Avoidance and Recovery
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Posts Tagged ‘Bernard Madoff’
Avoidance and Recovery
Continued global economic uncertainty and an impending 3d quarter slow-down in the US have translated into active global restructuring in recent months. Some of the 2d and 3d quarter’s more newsworthy cross-border filings include:
Compania Mexicana de Aviacion – Compania Mexicana de Aviacion, generally known as Mexicana, filed for insolvency in Mexico City and Chapter 15 bankruptcy protection in New York on August 2.
The airline reportedly made its move after failing to reach a new cost-cutting deal with its unions – it claims Mexicana’s labor costs “are well above the average for the industry at the global level, so a leveling is essential for achieving a restructuring with creditors and the company’s viability.” Mexicana claims it will have to slash 40 percent of pilot and flight attendant jobs, with those remaining with the carrier being asked to take 40 percent pay cuts.
At the time of filing, the company also reported three of Mexicana’s 64 aircraft already had been seized by the leasing companies that own them.
Fairfield Sentry Ltd., Fairfield Sigma Ltd. and Fairfield Lambda Ltd. – Three financial services companies, established in 1990 as “feeder funds” for the purpose of investing in Bernard L. Madoff Investment Securities LLC, received joint recognition in Manhattan on July 22 in connection with their respective British Virgin Islands insolvency proceedings.
As reported by the Daily Deal on July 27, all three entities sold shares to individuals who were neither residents nor citizens of the United States. Such investors also included pension and profit-sharing trusts, charities and other tax-exempt entities. Fairfield Sentry, the largest of the feeder funds, offered its shares in U.S. dollars, while Fairfield Sigma offered shares in Euros and Fairfield Lambda provided them in Swiss francs.
Fairfield Lambda was placed into liquidation by the Eastern Caribbean Supreme Court in the High Court of Justice in British Virgin Islands in April 2009 upon application by Commerzbank AG, then known as Dresdner Bank AG. Fairfield Sentry’s and Fairfield Sigma’s liquidations were approved by the same court in July following similar creditor requests.
Cozumel Caribe SA de CV – The Mexico City-based operator of the 348-room Hotel Park Royal Cozumel resort sought recognition for a previously-commenced concurso mercantil proceeding (filed in the Third District Court of the Mexican State of Quintana Roo) on July 20 in Manhattan.
Cozumel Caribe blamed its financial woes on declines in Mexican tourism, which has been beleaguered of late by a weak Mexican peso, the outbreak of H1N1 flu virus, and State Department advisories regarding increased crime in Mexico. Cozumel Caribe’s own cash woes were allegedly further compounded by lender CT Investment Management Co.’s alleged failure to withhold tax receipts and funds to cover daily operations.
Minster Insurance Co. Ltd. – The London insurer and its affiliate, Malvern Insurance Co. Ltd., sought recognition on July 19 in furtherance of its previously-approved solvent scheme of arrangement, made pursuant to Part 26 of the U.K. Companies Act 2006. A hearing to consider the recognition is scheduled for Aug. 27.
Controladora Comercial Mexicana SAB de CV – The operator of Costco Wholesale Corp. outlets in Mexico, and the country’s third-largest retailer, sought recognition in New York on July 16 in furtherance of its prenegotiated concurso mercantil proceeding in Mexico City.
As reported by the Daily Deal, CCM will restructure a total of $3.3 billion through its prenegotiated bankruptcy filing, including approximately $2.2 billion worth of derivative obligations owed to J.P. Morgan Chase NA, Barclays Bank plc, Goldman Sachs Group Inc., Bank of America Merrill Lynch, Banco Santander (Mexico) SA, Banco Nacional de Mexico SA and Citibank NA, and $99.4 million in unsecured debt owed to seven unspecified Mexican commercial banks. The restructuring is purportedly supported by 85% of its debt holders.
CCM’s prenegotiated plan follows an earlier, failed 2008 concurso bid, which subsequently drove the parties to the bargaining table.
ABC Learning Centres Ltd. – The Australian childcare center operator sought recognition of its voluntary winding up proceeding over the objection of RCS Capital Development LLC. ABC and RCS are involved in litigation over the development of child care centers in Arizona and Nevada. In addition to opposing recognition, RCS sought relief from the automatic stay to enter judgment upon a jury verdict rendered in its favor in Arizona, and to assert that judgment as an offset against claims made by ABC in Nevada.
At a hearing held August 9, Delaware Bankruptcy Judge Kevin Gross took both matters under advisement. As of the date of this writing, no decision has been rendered.
The first four months of 2009 have been busy ones for Chapter 15 filings. Though New York has, to date, been and remains the focal point for a significant amount of cross-border work, the Bankruptcy Code’s newest chapter was pressed into service in a variety of cross-border insolvencies around the country. The following summary (culled from news reports and from the national dockets) highlights some of the more notable filings from February through April:
– Brazilian beef exporter, leather manufacturer, and logistics operator Independencia SA sought recognition on Febriary 27 from New York’s judge Stuart Bernstein with respect to its Brazilian “recuperação judicial” – the equivalent of a Chapter 11 reorganization – then pending in the Lower Civil Court of Cajamar in São Paulo. At the time of the filing, approximately $525 million of the company’s $1.2 billion in debt was in outstanding bonds priced at 9.875%. The Chapter 15 proceeding was commenced to protect US-based assets (primarily bank accounts and accounts receivable) and to stay US-based litigation.
