.
Da Rugna testified that an appeal to the Federal Administrative Court could take several
months to conclude while a subsequent appeal to the Federal Supreme Court would
normally be completed more quickly. Testimony as to the status of a bankruptcy during
the pendency of the appeal was unclear. Mr. Da Rugna testified that not all matters
would proceed even in the absence of a stay, which the Federal Administrative Court
had the power to grant. He agreed with the Court’s use of the word “limbo” to describe
the status of SFBC bankruptcy cases while an appeal is pending.
Tradex, formerly known as Tradex Handels & Beratungs AG, has been described
as a “(supposed) foreign exchange trading [company] on an Internet-based trading
platform.” Investigative Report dated September 27, 2007 (“Investigative Report”).5
The foreign exchange trading, or at least some portion of it, is believed to be “virtual” or
in the words or the Petitioning Creditors, akin to a “video game” only, as the client
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6The Court recites these facts as background only. They are not to be
interpreted as finding that Tradex’s activities are fraudulent. That determination should
be made based on an evidentiary record focused on Tradex’s alleged trading activities.
7Mr. Da Rugna testified that he was not aware of Mr. van Rensberg’s current
whereabouts although he believed Mr. Van Rensberg might be in London. Mr. Da
Rugna noted that Mr. van Rensberg continues to be registered as a resident of
Switzerland.
8Mr. Da Rugna’s direct testimony was admitted by way an affidavit which appears
as #54 on the 07-17180 docket.
4
transactions were not always executed and not fully and continually hedged, if at all.
The allegations are that money collected from investors was used by one or more
individuals at Tradex for personal enrichment.6 Nicolaas Jansen van Rensburg, a South
African citizen registered as a resident of Switzerland, 7 is believed to be the owner of
Tradex and Garant. He is also the President and Chairman of the Board of Directors of
Tradex.
Tradex was originally registered in the Canton of Zug, Switzerland. Since
approximately February 24, 2006 Tradex has been listed on the commercial register of
the Canton of Schwyz, Switzerland. Tradex maintained an office in Feusisberg,
Switzerland as well as one in Boston, Massachusetts. The Boston office was headed
by Craig Karlis, who had signatory authority for Tradex’s bank accounts. There may
have been other offices at some point in Latvia, Germany, Bahrain, and the United
States although it is unclear whether Tradex actually operated at any of these locations.
On or about May 18, 2007, Mr. van Rensburg completed an SFBC form on which he
listed Feusisberg as the “Ort der tatsächhlichen Leitung,” which Mr. Da Rugna testified
translated as the “place of actual control and management.”8 The trading platform by
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9The Petitioning Creditors objected to the admissibility of hearsay statements
within the Investigative Report. The Court sustained the objections but cites Mr. van
Rensburg’s statements regarding the records as his statement was substantiated by the
investigators’ own observations.
10Pursuant to Judge Somma’s December 12, 2007 Order, Mark DeGiacomo was
appointed as interim trustee during the “gap” period. The Interim Trustee has shut
down the trading platform and taken possession of Tradex’s funds deposited in banks in
the United States.
5
which the trades were accomplished was based at the Boston office, however. Mr. van
Rensburg indicated that important company files were located in Boston, not
Feusisberg; the investigators found documents in the Feusisberg office in “disarray” but
also concluded that no important documents were located there. 9 Over the years,
Tradex’s operations were transferred to the Boston office; as the number of employees
decreased in the Feusisberg location, the number in Boston increased. Operations and
employees, including the director of trading, were located in Boston. At the time of the
trial, only Mr. van Rensburg, a woman identified as his girlfriend, and a cleaning person
were employed in the Swiss operation. A technology consultant was also located in
Switzerland. In contrast, approximately 18 employees were located in Boston. Mr. van
Rensburg was in Boston at some point, although Mr. Da Rugna did not know how often
or for how long. The trading agreement each customer signed was faxed to and
maintained in Boston. Deposits made with Tradex were confirmed by emails from the
Boston office.
At the time of the filing of the involuntary petition, Tradex had approximately $7.1
million in bank accounts located in the United States. 10 Its putative liabilities are
approximately $15 million. At least a plurality of the creditors in number and the
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6
majority in amount are located in the United States. Although Tradex’s creditors are
located throughout the world, only 12 of the list of 1,322 account holders are in
Switzerland.
