IPOC International Growth Fund Ltd et Al, Re (No. 2)
| Jurisdiction | Bermuda |
| Judge | Kawaley, J. |
| Judgment Date | 06 December 2007 |
| Court | Supreme Court (Bermuda) |
| Docket Number | Civil No. 12, 12A-12H of 2007 |
| Date | 06 December 2007 |
Supreme Court
Kawaley, J.
Civil No. 12, 12A-12H of 2007
Mr. Kulandra Ratneser and Ms. Susan Davis-Crockwell, Attorney-General Chambers, for the petitioner, the Registrar of Companies.
Mr. Mark Diel, Marshall Diel & Myers, for the Companies.
Mr. Jeffrey Elkinson and Mr. Ben Adamson, Conyers Dill & Pearman, for LV Finance Group Limited (“LVFG”).
Mr. David Kessaram, Cox Hallett & Wilkinson, for Santel Limited, Avenue Limited and Janow Properties Limited and OOO Alfa-Eco (“the Alfa Companies”).
Mr. Rod Attride-Stirling and Mr. Nathaniel Turner, Attride-Stirling & Woloniecki, for OAO CT-Mobile (“CTM”).
Company law - Winding-up — Liquidator — Appointment — Validation application — Section 166 of the Companies Act, 1981 — Whether the disposition of assets affected by the settlement agreement was valid — No reason given to doubt the bona fides of the agreement — Application to appoint liquidator was dismissed — Validation application granted.
The respondents in 12 (“IPOC”), 12B (“Com Tel”) and 12E (“IPOC Capital”) issued Summonses on November 1, 2007 for an Order that, in the event that the Companies are wound-up, the disposition of assets effected by the Master Settlement Agreement dated July 25, 2007 (“MSA”) should not be avoided by virtue of section 166 of the Companies Act, 1981, (“the validation application”).On November 26, 2007, the petitioner issued a Summons for the appointment of a provisional liquidator to investigate whether or not the relevant transaction was in the best interests of the Companies (“the PL application”).
The Registrar of Companies did not positively oppose the validation application, but expressed various public interest concerns as to whether the court was in a position to accede to the application at the present time. It seemed to me that those advising the petitioner had wisely decided to adopt a precautionary position. While they were unable to identify any clear objections to the validation application, they were understandably concerned about consenting to the application only to have their client later embarrassed by unforeseeable subsequent events. The Companies may well have been a highly significant “blip” on the Bermudian regulatory screen for several years, but those regulatory concerns might not have required detailed attention to be given to the compromised litigation which has recently engaged the attention of this court.
The MSA disposes of the Companies' claims (principally the claim of IPOC International Growth Fund Limited (“IPOC”)) to the billion dollar MegaFon Stake, which has formed the subject of some 25 proceedings in Bermuda, the Bahamas, British Virgin Islands (“BVI”), Cyprus, Russia and the USA for roughly four years. In addition, it resolves arbitration proceedings in Geneva, Stockholm and Zurich. The Alfa Companies, CTM and LVFG have, under the MSA, agreed to provide the following consideration: (a) the release of actual, contingent and/or prospective costs claims worth approximately $35 million, and (b) a covenant, subject to applicable law, not to voluntarily cooperate with any prosecuting or regulatory authorities in respect of the subject of the compromised dispute (clause 29).
The principal concern raised by the petitioner's counsel was that the entire MSA was tainted by the “immorality” of clause 29, notwithstanding the fact that the MSA included a severability clause.
Having read the petitioner's written submissions and authorities, the written submissions of the Companies and the creditors and the evidence filed in relation to the various applications in advance of the hearing, I did not hear full argument from the Applicants/respondents, but only briefly heard oral submissions from counsel for the petitioner. At the beginning of the hearing, I requested and was given an undertaking by the Companies and the creditors that they would submit to this court in respect of any dispute concerning the parties' obligations under clause 29 of the MSA. Mr. Ratneser conceded that this undertaking, to some extent at least, met his client's concerns. However, he reiterated that the petitioner still had concerns about the bona fides of the transaction, based on the presently available information.
In light of this undertaking, I granted the validation application with an effective date as of 29 November 2007. I dismissed the PL application, but reserved the costs of both applications to the hearing of the Petition, and made no order as to the creditors' costs. Because of the importance of this matter, and in light of the petitioner's counsel's concerns about the suggestion that the validation order could be perceived as this court approving the validity of the MSA as a whole, including clause 29, I indicated that I would give reasons for this decision.
