Liquidators of two Bermuda-incorporated funds should have their proceedings recognised as a foreign action in order to investigate the funds’ financial affairs and to distribute recovered property to the creditors, a judge has concluded.Bankruptcy Judge Allan Gropper filed a memorandum in the US Bankruptcy Court, for the Southern District of New York last week stating that the proceedings against the Millennium Global Emerging Credit Master Fund Ltd (master fund) and the Millennium Global Emerging Credit Fund Ltd (feeder fund) in Bermuda were entitled to an order recognising them as foreign main or non-main proceedings.The funds went into liquidation due to their inability to meet a margin call of the master fund’s prime broker Credit Suisse on October 2008 and the ensuing legal battle has cost around $9 million so far.The memo also said that recognition of the proceedings was opposed by BCP Securities LLC one of the parties designated by the liquidators as potentially affected by provisional relief on the grounds that Bermuda was not the funds’ centre of main interests or was a place of “non-transitory economic activity”.A separate objection by GlobeOp Financial Services LLC was withdrawn after an agreement between the parties determined that if recognition were granted the automatic stay would not prevent the company from pursuing any claims it may have against the funds outside the US, according to the court documents.A hearing was held last month at which one of the liquidators Michael Morrison of KPMG Advisory Ltd testified and the petitioners’ (Mr Morrison, Charles Thresh and Richard Heis) case was presented by admitting into evidence the petitions, declarations in support of the petitions filed by Mr Morrison and the funds’ Bermuda counsel Robin Mayor, and the offering memorandum for the feeder fund.BCP cross-examined Mr Morrison and introduced the confidential information memorandum of Millennium Global Emerging Credit Fund LP, a Delaware limited partnership.The documents revealed that the funds were set up in Bermuda as an offshore investment fund to invest in sovereign and corporate debt instruments from developing countries, with the feeder fund incorporated in October 2006 and the master fund in September 2007, operating privately with the feeder fund and the Delaware fund its only participants, with the feeder transferring all of its assets to the master in exchange for a 97 percent ownership stake and the other three percent being held by the Delaware fund.The funds had three directors on their boards Michael Collins, James Keyes and Deborah Sebire and both were administered by Argonaut Ltd and had approximately $900,000 in deposit at Butterfield Trust (Bermuda) Ltd, a subsidiary of Butterfield Bank, when they entered into liquidation.Credit Suisse issued a default notice on October 6, 2008 and on the same day the directors applied to the Supreme Court for an order to wind-up the funds, with Messrs Morrison, Thresh and Heis subsequently appointed provisional and then joint liquidators of the funds the following year.At the start of proceedings subscriptions to the funds totaled $390 million and as of the end of September 2008 the portfolio was valued at $738.2 million. But following the closure of the prime brokerage accounts, the brokers claimed that there was a $170 million deficiency owed by the funds.Despite the claims, there was an initial cash return of $21.85 million, of which $10 million was allocated to the feeder fund and $11.85 million to the master fund and three years later they now have close to $7 million and $7.5 million held in them respectively.As a result of the decline in the value of the funds’ portfolio, the liquidators have one legal case pending in the UK and are pursuing an investigation of potential causes of action against parties in the US, with a Chapter 15 petition being filed in June 2011 for that purpose.Mr Morrision testified that the expenses to date had included the administration of the estates, covering the liquidators’ and counsel’s fees. The liquidation proceedings in Bermuda have cost $9 million to date, including about $5 million spent outside the country, predominantly on fees and counsel in the UK and US.Mr Morrison also said that the litigation pending or which may be started against parties outside of Bermuda was likely to be the most valuable asset of the estates.BCP argued at the conclusion of the hearing that the funds’ centre of main interests should be determined as the UK based on the location of their investment manager and prime broker, as the location of many creditors meetings, and due to the fact that litigation was allegedly pending in London.The liquidators argued that the record supported the conclusion that the funds’ centre of main interests was in Bermuda prior to the start of the liquidation and had remained there with creditors looking to proceedings there for recovery of assets.