Constellation Overseas Ltd
| Jurisdiction | British Virgin Islands |
| Judge | Adderley, J |
| Judgment Date | 05 February 2019 |
| Judgment citation (vLex) | [2019] ECSC J0205-1 |
| Court | High Court (British Virgin Islands) |
| Docket Number | CLAIM NO. BVIHC (COM) 2018/0206, 0207,0208,0210,0212 |
| Date | 05 February 2019 |
THE EASTERN CARIBBEAN SUPREME COURT
IN THE HIGH COURT OF JUSTICE
(COMMERCIAL DIVISION)
CLAIM NO. BVIHC (COM) 2018/0206, 0207,0208,0210,0212
In the Matters of Constellation Overseas Ltd.; Lone Star Offshore Ltd.; Gold Star Equities Ltd.; Olinda Star Ltd.; Snover International Inc.; and Alpha Star Equities Ltd.
And in the Matter of the Insolvency Act, 2003
Mr David Chivers QC, with him Mr Grant Carrol of Ogier for the applicants
Mr Alex Hall Taylor for the Consenting A/L/B Lenders of Maples and Calder
Ms Rosalind Nicolson for Banco Bradesco S.A of Walkers
The Insolvency Act 2003 — appointment of provisional liquidators-whether court has jurisdiction to appoint “soft touch” provisional liquidators to support a company's restructuring and reorganization
This was an application for the appointment of “soft touch” provisional liquidators over six British Virgin Islands (“ BVI”) registered companies which form a part of a Group of companies. It is believed to be the first application of its kind in the BVI.
On 19 December, 2018, I acceded to the application to appoint “soft touch” joint provisional liquidators (“ JPLs”) over the companies and to grant a stay of proceedings in respect thereof. I promised to give my reasons later and now do so.
The essence of a “soft touch” provisional liquidation is that a company remains under the day to day control of the directors, but is protected against actions by individual creditors. The purpose is to give the Group the opportunity to restructure its debts, or otherwise achieve a better outcome for creditors than would be achieved by liquidation. It may be appropriate where there is no alleged wrongdoing of the directors.
This application was made in the context of a major cross-border restructuring involving both a Brazilian Judicial Reorganisation and a US Chapter 15 application.
The Applicants to the present Applications were Constellatons Overseas Ltd (“the Company”) (a holding company) and the BVI Subsidiaries (certain Drilling Rig-owning entities within the Group). The applicants were seeking orders from this Court to appoint JPLs over each of the applicants in order to allow them to enter into a “soft touch” provisional liquidation in the BVI and thre stay of proceedings against it. The purpose of the appointment of JPLs is to support and facilitate the restructuring of the Group through the RJ, as supported by the Chapter 15 Proceedings in the US. The Company's largest unsecured creditor, Banco Bradesco S.A. ( “Bradesco”), supports the Company's application for the appointment of JPLs.
In answer to the court's early enquiry counsel made it clear that this was not an application for recognition of an international insolvency or foreign representative under s.457 of the British Virgin Islands' Insolvency Act 2003 (“ IA”). Therefore the principles of modified universalism discussed in Rubin v Eurofinance 1 and in Cambridge Gas 2 did not arise with this application. The issue of legislation impliedly excluding the use of common law powers as arose in Singularis 3 did not apply either.
The court had raised the issue to assuage its fears that the application might be an attempt to obtain through the back door ‘interim relief’ under the provision of s 452 of the IA with the remedies afforded under s. 453. Those provisions fall under Part XVIII (Cross Border Insolvency) of the IA which were passed in 2003 by the legislature but for policy or other reasons deliberately not brought into force. Section 452 is predicated on the court recognizing a foreign judgment; this application was not so based.
It was a wholly domestic remedy under the IA based on the common law jurisdiction in the BVI being applied to companies in the BVI in their place of incorporation. That it may assist the ongoing insolvency proceedings in the companies' COMI is a matter which its promoters would have decided before approaching the BVI courts.
The application is a protective measure; the primary reason for making such an application is to ward of predatory creditors who may wish to take satellite ex parte actions against the companies registered in the BVI in an attempt to steal a march on creditors generally. Such attempts have taken place on at least two prior occasions in similar situations in the BVI.
