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    Archive for July, 2009

    NYT Echoes European Predictions: A Rising Wave of Bankruptcies

    Monday, July 27th, 2009

    July 15’s “Deal Book” (hosted by the New York Times) offered a fresh prediction by Dunn & Bradstreet of a rising wave of bankruptcies late this year.  According to Deal Book:

    The United States will be hardest hit, according to D&B’s prognosis, with bankruptcies increasing by 60 percent, but European nations will hardly go untouched. Experts foresaw an increase of insolvent companies of 43 percent in Spain, 35 percent in the United Kingdom and 28 percent in France.  In Germany, the rise in bankruptcies is expected to be more limited, at 17 percent, similar to the 16 percent predicted for Japan . . . .  [H]ardest hit will be markets tied to industries already ravaged by bankruptcies, like the automotive sector, as well as small to midsize companies in retail and cottage industries. Such companies have suffered from a drastic drop in orders, and the financial problems that follow.  The [German newspaper] Handelsblatt called it a vicious circle: the need that companies have for fresh capital, as their cash flow dwindles, is the very thing that scares off lenders.

    The German-language study – which is consistent with at least one other forecast noted in a prior post on this blog – is available here.

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    Distressed M&A: The Party Rolls On

    Saturday, July 18th, 2009

    A couple of earlier posts on this blog (here and here) have periodically discussed the state of bankruptcy-related mergers and acquisitions during this Chapter 11 cycle.  A post dated July 10 by Reuters’ Alexander Smith suggests that M&A activity – which has been brisk – continues unabated.  Smith notes:

    There were five bankruptcy-related M&A deals announced during the week [of July 6], including the acquisition of venture-backed public company Nanogen by French investment holding company Financiere Elitech for $25.7 million. So far this year there have been 173 bankruptcy-related deals, the highest level since the same period of 2004 when there were 202. During 2009 the most bankruptcy-related M&A deals have occurred in the industrials sector with 23 percent, followed by the media and entertainment sector with 16 percent. In terms of geography, U.S. targets represent 83 deals or 48 percent of the total of bankruptcy M&A. This is hardly surprising given the speed with which some of the biggest bankruptcies have happened in the U.S. – with a little help from section 363 easing rapid asset sales at GM and Chrysler.

    As noted in prior posts, this remains an excellent environment for purchasers with the cash, business vision, and/or creativity to make strategic acquisitions.

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    The Stanford Saga – Chapter 6: Mr. Justice Lewison Steals the Show

    Sunday, July 12th, 2009

    A flurry of pleadings this week precede Judge David Godbey’s anticipated ruling on Peter Wastell’s and Nigel Hamilton-Smith’s request for recognition of their liquidation of Stanford International Bank, Ltd. (SIB), now pending in Antigua.

    As readers of this blog are aware, Messr’s. Wastell and Hamilton-Smith have been at odds with Ralph Janvey, a federal receiver appointed in U.S. District Court for the purpose of administering not only SIB, but all of the assets previously controlled by Sir Allen Stanford.  Those assets and their creditors span at least three continents – North America, South America, and Europe – and have spawned insolvency proceedings in several countries.

    The Antiguan liquidators previously obtained permission from Judge Godbey – over Mr. Janvey’s opposition – to commence a Chapter 15 case in Dallas.  The liquidators then sought recognition for their Antiguan liquidiation pursuant to the provisions of Chapter 15 – which Mr. Janvey has again opposed.  A recent post on this blog summarized the Antiguan liquidators’ reply to these objections.

    This week, as scheduled, John Little – an examiner appointed by Judge Godbey to assist the Court in overseeing the receivership – filed papers summarizing his position on the liquidators’ request.

    Before he did so, however, yet another court – this one in England – weighed in on the Stanford matters.  In a decision rendered on the eve of America’s July 4 holiday, the English Hight Court of Justice, Chancery Division (London)’s Justice Lewison found that Antigua – and not the US – should be SIB’s “Center of Main Interests” (COMI) under the UK’s 2006 Cross-Border Insolvency Regulations (the general equivalent of the US’s Chapter 15).