In or about August 2007 Craig Karlis and others, including some of the
Petitioning Creditors, commenced lawsuits in the Massachusetts Superior Court against
Tradex and Bank of America to freeze Tradex funds held in Bank of America accounts
and to require Tradex to pay the Boston-based employees’ salaries. The state court
judge informed the parties that he would appoint a receiver if no bankruptcy
proceedings had been instituted by November 12, 2007. Although the foreign
representatives participated in the state court proceeding, they did not file their petition
for recognition until November 26, 2007, almost three weeks after the Chapter 7 petition
was filed. From their appointment in July 2007, the foreign representatives took no
steps to shut down the Boston-based trading platform despite their conclusion that the
“trades” posed a continuing threat of harm to the public.
On September 27, 2007 the investigators submitted the Investigative Report to
the SFBC; in the Investigative Report they concluded that Tradex’s activities posed a
substantial risk to creditors and investors. On November 1, 2007 the SFBC issued its
decree initiating bankruptcy proceedings against Tradex, Garant, and Mr. Van
Rensburg and appointing the investigators as the bankruptcy liquidators. An appeal of
the SFBC’s decree is currently pending before the Federal Administrative Court. The
Federal Administrative Court has not issued a stay of the SFBC proceedings yet the
inactivity of the foreign representatives suggest they do not believe they had full powers
to proceed while the appeal is pending. 	They took no action to turn off the trading
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7
platform or take possession of estate funds prior to the filing of the involuntary petition.
Positions of the Parties
The Petitioning Creditors assert that the Swiss proceeding is not a foreign
proceeding. They argue it is concerned with protecting the Swiss “brand” while the
United States bankruptcy is concerned with protecting creditors. Moreover they allege
that creditors have fewer rights in the Swiss proceeding and that the state court judge
determined that the choice of jurisdiction provision in the trading agreement should not
govern jurisdiction.
They also argue that the Swiss proceeding is not a foreign proceeding as the
Debtor has no “establishment” in Switzerland. “Establishment,” as defined in the Code,
is, according to the Petitioning Creditors, a predicate to any foreign proceeding, whether
main or non-main. But even if the Court were to recognize a foreign proceeding, the
Petitioning Creditors allege that Tradex’s “center of main interests” is in the United
States, specifically in Boston. Therefore they urge that the most the SFBC proceeding
is entitled to is recognition as a foreign non-main proceeding.
They assert that, in addition to or in place of the Chapter 15 proceeding, relief is
appropriate under Chapter 7 as the Petitioning Creditors properly invoked the Court’s
jurisdiction; the Debtor has not filed an objection. They further claim that dismissal of
the Chapter 7 case under 11 U.S.C. § 305 is not in the best interest of creditors.
Moreover they assert that if the Chapter 7 case goes forward, and if the Court
determines that the Swiss proceeding is a foreign proceeding, the Chapter 15 should be
dismissed as Chapter 15 will automatically be applicable in the Chapter 7 proceeding.
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1111 U.S.C. § 1504 provides:
A case under this chapter is commenced by the filing of a
petition for recognition of a foreign proceeding under section
1515.
11 U.S.C.A. § 1515 provides:
(a) A foreign representative applies to the court for
recognition of a foreign proceeding in which the foreign
representative has been appointed by filing a petition for
recognition.
(b) A petition for recognition shall be accompanied by-
8
The purported foreign representatives urge the Court to recognize the SFBC’s
proceeding as a foreign main proceeding. They claim there is no need for the Chapter
7 case but if it goes forward, it should be consolidated with the Chapter 15 case. The
expectation apparently is that the Chapter 7 will survive but that all of Tradex’s U.S.
assets and claims will come under the auspices of the foreign representatives.
Discussion
A “foreign proceeding” is a necessary predicate to the application of Chapter 15.
As a threshold matter, the Court must determine whether the proceeding
commenced against Tradex AG by the SFBC is a “foreign proceeding” within the
meaning of the United States Bankruptcy Code, 11 U.S.C. § 101(23). As the Court
noted in its oral decision, although sympathetic to equitable arguments raised by both
sides, the determination of whether there is a foreign proceeding calls for strict
application of the definitional terms set out in the Bankruptcy Code.
