Okay, today’s case of the day, Kumtor Gold C. v. Kyrgyz Republic (Bankr. S.D.N.Y. 2021), raises an interesting issue. Kumtor Gold Co., a subsidiary of Centerra Gold (a Canadian firm), managed a gold mine in Kyrgyzstan. It filed a Chapter 11 bankruptcy case in New York after the Kyrgyz government seized the mine in May. The Kyrgyz government has sought to dismiss the bankruptcy case in New York, but it also obtained an injunction in a Kyrgyz court enjoining Kumtor from seeking bankruptcy protection in the United States. The problem is that when a debtor seeks bankruptcy protection, US law imposes an automatic stay on legal actions against the debtor. When Kumtor brought an adversary proceeding seeking to prevent recognition and enforcement of the Kyrgyz injunction, the judge found that Kyrgyzstan had violated the automatic stay, because its actions threatened to deprive Kumtor of control of its property and could undermine the bankruptcy proceeding altogether. She went further and granted sanctions.
The decision does not give the judge’s reasons, which likely appear in the transcript of the hearing. The case highlights the conflict between two strong policies. On the one hand is foreign sovereign immunity. The FSIA is the sole basis on which a US court can exercise jurisdiction over a foreign state. On the other hand, the automatic stay is fundamental to the bankruptcy process, and it seems intolerable that a foreign sovereign should be able to defeat a US bankruptcy proceeding by enjoining the debtor from seeking bankruptcy protection (assuming, for the moment, that Kumtor was entitled to proceed under Chapter 11).
Kyrgyzstan is seeking to appeal the decision immediately, and in the FSIA context foreign sovereigns generally have the right to an immediate interlocutory appeal from a finding that they are subject to US jurisdiction. Since the judge’s decision didn’t give the basis for the decision, I don’t want to opine on the likely outcome, except to say that it seems to me that the case might come down to whether Kumtor can squeeze the case into the commercial activity exception and more specifically, whether it can show that the case is based on “an act outside the territory of the United States in connection with a commercial activity of the foreign state elsewhere and that act causes a direct effect in the United States.”