The U.S. Bankruptcy Court for the Southern District of New York recently denied motions to dismiss constructive trust claims asserted under the laws of the British Virgin Islands (BVI) even though the claims would have been barred by the "Safe Harbor" under §546(e) of the U.S. Bankruptcy Code had they been asserted under U.S. state law. Fairfield Sentry Ltd. v. Theodoor GGC Amsterdam (In re Fairfield Sentry Ltd.), Ch. 15 Case No. 10-13164 (SMB), Adv. No. 10-03496 (SMB), 2021 WL 771677 (Bankr. S.D.N.Y. Feb. 23, 2021), denying motion for reconsideration, 2020 WL 7345988 (Bankr. S.D.N.Y. Dec. 14, 2020). On its face, that result seems anomalous. On March 30, 2021, various defendants in the lawsuit filed motions with the U.S. District Court for the Southern District of New York, seeking leave to appeal the Bankruptcy Court's decisions.

Fairfield Sentry is a case pending under Chapter 15 of the U.S. Bankruptcy Code. The case is ancillary to insolvency proceedings pending in the BVI for Fairfield Sentry Limited and other funds (collectively, the Funds) that had invested with Bernard Madoff's enterprise. While the Funds were operational, shares in the Funds were redeemable. After Madoff's fraudulent scheme was discovered, the Funds ceased making redemption payments, they became the subject of the BVI insolvency proceedings, and liquidators were appointed by the BVI court (the Liquidators). The Liquidators then commenced Chapter 15 cases with the Bankruptcy Court and obtained recognition of the BVI proceedings as "foreign main proceedings."