Constellation Oil Services Holding S.A. (Luxembourg) ( “Constellation Holding”), together with its direct and indirect majority-owned subsidiaries (collectively, “the Group”), form an oil and gas drilling business. The Group is experiencing financial distress attributable to the ongoing recession in the oil and gas sector. The effects of this industry-wide downturn have been exacerbated by the recent financial recession in Brazil.
In view of its financial position, and after taking legal advice in the relevant jurisdictions the Group decided to seek the protection of a court-supervised restructuring under the First Business Court of Rio de Janeiro ( “the Brazilian Court”), facilitated by supporting ancillary proceedings in other jurisdictions. On 6 December 2018 ( “the RJ Petition Date”) the applicants, along with a group of their affiliates, (together, “the RJ Debtors”), filed a petition for a jointly administered recuperação judicial (a “Judicial Reorganisation”, or “RJ”) in the Brazilian Court. The aim of the RJ is to facilitate the agreement and implementation of a plan for restructuring the Group's debt. On the same day, the Brazilian Court entered an order formally accepting the RJ Debtors into the Brazilian RJ Proceedings. The RJ Debtors are presently operating their businesses under the judicial supervision of the Brazilian Court
As the Group has both a complex, integrated, and multinational corporate structure and debt structure, ancillary support from courts in several other jurisdictions (including the BVI) is needed in order for the restructuring under the RJ to be successful. For this reason, shortly after the RJ proceeding was commenced in Brazil, certain companies within the Group, including the applicants, (together, “the Chapter 15 Debtors”) commenced ancillary proceedings in the US for protection under Chapter 15 of the US Bankruptcy Code ( “the Chapter 15 Proceedings”), in order to seek the recognition of the RJ as the “foreign main proceeding” of each of the Chapter 15 Debtors.
Counsel for the applicants represented that the reorganization is supported by creditors holding over US$ 1 billion of the companies' debt of US$ 1.5 billion. The court acceded to the request of the applicants to have Mr Alex Hall Taylor and David Welford of Maples and Calder appear at the hearing in support representing a group referred to as the Consenting A/L/B Lenders, a consortium of lenders led by HSBC(USA) NA and Citibank NA who have acted as lenders of the order of US$600 million to various entities within the Group. While reserving all their rights they expressed the view that the Consenting A/L/B Lenders have a significant interest in the solvency, financial position, and restructuring plans of the Group and its underlying entities to which they have lent very substantial funds and to which they intend to lend further funds. Therefore they are very interested in the determination of the applications.
Similarly, Ms Rosalind Nicholson representing Banco Bradesco the single largest creditor of the Group in the sum of about US$152.6 million was in attendance to support the application.
A look at the consolidated balance sheet to September 2018 shows that the company is balance sheet solvent but with approximately only US$100 million cash on hand the Group is not likely to be able to pay its upcoming debts absent a restructuring and so is cash flow insolvent. This is exacerbated by the insolvency event in the loan documents automatically triggered by the commencement of the RJ Proceedings and the Chapter 15 Proceedings.
The applicants made a declaration that to the best of the applicants' knowledge, there was no existing arrangement nor proposal for a creditors' arrangement under Part II of the Act, nor any administrator or administrative receiver acting, in relation to any of the applicants in any jurisdiction. They were also not aware of any pending foreign insolvency proceedings against them, other than the Brazilian and US proceedings which they themselves have just initiated along with other entities in the Group, as described below. 4
On 6 December 2018 the RJ Debtors 5 filed the RJ Petition in the Brazilian Court commencing their procedurally joint Judicial Reorganisation. The Brazilian Court's acceptance of the RJ Petition is currently pending.
An RJ is a collective mechanism under Brazilian bankruptcy and restructuring law for adjusting debts under the control and supervision of a competent Brazilian court, and is commenced by debtors filing a petition in the court in the jurisdiction in which the debtors maintain their “ principal estabelecimento” 6 according to Brazilian law.
The Brazilian Court has jurisdiction to process an RJ of foreign entities, such as the applicants, if Brazil is the “ principal estabelecimento” of the debtors for the purposes of Brazilian restructuring law. The RJ Debtors have been accepted to undergo a jointly administered RJ
Proceedings and collections of claims against the RJ Debtors are stayed for 180 days from the date of the Brazilian Court formally accepting the debtors into an RJ.
The officers of debtor companies subject to an RJ continue to administer the companies' affairs, acting under the supervision of the court.
Creditors are given...
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