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U.S. judge extends bankruptcy protection for 2 Bear Stearns hedge funds

U.S. judge extends bankruptcy protection for 2 Bear Stearns hedge funds

A federal judge on Monday barred investors from seizing the assets of two Bear Stearns Cos. hedge funds for 10 days, but indicated he is considering lifting the funds' U.S. bankruptcy protections.
Judge Burton Lifland of the U.S. Bankruptcy Court in Manhattan said he hadn't reached a decision on the funds' request for U.S. Chapter 15 protection, which would allow the funds to seek bankruptcy-law protection in the United States while liquidating in the Cayman Islands.
The two funds bet heavily on subprime mortgage loans and as defaults increased, creditors began to clamor for their collateral, leaving the funds short on cash.
Provisional liquidators working to unwind the funds in the Caymans estimate that the High-Grade Structured Credit Strategies Master Fund could see recoveries of $25 million (euro18.3 million), and the smaller High-Grade Structured Credit Strategies Enhanced Leverage Master Fund could see recoveries of less than $50 million (euro36.6 million).
Bear Stearns stepped in and bought out investors' positions after big Wall Street firms started fleeing the larger fund earlier this year.
Lifland said it appears the two funds, though registered in the Caymans, operated primarily out of New York.
"The head office is where a critical mass of functions are carried out and that can be in a jurisdiction other than where the registered offices are located," Lifland said. "Clearly, the principal functions here are carried out elsewhere."
Lifland, however, extended an order barring creditors and investors from taking action in the United States against the funds for another 10 days while he decides on the funds' request to recognize the Cayman Islands as having "main jurisdiction" over the insolvency proceedings.
Under Chapter 15, added to the Bankruptcy Code in 2005, a company or court-appointed administrator may seek a U.S. court's recognition of a foreign bankruptcy case as the main, or controlling, proceeding. If Lifland refuses to recognize the Caymans proceedings, the Bear Stearns funds can't take advantage of protections available under Chapter 15, including the automatic stay that blocks lawsuits and the seizure of assets.
The Bear Stearns hedge funds have asked Lifland to recognize the Cayman Islands as the main jurisdiction for the proceedings.
Shares of Bear Stearns fell $3.38, or 2.9 percent, to $113.72 in afternoon trading Monday.
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Christopher Witkowsky is a correspondent of Dow Jones Newswires.


Updated : 2021-07-25 10:09 GMT+08:00