Farfetch: Chapter 15 and Discovery by Foreign Officeholders

In a Nutshell

The Delaware Bankruptcy Court confirmed that the wide ambit of Federal Rule of Bankruptcy Procedure 2004 (“Rule 2004”) discovery in a Chapter 15 context can be limited by the applicable foreign law and the terms of the order appointing the foreign representative in the foreign proceedings. Here, the Delaware Bankruptcy Court held that it would not make an order that was hostile or inconsistent with the Cayman Islands discovery regime.

The ruling underscores the comity-driven limits on Chapter 15 discovery. In practice, this means Cayman Islands liquidators may obtain the company’s own books and records and property, but broader third-party discovery may require direction from the Grand Court (the “Court”) – whose orders the Delaware Court has indicated it will respect and enforce.

Background

Farfetch Limited (In Official Liquidation) (“Farfetch”) was the ultimate holding company of the online fashion platform Farfetch Group. The group was in financial difficulty and sold its operating assets by way of a UK administration to Surpique LP (“Surpique”) leaving Farfetch to be wound up on an insolvent basis. The creditors of Farfetch proceeded to appoint joint official liquidators (“JOLs”) in the Cayman Islands. The JOLs obtained Chapter 15 relief in Delaware and commenced various discovery actions in the US against third parties, including Surpique, with a view to challenging the administration sale.

Issue

The JOLs had obtained permission from the Court to commence the Chapter 15 proceedings. The JOLs however had not obtained permission to commence proceedings to compel the production of documents, nor had they addressed the permissible scope of the JOLs’ information-gathering powers beyond their (orthodox) ability to collect Farfetch’s property.

The Court has consistently held that the information gathering powers afforded to liquidators are to put themselves in the shoes of the company i.e. to reconstitute the knowledge of the company prior to the liquidation. Liquidators will not be permitted to use their information gathering powers to obtain pre-litigation discovery of non-company documents thereby giving themselves an advantage in litigation that would not have been available to the company itself.

Despite the limits to the appointment order, and their powers under Cayman Islands law, the JOLs sought broad discovery from Surpique in the Chapter 15 proceedings under Rule 2004. Rule 2004 applies in Chapter 15 and functions as the procedural “vehicle” for discovery which permits “examination of witnesses, taking of evidence, or delivery of information” to assist the recognised foreign proceeding. Discovery under Rule 2004 would not have been limited to recovering Farfetch’s property and instead would have resulted in the JOLs obtaining broad pre-litigation discovery against Surpique.

Surpique challenged the JOLs’ Rule 2004 application in Delaware on the basis that the discovery sought was too broad for Chapter 15 purposes, and much of it conflicted with Cayman insolvency law and policy.

Decision

The Delaware Court significantly narrowed the scope of the discovery to documents constituting the books and records of Farfetch and its subsidiaries.

The Delaware Court emphasised the broad investigative purpose of Rule 2004 to allow inquiry into a debtor’s affairs, assets, and potential claims. However, at the same time, made clear that Rule 2004 in Chapter 15 is applied with comity-based tailoring: U.S. law governs the Rule 2004 application, but the Delaware Court considers whether the proposed discovery would be hostile or inconsistent with the foreign (in this case Cayman) discovery regime and law generally.

Accepting Surpique’s submissions, the Delaware Court declined to compel Surpique to produce third-party documents. The Delaware Court considered that there was a genuine dispute as to whether compelling such production would aid the Cayman Islands proceedings or be inconsistent with Cayman Islands law, and the Delaware Court would not purport to resolve that question. The Judge made clear that the appropriate forum to decide whether third-party documents should be produced was in the Cayman Islands before the Court.

¹ Farfetch Limited 1:24-bk-11519 (Bankr.D.Del. Jan. 15, 2025)