Re Energy XXI Ltd

• Jurisdiction: Bermuda
• Judgment Date: 18 August 2016
• Date: 18 August 2016
• Docket Number: Commercial Jurisdiction 2016 No 136
• Court: Supreme Court (Bermuda)

[2016] Bda LR 90

In The Supreme Court of Bermuda

Commercial Jurisdiction 2016 No 136

In the Matter of Energy XXI Ltd

Mr S White for the Provisional Liquidator

Ms R Mayor for the Company

Mr D Duncan for the Equity Committee

The following cases were referred to in the judgment:

Re ICO Global Communications (Holdings) Ltd [1999] Bda LR 69

Singularis Holding Ltd v 47

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

Rubin v Eurfinance SA [2013] 1 AC 236

Parallel restructuring proceedings for Bermuda company — Application by provisional liquidator for prospective recognition order in relation to US plan confirmation order — Jurisdiction to recognise restructuring orders made by foreign courts in relation to local companies — Conflict of law — Jurisdiction to grant stay in support of recognition order

JUDGMENT of Kawaley CJ

Background

1. On April 14, 2016 at 8.13 am, the Company presented a Petition for its own winding-up. The Petition averred that the Company's ability to operate had been impaired by “liquidity issues”. With a view to implementing an April 11, 2016 Restructuring Support Agreement (“RSA”) with a representative group of noteholders, at 2.01am that same day the Company and 25 other Group members had commenced a Chapter 11 of the United States Bankruptcy Court proceeding in the Southern District of Texas, Houston Division (the “Texas Court”).

2. On the same date that the Petition was filed, the Company issued an Ex Parte Summons for the appointment of John McKenna of Finance and Risk Services Ltd as PL. That application was heard on April 15, 2016, the following day when I made an Order appointing John McKenna as PL with, inter alia, the following powers under paragraph 1:

• “(a) to review the financial position of the Company;

• (b) to monitor the continuation of the business of the Company under the control of the Company's Board of Directors and under the supervision of this Court and the US Court;

• (c) to oversee and otherwise liaise with the existing board of directors of the Company (the ‘Board’) and the creditors and [shareholder[s]] of the Company in determining the most appropriate manner of effecting a reorganization and/or refinancing of the Company in conjunction with proceedings commenced (a) in this Court, and (b) under the Provisions of Chapter 11 of the United States Bankruptcy Court for the Southern District f Texas, Houston Division or (c) such other proceeding as deemed appropriate by the Company after consultation with the PL;

• (d) to consult with and assist the Company as a debtor in possession in the chapter 11 case regarding the strategy of the chapter 11 reorganisation;

• (e) to receive notice of hearings and, if thought appropriate by the Company and the PL, to appear and to be heard in the chapter 11 case…”

3. The first return date of the Petition was June 3, 2016 when it was adjourned by Hellman J to November 4, 2016 at 9.30 am. The PL submitted his First Confidential Report to the Court which I ordered to be sealed on June 15, 2016 at a private hearing at which I also approved both the steps taken by the PL to date and the steps proposed to be taken by him. Accordingly, before the present application was issued, I had not once but twice made Orders approving the Company's pursuit of a restructuring:

• i. with the creditors’ interests protected through the appointment of the PL with what are commonly referred to by practitioners as ‘soft-touch’ powers;

• ii. on terms that the Texas Court would be the primary restructuring forum and this Court the ancillary forum; and

• iii. against the background of the proposed Chapter 11 Plan being the product of an RSA between the Company as part of larger corporate Group and key creditor stakeholders.

4. Thereafter, on June 24, 2016, the PL issued the Inter Partes Summons to which the present Judgment relates seeking:

“an Order that recognition of a Plan of Reorganization of the Company under Chapter 11 of the US Bankruptcy Code be granted by this Court by permanently staying all claims of creditors and shareholders brought in this jurisdiction against the Company such recognition to be effective upon the confirmation of the Plan by the US Bankruptcy Court sitting in the Southern District of Texas, Houston Division…”

5. The PL's Summons came on for effective hearing on August 8, 2016 when I acceded in part to an application by the recently instructed counsel for the Equity Committee for an adjournment by granting a seven day adjournment to enable any reasons why the PL's application for a Recognition Order should not be granted to be identified. From a Bermudian law perspective, the Equity Committee appeared to have no tangible economic interest in the Company. However the Committee had been established by the Texas Court which had also authorised the retention of Bermudian counsel to advise the Committee on Bermudian law issues. It appeared to me that the goal of cross-border cooperation which underpinned the present proceedings warranted some deference to be shown to the Committee's concerns.

