Re C & J Energy Services Ltd

• Jurisdiction: Bermuda
• Judgment Date: 28 February 2017
• Date: 28 February 2017
• Docket Number: Commercial Jurisdiction 2016 No 271 & 272
• Court: Supreme Court (Bermuda)

[2017] Bda LR 22

In The Supreme Court of Bermuda

Commercial Jurisdiction 2016 No 271 & 272

In the matter of C & J Energy Services Ltd No 42239

Mr J Wasty for the Petitioners

The following cases were referred to in the judgment:

Singularis Holdings Ltd v PricewaterhouseCoopersELR [2015] AC 1675

Rubin v Eurofinance SAELR [2013] 1 AC 236

Cambridge Gas Transport Corp v Official Committee of Unsecured Creditors of Navigator Holdings PlcELR [2007] 1 AC 508

Re Energy XXI LtdBDLR [2016] Bda LR 90

Re Loral Space & Communications LtdBDLR [2007] Bda LR 26

Parallel restructuring proceedings for Bermuda affiliated companies — Bermuda provisional liquidation and Chapter 11 proceedings in US — Application by joint provisional liquidators for recognition order in relation to US plan confirmation order — Application for winding-up order and accelerated liquidation process — Jurisdiction to dispense with statutory meetings

JUDGMENT of Kawaley CJ

Background

1. On July 21, 2016, the Companies petitioned for their own winding-up at the instance of decisions made by their respective boards of directors. C & J Energy was the ultimate parent company of the Group and C & J Corporate was its wholly owned subsidiary. The Group's operations are in the oilfields services sector. The purpose of the Bermuda filings were to enable the Companies to take part in a Group restructuring of debt obligations estimated at $1.38 billion in which the main proceedings would be Chapter 11 proceedings in the United States Bankruptcy Court for the Southern District of Texas, Houston (‘USBC’) with Canadian affiliates commencing ancillary proceedings under the Canadian Companies Creditors Arrangement Act (‘CCAA’) in Alberta, Canada. The Petitions sought the following main relief, praying:

• ‘(i) that upon the first return date, this petition be adjourned for an initial period of 6 months;

• (ii) that at such time as the Petition is listed for hearing, if so moved by the Petitioner, the Petitioner be wound up by the Court under the provisions of the Companies Act;

• (iii) that Matthew Clingerman and Grant Lyon, both of Krys Global, be appointed Joint Provisional Liquidators of the Petitioner…’

2. The USBC filings were made on July 20, 2016. The Companies applied by Ex Parte Summonses issued on July 21, 2016 for the appointment of the joint provisional liquidators named in the Petitions (‘the JPLs’). Following a hearing on July 22, 2016, the JPLs were appointed by this Court. The Petitions were first heard in open court on August 25, 2016 when they were adjourned, without opposition, to February 24, 2017.

3. On December 16, 2016, the USBC confirmed a Second Amended Joint Plan of Reorganization (‘the Joint Plan’) which extinguished the Companies' debt. On February 22, 2017, the Companies issued a joint Summons seeking an Order that:

• i. the Joint Plan be recognised;

• ii. claims against the Companies by creditors and shareholders subject to the Joint Plan be permanently stayed;

• iii. the Companies be wound-up;

• iv. the JPLs be appointed as joint liquidators of the Companies;

• v. the requirements for, inter alia, convening the first meetings of creditors and contributories under sections 171, 168, 181 and 185 be dispensed with.

4. That Summons was issued returnable for February 24, 2017 and was heard together with the adjourned Petitions. On that date, again without opposition, I granted the relief sought by the Summons, recognising the Joint Plan, staying claims against the Companies, winding-up the Companies, appointing the JPLs as (permanent) Joint Liquidators and authorising an accelerated liquidation process.

5. The February 24, 2017 hearing was interposed into the trial of an unrelated matter which made it logistically impossible for me to give reasons for my decision despite the helpfully full written submissions which were placed before the Court. I now give reasons for the most important aspects of the Order made. While this Court had recently considered the jurisdiction to recognise a Chapter 11 plan, the jurisdiction to authorize an accelerated winding-up procedure had only previously been analysed by reference to reasoning in a Privy Council decision which had more recently been held to be wrong. In deciding to seek to clarify the law in this area, I considered that the following remarks of Deemster Doyle (in Isle of Man Financial Authority v Louis and Others, CHP 2016/73, Judgment dated February 23, 2017) applied with equal force to the Bermudian courts:

‘120. The Isle of Man is a compact jurisdiction with a limited number of full-time judges sitting at first instance and a limited number of judges sitting at appellate level. It is important that those local judges offer as much guidance as they reasonably and properly can and in that way develop Manx jurisprudence and assist litigants, lawyers and members of the community in an understanding of the relevant Manx law and procedure…’

The Joint Plan

6. For present purposes, it suffices to describe the Joint Plan as a “debt-for-equity swap” in which creditors agreed to extinguish their debt in the various debtors in return for equity in a reorganised new entity. The JPLs prepared a Report dated February 21, 2017 which summarised the voting in favour the Joint Plan as follows:

• i. C & J Energy:

  • • Unsecured Convenience Class: 100% in value and number,

  • • General Unsecured Claims: 99.98% in value, 98.40% in number,

  • • Equity Interests: 99.96 in value, 96.06 in number;

• ii. C & J Corporate:

  • • Unsecured Convenience Class: 100% in value and number,

  • • General Unsecured Claims: 100% in value and number.

7. The Report stated that the liquidation return analysis filed with the USBC projected a return to unsecured creditors of 1.39–1.94 cents on the dollar. The first amended plan filed by the Debtors projected a return to creditors 14–16 cents on the dollar. The estimated return to creditors under the Joint Plan is in the range of 56.7–57.5 cents on the dollar.

8. These liquidation analysis figures spoke volumes. It was unsurprising that, despite advertisement of the present proceedings and the USBC proceedings several months ago, there was no dissenting creditor before the Court. Of those who participated in the voting on the Joint Plan, only a minute percentage in value (0.02%) and in number (1. 6%) of C & J Energy's creditors had dissented.

9. To my mind it was almost inconceivable that any dissenting creditor of the Companies (being a creditor arguably not bound by the Joint Plan) could have mounted a credible challenge to the merits of this commercial outcome. However for Bermuda law purposes in the context of an unopposed application for recognition of the Joint Plan followed by a winding-up order, the most significant aspect of the USBC Confirmation Order was its effect under US law of extinguishing all debt and equity claims against the Companies. This may be illustrated by one brief extract from the terms of the Joint Plan (at page 26):

‘On the Effective Date, except to the extent otherwise provided in the Plan, all notes, instruments, certificates, and other documents evidencing Claims or Interests, including credit agreements and indentures, shall be cancelled and the obligations of the Debtors… thereunder or in any way related thereto shall be deemed to be satisfied in full, cancelled, discharged and of no force and effect…’

10. To the extent that the Companies were seeking to implement an accelerated Bermuda winding-up by way of modification of the general statutory regime through this Court's recognition of the Joint Plan, I have always looked for evidence that the Joint Plan expressly or by necessary implication seeks to achieve this effect. If the statutory regime was being modified through a local scheme of arrangement, any such modifications to the statutory regime would almost invariably be explicitly addressed. On proper analysis however, for the reasons set out below, the statutory regime need not be modified as it is sufficiently pliable to accommodate circumstances where a “full-blown” winding-up has become redundant. In my judgment it is nevertheless preferable for any intention to modify the usual operation of local statutory winding-up regime to be set out in a Chapter 11 plan in express terms. In the present case, Mr Wasty referred the Court to the following provisions of clause 2(c) of the “Description of Restructuring Transactions” annexed to the Joint Plan as EXHIBIT M:

‘(xii)…Each of C & J Energy [and] C & J Corporate Services…liquidate in accordance with Bermuda law. For the avoidance of doubt, the holders of equity interests in C & J Energy are not entitled to receive any further distributions from C & J Energy.’

11. The avoidance of doubt provision only mentioned (a) equity interests and (b) C & J Energy (perhaps because it was being reconstituted as “Reorganized C & J Energy”). Counsel fairly submitted that this admittedly brief reference to the Bermuda liquidation process read with the Joint Plan as a whole sufficed to demonstrate an implied agreement to waive the right to participate in the proposed Bermuda windings-up. This in turn justified this Court in directing that a “short-form” winding-up could take place.

12. I was bound to accept that since a central feature of the Joint Plan was to extinguish all debt and equity claims against the Debtors (including the Companies) it really was as “plain as a pikestaff” that the liquidation contemplated in Bermuda was an abbreviated one.

The Confirmation Order

13. This Court was in substance being asked to recognise both the Joint Plan and the Confirmation Order which gave legal birth to the Joint Plan. The following findings of Judge David R. Jones were particularly pertinent:

‘29…the provisions of the Plan constitute a good faith compromise of all Claims, Interests, and controversies relating to the contractual...