At a recent hearing before the Grand Court, the Cayman Islands liquidators of BCCI Overseas applied for and received their discharge and the Court ordered the formal dissolution of all of the BCCI group companies in the Cayman Islands. This judicial procedure brought to an end an assignment that had run for nearly 22 years.
Even though U.S. law theoretically allows some municipalities (that is, cities and other political subdivisions of a state, such as water reclamation and sewer districts) to seek bankruptcy relief, such cases have been rare, and in these cases, municipal bondholders have emerged all but unscathed.
Since debt enjoys priority of payment in insolvency proceedings, demoting a debt claim to the lower rank of an equity interest likely means a total loss for the distressed investor.
The international reach of U.S. bankruptcy law might well be regarded as imperialistic. As to any debtor who satisfies the broad eligibility qualifications, a U.S. bankruptcy proceeding encompasses all rights in property of the debtor, “wherever located and by whomever held."
Why would a debtor with no assets in the United States seek cooperation from a U.S. bankruptcy court in cross-border insolvency proceedings?
Investments in mortgage-backed debts carry reduced risk in light of the special protections afforded to collateralized claims. Second-lien investing, however, is subject to enhanced risk due to the greater likelihood of collateral value insufficiency.