Royal Chemie International Ltd v Barclays Bank Plc and Erste Abwicklungsanstalt

• Jurisdiction: Bermuda
• Judgment Date: 11 December 2015
• Neutral Citation: [2015] SC Bda 91 Com
• Date: 11 December 2015
• Docket Number: CIVIL JURISDICTION COMMERCIAL COURT 2015: No. 441
• Court: Supreme Court (Bermuda)

[2015] SC (Bda) 91 Com

In The Supreme Court of Bermuda

CIVIL JURISDICTION COMMERCIAL COURT 2015: No. 441

In the Matter of Royal Chemie International Limited

And in the Matter

Between:

Royal Chemie International Limited

Applicant

and

(1) Barclays Bank Plc

(2) Erste Abwicklungsanstalt

Respondent

Mr Narinder Hargun and Ms Robin Mayor, Conyers Dill and Pearman Limited, for the Applicant (‘the Company’)

Mr. Rod Attride-Stirling and Ms Kehinde George, ASW Law Limited, for the Respondents

RULING ON APPLICATION TO DISCHARGE AN INJUNCTION

(in Chambers)

Introductory

1 By A Specially Endorsed Writ of Summons filed on October 29, 2015, the Applicant sought a permanent injunction restraining the Respondents from presenting a petition to wind up the Applicant on the basis of statutory demands served on September 28, 2015, or otherwise. By an Ex Parte Summons issued on the same date, the Company sought an interim injunction in similar terms. On October 30, 2015, I granted the interim injunction sought (‘the Injunction’).

2 The Company's case was that the threatened petition would be an abuse of process on the following grounds. The Respondents were one of several syndicated lenders under a Facility Agreement entered into with the Company on February 27, 2012 (as subsequently amended) (‘the Facility Agreement’). The Facility Agreement contained a mechanism whereby the Majority Lenders in respect of Facility A and Facility B could modify the terms of the Facility Agreement.

3 In 2013 certain investors commenced negotiations on a proposed purchase of the Syndicated Lenders” rights. An “Exit Offer” was made by Avalon Hills Pte Ltd (‘Avalon’) in the amount of $US 50 million (the original contractual amount was $90 million) which lapsed. On September 22, 2015, Avalon made a “Renewed Exit Offer” to purchase Syndicated Lenders” rights under the Facility Agreement for a mere $18.75 million. This offer was approved by the Majority Lenders as of October 19, 2015, a decision which is said to be binding on the Respondents. Upon completion of the Sale and Purchase Agreement (‘SAPA’) all amounts otherwise due under the Facility Agreement will be extinguished. It was a condition of the SAPA that no enforcement action be outstanding on the part of Syndicated Lenders prior to completion. The Respondents were contractually bound by the vote of the Majority Lenders and were seeking to take enforcement action to assert improper pressure on the Company with a view to obtaining preferential settlement terms. Any petition presented by the Respondents in these circumstances would be an abuse of process, the Company contended.

4 By Summons dated November 5, 2015, the Respondents applied to set aside service of the Writ on technical grounds. I refused that application on November 9, 2015 and awarded costs to the Applicant. On November 13, 2015, the Respondents issued a Summons seeking to set aside the Injunction. In short, the Respondents contend that they are fully entitled to take enforcement action under the Facility Agreement, properly construed. They also assert that they believe they would obtain a better recovery if the Company was liquidated than if the Renewed Exit Offer (which offers a return of only 15 cents on the dollar) were to be completed. The Company's interest in supporting that offer is said to be to reduce its debt with a view to a future IPO which will benefit its shareholders at the expense of its Syndicated Lenders.

5 By the time this Summons was heard, it was clear that the Security Agent was taking no steps to complete the SAPA because of the dispute between the present parties as to the proper construction of the Facility Agreement.

Findings: legal principles governing restraining the presentation of a winding up petition

6 Mr Hargun submitted un-controversially that it was an abuse of process to present a petition for an improper purpose: Roberts –v-Wayne Roberts Concrete Construction Pty Ltd. [2004] NSWSC 734. Here, the impropriety lay in the Respondents' service of statutory demands in breach of its contractual relations and the threatened abuse of process lay in seeking to petition for their own benefit rather than that of the class they notionally represented. Reliance was placed on Lord Wilson's following observations in Ebbvale Limited-v—Andrew Lawrence Hosking [2013] UKPC 1 where he approved earlier dicta of Harman J in In re a Company [1983] BCLC 492 at 495:

‘ 28…“In my judgment the true question is “for what purpose does the petitioner wish to wind up this company”. A judge has to decide whether the petition is for the benefit of the class of which the petitioner forms part or is of some purpose of his own. It the latter, then it is not properly brought”…’

7 Mr Attride-Stirling reminded me of my own observations in Agrenco Limited-v—Credit Suisse Brazil (Bahamas) Limited [2014] Bda LR 38:

‘ 6. It was essentially common ground between the parties that the Company bore the burden of establishing a prima facie case that presentation of a Petition based on the Statutory Demand would be an abuse of process …

8. In my judgment, where a would be petitioner is admittedly owed an undisputed sum and the company seeks to restrain the presentation of a petition… the company's evidence may fairly be scrutinised more carefully because the creditor's constitutional rights of access to the Court under section 6(8) of the Bermuda Constitution are engaged.

9. Another feature which ought in my judgment result in this Court being cautious about restraining the presentation of a petition based on an undisputed debt against an insolvent company did not appear to be explicitly addressed in the authorities cited by counsel. It is well recognised that an unpaid creditor who petitions is asserting a representative right on behalf of unsecured creditors as a class. It is one thing to dismiss such a petition after it has been advertised and other creditors have been afforded an opportunity to apply for substitution if necessary. It is another to prevent such a petition from being filed, and potentially prejudicing the rights of other unsecured creditors of an insolvent company…’

8 On the facts of the present case, I find that the Company bears the burden of demonstrating a prima facie case that the Respondents are not contractually entitled as Syndicated Lenders to pursue unilateral enforcement action because they are contractually bound by the choice of the Majority Lenders to accept the Renewed Offer and permit it to be completed.

The Facility Agreement: Overview

9 The Facility Agreement was entered into between the Company, Credit Suisse AG Singapore Branch (as Security Agent and as Account Bank) and the Original Lenders listed in Schedule 1. The key clauses relied upon by the Company were the following:

• • 35.1.1, which provides:

  ‘Subject to Clause 35.2 (Exceptions) and Clause 27.3 (Releases) any term of the finance documents may be amended or waived only with the consent of the Majority Lenders and the Obligors…and any such amendment or waiver will be binding on all Parties.’

• • 35.2 (‘Exceptions’) has no relevant exceptions.

10 The key clauses relied upon by the Respondents were the following:

• • 2.3.1, which provides:

  ‘The obligations of each Finance Party under the Finance Documents are several…’

• • 2.3.2, which provides:

  ‘The rights of each Finance Party under or in connection with the Finance Documents are separate and independent rights and any debt arising under the

  Finance Documents to a Finance Party from an Obligor shall be a separate and independent debt.’

• • 2.3.3, which provides:

  ‘A Finance Party may, except as otherwise stated in the Finance Documents, separately enforce its rights under the Finance Documents.’

• • 4.8 (‘Early Exit Option’), which only expressly contemplates the Majority Lenders shortening the notice period for offers received prior to June 30, 2012.

• • 16 (‘Events of Default’), which contemplates, inter alia, winding-up proceedings being commenced against the Company.

• • 25 generally, which regulates the treatment of payments received by individual lenders otherwise than from the Security Agent under 29.

• • 25.5.2, which provides:

  ‘A Recovering Finance Party is not obliged to share with any other Finance Party any amount which the Recovering Finance Party has received or recovered as a result of taking legal or arbitration proceedings, if

  • (i) it notified the other Finance Party of the legal or arbitration proceedings ; and

  • (ii) the other Finance Party had an opportunity to participate in those legal or arbitration proceedings but did not do so as soon as reasonably practicable having received notice and did not take separate legal or arbitration proceedings.’

11 Without taking into account the contentious evidence adduced by the Company in relation to the drafting history of the Agreement, it seemed clear to me that the Majority Lenders were empowered to amend any provision of the Facility Agreement not expressly excepted. The Early Exit Option clause was not excluded. However, it seemed equally clear that the Respondents were given individual enforcement rights by the Facility Agreement which the Majority Lenders had not expressly voted to abrogate.

12 How these separate rights, the collective amendment rights of the Majority Lenders and the individual enforcement rights asserted by the Respondents, were exercisable in the event of conflict was a more difficult question. This Court has, to my knowledge, never previously considered this sort of question in the syndicated loan context. In light of this, I invited supplementary submissions.

Findings: key issues and chronology of key events

13 The key dates relied upon by the Respondents were as follows:

• • July 9, 2015: the 1 ^st Respondent gave notice under clause 25.5 of enforcement action under the Facilities...