    The crux of Mr. Justice Lewison’s 29-page decision, at least as it regards SIB’s COMI, rests both on the burden of proof to demonstrate COMI and on the nature of the evidence required to carry that burden.

    The English decision holds, first, that once certain prima facie evidence is introduced to establish COMI in a particular jurisdiction, the presumption of COMI in that jurisdiction arises in favor of the foreign representative and it is the burden of a contesting party to defeat the presumption.  Second, the decision holds that the only evidence that counts in rebutting the decision is that which would be objectively ascertainable to third parties – specifically, creditors.

    Mr. Justice Lewison’s analytical framework leads to an emphasis on the outward, physical aspects of SIB’s business operations, which the parties generally agree were centered in Antigua.

    Mr. Little, the examiner whose 19-page brief was filed last Wednesday, respectfully disagrees with Mr. Justice Lewison.  The essence of Mr. Little’s analysis is that it is the location of the management of an enterprise that determines its COMI.  According to Mr. Little:

    Banks are not just groups of tellers and form checkers, but institutions that gather money, pool it and invest it in the hopes of keeping the funds secure and making a profit.  Banks are more than the street corner branch offices or drive-through windows at which people make deposits, cash checks, pay bills and verify balances.  The weightiest activities of a “bank” are the activities involved in what a bank does with the money it gathers and manages.  To determine the locale of SIB’s COMI, the Court must determine where that activity was primarily carried out.  (Emphasis supplied).

    Mr. Little also argues that the English Court’s decision ought not to guide Judge Godbey’s determination of COMI.

    In particular, he argues that Mr. Justice Lewison’s assignment of the burden of proof regarding COMI – to the Receiver who, under English law, must overcome a presumption of COMI in the foreign representative’s favor – is at odds with American case law.  American law, explains Mr. Little, renders the COMI presumption of little weight and further assigns the burden of proof to the foreign representative seeking recogntion of a “main case” – and not to the foreign representative’s opponent.  Mr. Little argues that the “objective” evidence “ascertainable by a third party” is far different than that which an American court would consider, as borne out by relevant US decisions.  He suggests that a ruling made on such factors may, in fact, provide a “roadmap” of sorts to parties who plan to defraud the public by permitting them to construct an “objectively ascertainable” – but sham – business in a jurisdiction of their choosing.

    Finally, Mr. Little acknowledges that the “public policy exception” to Chapter 15 – set forth at Section 1506 of the Code – is a very narrow one, but offers the observation that to the extent it may apply in this case, the SEC’s position in the matter should be construed as US policy.

    On Friday, Mr. Janvey requested leave to file a supplemental brief addressing various aspects of Mr. Justice Lewison’s decision.

    Though Judge Godbey has yet to provide leave to file them, Mr. Janvey’s papers echo much of the same observations made by Mr. Little.  They also add some of Mr. Janvey’s own, additional arguments – one of which is that Mr. Justice Lewison’s reliance on an “objectively ascertainable” standard is a unique creature of the EU Insolvency Regulation, and finds no basis either in the UK Regulations (which should have controlled Mr. Justice Lewison’s decision) or in US law.  In particular, Mr. Janvey argues that the Eurofoods decision – a seminal decision on COMI rendered by the European Court of Justice, and which formed the primary basis for Mr. Justice Lewison’s decision – imposes an unnecessary restriction on the evidence which ought to be reviewed by an American court (or, for that matter, by an English court) for this purpose.

    In fact, Section 1508 itself provides that in interpreting phrases such as “center of main interests,” “the court shall consider” how those phrases have been construed in other jurisdictions which have adopted similar statutes.  As a result, considerable ink already has been spilled in the US over the EU Regulation, Eurofoods, and foreign decisions generally and their interpretive effect on determing COMI in a US Chapter 15 case.   In a recent and extensive discussion of the interpretatation of “COMI” as it appears in Chapter 15, Judge Bruce Markell discusses both the EU Regulation and Eurofoods, and observes that

    a commonality of [US] cases analyzing debtors’ COMI demonstrates that courts do not apply any rigid formula or consistently find one factor dispositive; instead, courts analyze a variety of factors to discern, objectively, where a particular debtor has its principal place of business. This inquiry examines the debtor’s administration, management, and operations along with whether reasonable and ordinary third parties can discern or perceive where the debtor is conducting these various functions.