6. However, having reviewed the relevant1 evidence and written skeleton arguments in advance of the resumed hearing and heard further oral argument, on August 15, 2016 I granted the Recognition Order sought.

7. I now give reasons for that decision.

Jurisdiction to restructure an insolvent Bermudian company through provisional liquidation proceedings running in tandem with foreign restructuring proceedings to which the Bermudian company is a party

8. The Court's jurisdiction to entertain a winding-up petition which has been presented by an insolvent company which proposes to pursue a restructuring through parallel ‘soft-touch’ provisional liquidation proceedings here and Chapter 11 proceedings in the US Bankruptcy Court, on the explicit basis that the US proceeding will be the primary proceeding and the Bermudian proceeding an ancillary one, has not been seriously questioned in this Court for more than 15 years. In Re ICO Global Communications (Holdings) Limited[1999] Bda LR 69, L.A. Ward CJ dealing with broadly similar facts held as follows:

• “5. A look at the background to the application may be instructive. On 27^th August 1999 a Petition was filed by the company which was insolvent seeking

  the appointment of joint provisional liquidators. There was no prayer that the company be wound up immediately. On the same date the company filed for protection under Chapter 11 of the US Federal Bankruptcy Code to allow it to consider a re-financing/re-organisation which, if successful, would result in the company continuing business.

• 6. An Order was made that Messrs Wallace and Butterfield be appointed joint provisional liquidators. I am satisfied that the Court is given a wide discretion and had jurisdiction under section 170 of the Companies Act 1981 and Rule 23 of the Companies (Winding-Up) Rules 1982 to make such an Order. Under it the directors of the company remained in office with continuing management powers subject to the supervision of the joint provisional liquidators and of the Bermuda Court.

• 7. I do not accept that because the company is a Bermuda registered company therefore the Bermuda Court should claim primacy in the winding-up proceedings and deny the joint provisional liquidators the opportunity of implementing a US Chapter 11 re-organisation. Nor do I accept that a Chapter 11 re-organisation will, of its very nature, destroy the rights of creditors and contributories under the regime being established. Such an approach would be to deny the realities of international liquidations where action must be taken in many jurisdictions simultaneously. In this case proceedings are being conducted in the USA and in the Cayman Islands as well as in Bermuda. The aim of the proceedings is to enable the company to re-finance in the sum of $1.2 billion or to re-organise so as to continue in operation. Under such circumstances this Court should co-operate with Courts in other jurisdictions which have the same aim in relation to the affairs of the company. It is not a question of surrendering jurisdiction so much as harmonisation of effort. Moreover, the joint provisional liquidators are officers of this Court who submit Confidential Reports informing the Court of progress being made in the liquidation from time to time. I am satisfied that proceedings in many jurisdictions relating to the same subject matter may properly be conducted at the same time where there is a connecting factor. (Barclays Bank plc v Homan and others[1993] BCLC 680).”

9. Mr White for the PL aptly relied upon this authority, and subsequent practice based on it, for the broad proposition that the jurisdiction clearly existed for this Court to (a) recognise a foreign restructuring court as the COMI (centre of main interests) of a Bermudian company, and to (b) recognise a Plan approved by the foreign court without implementing a local scheme of arrangement.

10. There is always a risk that a creditor or shareholder who is not party to or otherwise bound by the foreign restructuring proceeding might, absent a Bermudian parallel scheme, having standing to contend that the foreign court's order approving the foreign plan or scheme of arrangement ought not to be recognised as binding on the dissenting party under Bermudian law. The Equity Committee, however, clearly did not represent parties not bound by the Texas Court's orders: it was a creature of the Texas Court itself.

Alleged abuse of process

11. However, Mr Duncan effectively sought to characterise the orthodox view of the legal position set out above as heresy. In his Skeleton Argument, the following arguments were advanced:

• “53.5 As the Supreme Court's jurisdiction to make a winding up order is wholly statutory in nature, it follows that the Petition has been presented outside the categories provided for by statute...