11 U.S.C. §§ 1504 and 1515 outline the procedure by which a foreign
proceeding is recognized by a United States bankruptcy court.11 The first step requires
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(1) a certified copy of the decision commencing such foreign
proceeding and appointing the foreign representative;
(2) a certificate from the foreign court affirming the existence of
such foreign proceeding and of the appointment of the foreign
representative; or
(3) in the absence of evidence referred to in paragraphs (1) and (2),
any other evidence acceptable to the court of the existence of such
foreign proceeding and of the appointment of the foreign
representative.
(c) A petition for recognition shall also be accompanied by a
statement identifying all foreign proceedings with respect to
the debtor that are known to the foreign representative.
(d) The documents referred to in paragraphs (1) and (2) of
subsection (b) shall be translated into English. The court may
require a translation into English of additional documents.
1211 U.S.C.A. § 101(24) provides:
The term “foreign representative” means a person or body,
including a person or body appointed on an interim basis,
authorized in a foreign proceeding to administer the reorganization
or the liquidation of the debtor's assets or affairs or to act as a
representative of such foreign proceeding.
This definition of a foreign representative is somewhat circular in that a foreign
representative must have been appointed in a foreign proceeding but a bankruptcy
court does not recognize a foreign proceeding without a petition being filed by a foreign
representative. Courts agree, however, it is the person or entity appointed by a foreign
tribunal who is the appropriate petitioner. In re Tradex Swiss AG, 2007 WL 4374438
(Bankr. D. Mass.).
9
the foreign representative to commence a petition for recognition of a foreign
proceeding. 12 The petition must attach copies of English language translations of the
documents commencing the foreign proceeding and appointing the foreign
representatives. Although the Petitioning Creditors argue that the Chapter 15 petition
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13Mr. Da Rugna testified that the petition was filed without the translation of the
section dealing with the SFBC’s statement of reasons for commencing Tradex’s Swiss
bankruptcy because of time pressure to file the Chapter 15 petition.
14The Court was chagrined to learn for the first time during the continued
evidentiary hearing that Tradex had taken an appeal of the SFBC decree. The foreign
representatives did not introduce any evidence of Swiss law beyond the Report
prepared by the very agency seeking to control all of Tradex’s assets, wherever located,
and spearhead the liquidation and settlement of claims. Although Mr. Da Rugna is an
attorney, there was no attempt made to qualify him as an expert on Swiss bankruptcy
law. The Court hopes that in the future, foreign representatives will provide clearer
evidence as to such matters as the authority of a court or tribunal over the foreign
debtor and the impact of any pending appeal on the foreign case.
10
was not accompanied by a full translation of the SFBC’s November 1, 2007 decree,13
that omission is not enough to render the filing invalid. 11 U.S.C. § 1515(b)(3).
Whether Dr. Lutz and Mr. Da Rugna had the right to file the Chapter 15 petition,
that is, whether they are truly foreign representatives, depends on whether they have
been appointed in a foreign proceeding. Although the Petitioning Creditors argue that
the SFBC proceeding is not a foreign proceeding, and indeed the Court had concerns
about the authority of the SFBC over unauthorized banks and brokers and the status of
the Swiss bankruptcy as in “limbo” during the pendency of the appeal, 14 the language of
the Bankruptcy Code establishes that it is. Section 101(23) defines a foreign
proceeding as
a collective judicial or administrative proceeding in a foreign
country, including an interim proceeding, under a law relating
to insolvency or adjustment of debt in which proceeding the
assets and affairs of the debtor are subject to control or
supervision by a foreign court, for the purpose of
reorganization or liquidation. (Emphasis added).
The Petitioning Creditors do not challenge that the SFBC is an administrative
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11
agency. Nor do they dispute its authority to regulate banks and brokers although they
raise the issue of the SFBC’s authority over unauthorized banks and brokers.
According to Mr. Da Rugna’s testimony, the SFBC has exercised authority over such
unlicensed persons and entities and there is nothing in the record to indicate that this
practice will be terminated any time soon. Therefore there is an “administrative
proceeding in a foreign country ... under a law relating to insolvency or adjustment of
debt....” The main thrust of the Petitioning Creditors’s argument is that the “assets and
affairs of the debtor” are not subject to “control or supervision by a foreign court.”