The Companies sought an Order in the following terms:
“In the event of an order for the winding-up of [the Companies] being made on the Amended Petition presented to the court on 19 September 2007, any disposition [the Companies'] property made pursuant to the terms of the Master Settlement Agreement exhibited to the First Affidavit of Maria Kastrista is hereby sanctioned such that it shall not be void by virtue of the provisions of section 166 of the Companies Act, 1981.”
The MSA provides for some 25 separate court and arbitration proceedings to be discontinued by the parties in the following fora: Bermuda (eleven court proceedings), BVI (four court proceedings), Cyprus (four court proceedings), District of Columbia (two court proceedings), Geneva (one arbitration), New York (one court proceeding), Russia (one court proceeding), and Zurich (one arbitration proceeding). In addition, it is agreed that the Stockholm arbitration award of April 30, 2007 will not be challenged. It is common ground between the Companies and the MSA party creditors that this litigation all revolves around IPOC's disputed claim to the MegaFon Stake. This litigation has been widely publicised in Bermuda and internationally over the last four years. IPOC claimed that it was entitled to acquire a 25.1% shareholding in a Russian telecommunications company, MegaFon, under two Option Agreements purportedly entered into with LVFG in April and December 2001. CTM contended that it validly holds the MegaFon Stake, and the Alfa Companies contend that they validly control the valuable shares through their control of CTM.
On September 1, 2006, pursuant to a Ruling dated August 31, 2006 ( [2006] Bda L.R. 67.), this court entered judgment in terms of two Zurich arbitration awards in respect of the April Option Agreement, holding that this agreement was unenforceable (In modified form, this Order confirmed the ex parte Order initially made in terms of the Awards on June 14, 2006.). The second of these awards (“the SPA”) was based on the premise that the April Option Agreement was unenforceable because the transaction involved the commission of a money laundering offence (SPA, paragraph 561). On October 6, 2006, this court granted permanent injunctions restraining IPOC from pursuing the Russian proceedings in breach of arbitration agreements between IPOC and CTM and LVFG ( [2006] Bda L.R. 69.). The Court of Appeal narrowed this injunction on March 23, 2007 ( [2007] Bda LR 43.). On December 15, 2006, this court refused the Alfa Parties' strike-out application and refused to grant an anti-suit injunction in favour of certain other Alfa entities who were defendants in a New York action brought by IPOC ( [2006] Bda LR.). An appeal against these decisions was pending when the MSA was consummated. In April 2007, a Swiss court set aside the Geneva arbitral tribunal's initial award in IPOC's favour (The status of the Geneva arbitration was referred to before this court by Mr. Elkinson in the present proceedings on May 4, 2007; Transcript page 48 lines 20–22, page 49 lines 1–4. Outstanding matters in the Zurich arbitration were also mentioned.), opening the way for LVFG to run the same money laundering defence in respect of the December Option Agreement which was successful in Zurich in respect of the April Option Agreement. This significant proceeding in respect of roughly 22.3% of the MegaFon Stake was pending when the MSA was consummated.
The status, history and extent of the litigation in Bermuda and elsewhere was quite familiar to me as the judge dealing with these matters at first instance, and could have been gleaned by the petitioner and his advisers from the published judgments in relation thereto. The Companies were also not unfamiliar to the petitioner as well because, as his own Petition states in the present case, on March 18, 2005, Messrs. Malcolm Butterfield and Michael Morrison of KPMG were appointed as Inspectors by the Minister of Finance under section 132 of the Insurance Act, 1978. These prominent Bermuda insolvency practitioners reported on June 30, 2006. The Registrar of Companies presented this Petition (which as Amended on September 19, 2007 runs to 64 pages) on January 12, 2007. Reliance is placed on various regulatory infractions and uncertainty about the beneficial ownership of the Companies. But there is no suggestion that the Companies are believed to be insolvent. No creditors other than the parties involved in the MegaFon Stake appeared on the hearing of the Petition. This is unsurprising, because the Petition itself asserts that: (a) apart from a four month period in 2003, “IPOC's investments consisted exclusively of shares or options to acquire an interest in …MegaFon” (paragraph 73), and (b) the “main asset of Com Tel was an interest in the shareholding of MegaFon” (paragraph 159). IPOC Capital was seemingly simply an investment manager for the IPOC and Com Tel funds (paragraph 242).
Having regard...
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