– On February 10, PricewaterhouseCoopers AG, Zurich (“PwC”), in its role as the bankruptcy liquidator and putative foreign representative of Lehman Brothers Finance AG (also known as Lehman Brothers Finance SA) (“LBF”), filed a Chapter 15 proceeding and concurrently sought the dismissal of LBF’s Chapter 11 bankruptcy case on the grounds that, under Bankruptcy Code section 305, the wholly owned subsidiary of Lehman Brothers Holdings Inc. was to be liquidated – and, further, that “[g]iven LBF’s limited connections to the U.S. and the existence of [LBF's] swiss bankruptcy, PwC believes that a chapter 15 case is the most efficient and appropriate vehicle to administer any assets LBF may have in the United States, and that dismissal of the Chapter 11 Case is in the best interests of LBF, its creditors and equity holders.” According to the liquidators, “PwC has access to the books and records of LBF and has already done an in-depth investigation into LBF’s assets and liabilities, and is already tasked with protecting the interests of LBF’s creditors world-wide. In addition, as most of LBF’s creditors and assets are outside the U.S., maintaining the Chapter 11 Case will require LBF to expend unnecessary time, money and effort to coordinate the Chapter 11 Case with the swiss bankruptcy, which will deplete the estate and reduce the recovery of all stakeholders.” PwC’s motion was granted on March 13. One pending adversary involving LBF was transferred to the Chapter 15 case, while a second remained pending under the jointly administered Chapter 11 cases of Lehman Brothers Holdings, Inc., et al.
– On March 11, South Korean bulk ocean carrier Samsun Logix Corp. sought recognition of its rehabilitation proceeding under Korea’s Act on Rehabilitation and Bankruptcy of Debtors, commenced approximately one month previously in in the 3rd Bankruptcy Division of the Seoul Central District Court. The dry bulk shipping carrier sought recognition of its Korean case to protect its US-based assets during the pendency of the rehabilitation proceeding.
– Road Town, British Virgin Islands-based private investment holding company Grand Prix Associates Inc. and 10 affiliates filed Chapter 15 petitions on March 18 in Newark. The filings were commenced after the debtors sought protection in the High Court of Justice of the Eastern Caribbean Supreme Court, and were allegedly triggered by disputes over obligations with Credit Suisse Strategic Partners. The New Jersey filings were commenced to protect the companies’ US-based assests.
– Brazilian Air cargo transporter Varig Logistica SA sought recognition in Miami for its São Paulo restructuring on March 31. By the filing (and concurrent request for an injunction), the company sought relief from litigation in Florida and New York over aircraft leasing agreements while the reorganization proceeds. Litigants Pegasus Aviation I Inc., Pegasus Aviation II Inc., Pegasus Aviation IV Inc. and Pegasus Aviation V Inc. have sought relief from the automatic stay. A hearing is scheduled for May 11.
– Bernard Madoff’s English business unit, Madoff Securities International Ltd., sought Chapter 15 protection in on April 14 before Bankruptcy Judge Paul Hyman Jr. in West Palm Beach, Florida. Its liquidators seek recover assets, including a vintage Aston Martin automobile, from Madoff’s brother, Peter.
– Renton, Washington-based Washington Gaming Inc. and its corporate parent Evergreen Gaming Corp. sought recognition on April 15 in the Western District of Washington for their proposed reorganization under the Canadian Companies’ Creditors Arrangement Act (CCAA). The sole need for the Evergreen group’s decision to seek protection under the CCAA stems from Evergreen’s default with respect to a $29 million obligation to the company’s primary secured creditor, New York-based Fortress Credit Corp. The Chapter 15 case was initiated to protect the companies’ US assets while the CCAA proceeding is ongoing.
– British offshore oil and gas exploration and production company Oilexco North Sea Ltd. sought and obtained interim protection from Judge Robert Drain in New York on April 28 in advance of recognition of the company’s voluntary arrangement (CVA), then pending in London. Its Canadian parent, Oilexco Inc. – which sought separate protection under Canada’s Companies’ Creditors Arrangement Act on Feb. 5 – was not involved in the filing. Oilexco North Sea’s CVA was approved on April 15 and will be implemented on May 13, if not challenged in the interim. The company’s US filing was initiated to protect it from several domestic lawsuits.
– Clico (Bahamas) Ltd.‘s liquidator sought recognition of its Bahamian winding-up proceeding from Bankruptcy Judge Jay Cristol in Miami on April 28. The Caribbean insurer made more than $70 million in loans to various real estate developments in Florida. Recognition in the US would protect these assets, as well as others, from creditors and permit them be liquidated through the Bahamian proceedings.