“Foreign court” is defined in Chapter 15 to mean “a judicial or other authority competent
to control or supervise a foreign proceeding.” 11 U.S.C. § 1502(3). Even if the decree
of the SFBC were not subject to appeal to the Swiss Federal Administrative Court, and
then the Swiss Federal Supreme Court, the SFBC itself comes within the definition of a
foreign court. Thus the SFBC proceeding is a foreign proceeding and Dr. Lutz and Mr.
Da Rugna are the foreign representatives.
This “foreign proceeding” is either a main or non-main proceeding.
A foreign proceeding, as defined by Chapter 15, can be one of three types: a
main proceeding, a non-main proceeding, or simply a foreign proceeding that is neither
main nor non-main. The critical distinction between a foreign proceeding that is neither
main nor non-main and a main or non-main proceeding is that the former lacks a
debtor’s “establishment,” that is “any place of operations where the debtor carries out a
nontransitory economic activity.” 11 U.S.C. § 1502(2). Assuming there were a
proceeding in a country which a debtor’s only connection was a transitory activity, such
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15“A ’foreign main proceeding’ means a foreign proceeding pending in the country
where the debtor has the center of its main interests.” 11 U.S.C. § 1502(4). “A ‘foreign
nonmain proceeding’ means a foreign proceeding, other than a foreign main
proceeding, pending in a country where the debtor has an establishment.” 	11 U.S.C. §
1502(5).
16Judge Lifland, one of the authors of Chapter 15, noted:
One of the sources that a United States court may look to as
persuasive is the Guide to Enactment of the UNCITRAL
Model Law on Cross-Border Insolvency (“Guide”) that was
promulgated in connection with the approval of the Model
Law. See Guide to Enactment of the UNCITRAL Model Law
on Cross-Border Insolvency, U.N. Gen. Ass., UNCITRAL
30th Sess., U.N. Doc. A/CN.9/442 (1997); see RSM Richter
v. Aguilar (In re Ephedra Products Liability Litigation), 349
B.R. 333, 336 (S.D.N.Y.2006) (Rakoff, D.J.) (“the House
Judiciary Committee, in enacting Chapter 15, specifically
indicated that the Guide ‘should be consulted for guidance
as to the meaning and purpose of [Chapter 15's] provisions.’
” quoting H.R.Rep. No. 109-31(I), at 106 n. 101, as reprinted
in 2005 U.S.C.C.A.N. 169 n. 101.). The Guide explains that
the use of the concept “where the debtor has the centre of its
main interests” as the determinant that a foreign proceeding
is a “main” proceeding was modeled on the use of that
concept in the European Union Convention on Insolvency
Proceedings (“EU Convention”) that was already in the
process of being adopted when UNCITRAL drafted the
12
proceeding is not entitled to recognition under chapter 15. The more realistic scenario
is the one confronting the Court: where the foreign proceeding is either a main or non-
main proceeding. The answer turns on where Tradex had its “center of main interests”
(“COMI”). 11 U.S.C. § 1502(4) and (5).15
COMI is not defined by the Code. It has been described as similar to the concept
of principal place of business. In re Bear Stearns High-Grade Structured Credit
Strategies Master Fund, Ltd., 374 B.R. 122, 129 (Bankr. S.D.N.Y. 2007).16 Such
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Model Law.
In the regulation adopting the EU Convention, the COMI concept is
elaborated upon as “the place where the debtor conducts the
administration of his interests on a regular basis and is therefore
ascertainable by third parties.” Council Reg. (EC) No. 1346/2000, ¶
13; see also Case 341/04, Bondi v. Bank of America, N.A. (In re
Eurofood IFSC Ltd.), 2006 E.C.R. I-3813, p. I8-I9, ¶ 32, 2006 WL
1142304 (E.C.J. May 2, 2006). This generally equates with the
concept of a “principal place of business” in United States law. See
In re Tri-Continental Exchange Ltd., 349 B.R. at 633-34.
Bear Stearns High-Grade Structured Credit Strategies Master Fund, Ltd., 374 B.R. at 129.
