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    Posts Tagged ‘Mexico’

    Chapter 15 Round-Up

    Tuesday, August 24th, 2010

    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.

    Bernard Madoff's mugshot
    Image via Wikipedia

     

    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.

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    The Stanford Saga – Chapter 13: Three Questions About Recognition

    Monday, December 14th, 2009

    An update regarding Peter Wastell and Nigel Hamilton-Smith’s dispute with federal Receiver Ralph Janvey over control of Stanford International Bank Ltd. (SIB)’s financial assets, and the 13th in a series on this blog covering the dissolution of Allen Stanford’s erstwhile financial empire and alleged international “Ponzi scheme” – a dissolution playing out in Montreal, London, and Dallas.

    Wastell and Hamilton-Smith, liquidators appointed by Antiguan regulators for the purpose of winding up SIB in Antigua, and Janvey – a federal Receiver appointed at the behest of the US Securities and Exchange Commission to oversee the dissolution of Stanford’s financial interests in connection with an enforcement proceeding in the US – have sought recognition of their respective efforts in courts outside their home jurisdictions.  Each has met with mixed results: Janvey’s request for recognition was denied in the UK, while Wastell and Hamilton-Smith, originally recognized in Canada, have been removed and replaced by a Canadian firm.  Each of these results has been appealed.

    Meanwhile, Wastell and Hamilton-Smith have sought recognition of the Antiguan wind-up in Janvey’s home court pursuant to Chapter 15 of the US Bankruptcy Code.  Initial briefing was submitted several months ago; supplemental filings (including copies of the decisions rendered in London and Montreal) have been trickling in.  US District Court Judge David Godbey has set an evidentiary hearing for mid-January 2010.

    Messr’s. Wastell and Hamilton-Smith’s supplemental brief, filed last week in Dallas, addresses three issues, apparently raised by Judge Godbey during a recent conference call with the parties:

    The Current State of Fifth Circuit Law on What Constitutes an Entity’s “Principal Place of Business,” Including Whether Stanford International Bank’s (“SIB”) Activities Were Active, Passive or “Far Flung.”

    The liquidators acknowledge that while Chapter 15 of the US Bankruptcy Code doesn’t refer to an entity’s “principal place of business” in dealing with a cross-border insolvency, many US courts nevertheless analogize an entity’s “principal place of business” to its “center of main interests” (COMI) for purposes of determining the forum that should host the “main case.”   The American approach is, according to the liquidators, similar to that followed by European courts.

    That said, what constitutes an entity’s “principal place of business” is not a settled question under US federal case law: The Fifth Circuit (where the Stanford matters are pending) applies a “total activity” test, which is also applied by the Sixth, Eighth, Tenth and Eleventh Circuits, whereas the Ninth Circuit applies a “place of operations” test, the Seventh Circuit applies a “nerve center” test, and the Third Circuit examines the corporation’s center of activity.  The liquidators suggest in a footnote that these “varying verbal formulas” are functional equivalents, and “generally amount to about the same thing” under nearly any given set of facts.

    A significant portion of the liquidators’ brief is devoted to applying the facts of SIB’s dissolution to the Fifth Circuit’s “verbal formula;” i.e., “(1) when considering a corporation whose operations are far-flung, the sole nerve center of that corporation is more significant in determining principal place of business, (2) when a corporation has its sole operation in one state and executive offices in another, the place of activity is regarded as more significant, but (3) when the activity of a corporation is passive and the ‘brain’ of that corporation is in another state, the situs of the corporation’s brain is given greater significance.”  See J.A. Olson Co. v. City of Winona, 818 F.2d 401, 411 (5th Cir. 1987).

    The liquidators argue:

    – SIB’s principal place of business was in Antigua;

    – SIB’s activities were neither “passive” nor “far flung” and thus the “nerve center” test should not predominate; but

    – even if SIB’s operations were passive or far flung (which they were not), its “nerve center” was in Antigua.

    The Relationship Between SIB and the Financial Advisors Who Marketed SIB’s CDs to Potential Investors.

    The liquidators are emphatic that financial advisors who marketed and sold SIB’s CD’s to potential investors were not, in fact, agents of SIB.  Rather, “they operated individually under management agreements with SIB, or were employed by other Stanford companies which had management agreements with SIB . . . .  These advisors worked for Stanford related entities all over the world, including Antigua, Aruba, Canada, Colombia, Ecuador, Mexico, Panama, Peru, Switzerland, and Venezuela, as well as in the United States . . . . All of the financial advisors marketed the CDs but none had authority to contract on behalf of SIB . . . . Further, Liquidators understand that the financial advisors sold other Stanford-related products besides SIB CDs.”  Those advisors who were located in the US ‘worked for an entity called the Stanford Group Companies (“SGC”), and though they marketed SIB CDs to potential depositors, they were not agents of SIB.'”

    Put succinctly, the liquidators’ argument is that an international network of independent sales agents does not create the sort of “agency” that would alter cross-border COMI analysis under US law: “[US] Courts analyzing similar circumstances have consistently held that a company’s COMI or its principal place of business is in the jurisdiction where its operations are conducted even if the company has sales representatives in other jurisdictions.”

    The “Single Business Enterprise” Concept as Part of the “Alter Ego” Theory of Imposing Liability.

     Finally, the liquidators argue that SIB is neither part of a “single business enterprise” nor an “alter ego” of other Stanford entities or of Stanford’s senior managers – and their respective “principal place[s] of business” in the US cannot be imputed to SIB for purposes of determining SIB’s COMI.  This is so, according to Messr’s. Wastell and Hamilton-Smith, because:

    – The doctrine of “single business enterprise” liability is a particular creature of Texas law – which, in addition to being inapplicable to an Antiguan-chartered international bank such as SIB, is itself no longer viable even in Texas.  See SSP Partners v. Gladstrong Invs. (USA) Corp., 275 S.W.3d 444, 456(Tex. 2008) (rejecting the theory because Texas law does not “support the imposition of one corporation’s obligations on another” as permitted by the theory); see also Acceptance Indemn. Ins. Co. v. Maltez, No. 08-20288, 2009 WL 2748201, at *5 (5th Cir. June 30, 2009) (unpublished) (recognizing the holding of Gladstrong).

    – The doctrine of “alter ego” does not apply because its primary use is to permit corporate creditors to “pierce the corporate veil” and seek recourse from the corporation’s parent or individual shareholders.  Here, the liquidators argue, Mr. Janvey is attempting to pierce the corporate veil in the opposite direction:  He is attempting to permit creditors of a corporate parent or individual principals to seek recourse from a distinct and separate foreign subsidiary.  Such “reverse veil piercing” is properly obtained (if at all) through the “extreme and unsual” remedy of substantive consolidation through bankruptcy.  However, liquidation of the Stanford entities through a federal bankruptcy proceeding is something Mr. Janvey has, to date, “studiously avoided.”

    – The equitable purposes of the “alter ego” doctrine would be frustrated in this case.  The “injustice” that “alter ego” relief is designed to reverse would, in fact, only be furthered where SIB investors would see their recoveries diluted by creditors of other Stanford entities.

    Mr. Janvey’s response is due December 17.

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