    See In re Betcorp, 400 B.R. 266, 290 (Bankr. D. Nev. 2009) (emphasis supplied).

    Perhaps unfortunately for Mr. Janvey, Nevada’s Judge Markell sounds a bit like London’s Mr. Justice Lewison.

    Stay tuned.

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    Chapter 15 Round-Up: May and June 2009

    Friday, July 3rd, 2009

    2009 is shaping up to be an extraordinary year for business bankruptcy.  Headlines and hoopla aside, however, it hasn’t been all about domestic Chapter 11 work.  The following brief summaries (drawn from news reports and from the national dockets) highlight some of the more newsworthy cross-border matters of the past 60 days:

    WC Wood – Guelph, Ontario-based W.C. Wood Ltd., manufacturer of freezers, fridges and commercial dehumidifiers, sought Chapter 15 recognition in Delaware along with its affiliates concurrently with the companies’ application for protection under the Canadian Companies’ Creditors Arrangement Act.  The US filing was commenced to further the Canadian reorganization, and to extend the automatic stay to protect officers and directors of the companies.

    Kumkang Valve – Kumkang Valve Co. Ltd. sought Chapter 15 recognition in Houston to protect its US -based assets while it pursued a “revival proceeding” in the District Bankruptcy Court for Daegu, South Korea, where it is headquartered. To do so, the manufacturer of trunnion mount ball valves for the oil and gas industry had to overcome objections lodged by Enterprise Products Operating LLC, who had previously filed a US District Court suit alleging that Kumkang knowingly supplied faulty valves to Enterprise when it was constructing facilities in Wyoming and Colorado.  Bankruptcy Judge Wesley Steen is presiding over the US proceeding.

    Gandi Innovations – Canadian grand-format inkjet manufacturer Gandi Innovations, which operates under the brand name Gandinnovations, obtained recognition from Bankruptcy Judge Leif Clark in San Antonio, TX very shortly after its entry into Canadian Companies’ Creditors Arrangement Act proceedings.  The company sought to protect US assets and stay litigation then pending in Bexar County, TX while it prosecuted a plan of arrangement in Toronto.

    Straumur-Burdaras Investment Bank – Iceland’s Straumur-Burdaras Investment Bank hf is seeking recognition of its Reykjavík-based restructuring efforts from New York Bankruptcy Judge Robert E. Gerber. Recognition would protect Straumur-Burdaras’ US-based assets, valued at $190 million.  The commercial bank’s Chapter 15 petition, filed June 2, follows that of three other Icelandic financial institutions – Glitnir Banki hf, Kaupthing Bank hf and Landsbanki Islands hf – all of which sought similar protection in New York. Straumur-Burdaras’ recognition hearing is calendared for July 14.

    Fraser Papers – Toronto-based lumber, pulp and paper producer Fraser Papers Inc. and affiliates sought recognition in Delaware for their restructuring under the Canadian Companies’ Creditors Arrangement Act (CCAA). According to papers filed in connection with the related June 18 petitions, the filing was commenced to further the effect of orders already entered under the CCAA and designed both to protect the companies’ US assets and to enjoin suits against officers and directors.

    Nanbu – Tokyo-based Nanbu Inc. has requested that US Bankruptcy Judge Robert J. Faris of Honolulu grant recognition of its foreign bankruptcy proceeding currently pending in the Civil Affairs division of Tokyo District Court. Court papers reveal virtually nothing about the company or its Japanese proceeding, and note only that recognition was sought in the US so that the company’s foreign representative, Tsunehiro Sasanami, can take title to and convey certain timeshare properties located in Hawaii.  A hearing on the recognition request is calendared for July 13; however, under the Bankruptcy Court’s local rules, a recognition order may be entered without a formal hearing where there are no objections.

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