17As courts and commentators have explained, the use of the word “evidence”
instead of “proof,” which appears in the Model Law, was intended to clarify that the
ultimate burden of proving a debtor’s COMI is on the foreign representatives. Bear
Stearns High-Grade Structured Credit Strategies Master Fund, Ltd., 374 B.R. at 128.
13
factors as the location of a debtor’s headquarters; the location of a debtor’s
management; the location of its assets and creditors; and the site of the controlling law
are important in determining COMI.
Section 1516(c) provides that “[i]n the absence of evidence to the contrary, the
debtor's registered office, ... is presumed to be the center of the debtor's main interests.”
Tradex’s registered office is in Switzerland. That does not end the inquiry, however. If
contrary evidence is submitted, the burden of establishing the COMI shifts to the foreign
representatives to demonstrate that Tradex’s COMI is in Switzerland.17 The Petitioning
Creditors have amply met their burden with the introduction of such critical evidence as
the location of the trading platform in Boston, the fax confirmation of trades from Boston,
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14
the location of assets and a significant number of creditors in the United States, and the
fact that signatory authority was designated to the manager of the Boston office. The
burden then rested upon the foreign representatives to show, by a preponderance of the
evidence, that the COMI was in Switzerland. Although there is evidence of some
presence in Switzerland, it is not enough to show that the principal place of business
was in Feusisberg. For example, that the Feusisberg location is a larger than the
Boston office does not make Switzerland the COMI, especially when there were far
fewer employees in Switzerland. Similarly that the individual who may have benefitted
financially from the alleged fraudulent scheme is registered as a resident of Switzerland
does not satisfy the burden, especially when the individual is a citizen of yet another
country and may now be living in still another. That Mr. van Rensburg had plans to
have visas issued to bring individual customers to Switzerland or that he had grandiose
but apparently wholly unfulfilled expectations of setting up offices worldwide is not
sufficient. That the only enterprise in Switzerland appears to be fraudulent also does
not carry the day. Although the Court is sympathetic to the burden placed on foreign
representatives in liquidation proceedings such as the instant one where the former
employees may be less than cooperative in producing evidence of the allegedly
fraudulent scheme or the business activities, the foreign representatives still must
establish the COMI by a preponderance of the evidence. Thus the foreign
representatives have failed to carry their burden. The SFBC proceeding is recognized
as a non-main foreign proceeding.
Dismissal of the Chapter 7 petition.
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15
There is no impediment to maintaining a Chapter 7 case in connection with the
Chapter 15 one. In fact, § 303(b)(4) contemplates that a foreign representative may file
an involuntary petition and authorizes the foreign representative to do so. Although the
Petitioning Creditors argue that the Chapter 7 petition should not be dismissed under §
305(a)(1) because dismissal is not in the best interest of the creditors, it is § 305(a)(2)
that applies. Section 305(b) expressly grants a foreign representative standing to seek
dismissal or suspension of an involuntary proceeding if the conditions of § 305(a)(2).
That subsection provides for dismissal or suspension if
(A) a petition under section 1515 for recognition of a foreign
proceeding has been granted; and
(B) the purposes of chapter 15 of this title would be best
served by such dismissal or suspension.
The Court concludes that dismissal is not warranted as the purposes of Chapter
15 are best served by permitting the Chapter 7 to go forward. The Chapter 7 trustee
has begun collecting assets and should be permitted to go forward with the
administration of the case, especially if the Swiss proceedings are “in limbo” until a
decision is made in the pending appeal. The vast majority of creditors are located
outside Switzerland; indeed a great number are here in the United States.
Conclusion
For the foregoing reasons, an order for relief has entered in the Chapter 7 case.
An order of recognition has entered in the Chapter 15 case. The motion to consolidate
was denied without prejudice.
Separate orders allowing recognition of a foreign non-main proceeding [07-
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16
17518, docket # 21]; denying consolidation [07-17180, docket # 90]; entering an order
for relief [07-17180, docket # 87]; and granting the motions to join the involuntary
petition [07-17180, docket # 87] have entered.
Dated: March 12, 2008 	Joel B. Rosenthal
United States Bankruptcy Judge _________
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