US Holdings Ltd

• Jurisdiction: Bermuda
• Judge: Hargun CJ
• Judgment Date: 17 February 2023
• Docket Number: 2022 No. 289
• Court: Supreme Court (Bermuda)

In the Matter of US Holdings Ltd

In the Matter of the Companies Act 1981

[2023] SC (Bda) 13 Civ.

Before:

The Hon. Chief Justice Hargun

2022 No. 289

In The Supreme Court of Bermuba

CIVIL JURISDICTION

(COMMERCIAL COURT)

Application for the appointment of joint provisional liquidators with full powers for the purposes of restructuring the equity and indebtedness of the company; whether the application is being made for improper purpose; whether commercial pressure or leverage amounts to an improper collateral purpose; the test for the appointment of a provisional liquidators; whether the court should dismiss or adjourn the application on the basis that there are exceptional circumstances

Representation:

Mr Henry Tucker of Carey Olsen Bermuda Limited for the Petitioner

Mr Kevin Taylor of Walkers (Bermuda) Limited for US Holdings Ltd

Ms Lilla Zuill of Harneys (Bermuda) Ltd for BMK Resources Ltd

Hargun CJ

A. Introduction

1 These proceedings concern a Petition presented by Outrider Master Fund, LP (“the Petitioner”) seeking an order that US Holdings Ltd (“the Company”) be wound up by the Court under the provisions of the Companies Act 1981 (“the Act”) and that Mr Michael Morrison and Mr Charles Thresh of Teneo (Bermuda) Limited be appointed as joint provisional liquidators of the Company (“JPLs”).

2 The Petition is based on a statutory demand dated 2 September 2022 (“the Statutory Demand”) demanding immediate repayment of the Facility A Repayment Amount and the Outrider Facility C Repayment Amount, being at least US $45,796,237. It is asserted in the Petition that the Statutory Demand was made on the Company following the Company's failure to honour its obligations. It is said that the Company has failed to pay the amounts due to the Petitioner as set out in the Statutory Demand or otherwise. In the premises, the Petitioner asserts that the Company is unable to pay its debts as they fall due whether by reason of the Statutory Demand pursuant to section 162(a) of the Act or otherwise and should therefore be wound up.

3 However, whilst the Petition was returnable at the hearing on 20 December 2022, the Petitioner is not seeking the winding up of the Company (at least at this stage) but instead is seeking the appointment of JPLs with full powers for the purposes of restructuring the Company. Indeed, as an earlier hearing on 28 ^th of October 2020 Mr Tucker advised the Court that “it is unlikely that we will be seeking a full winding up order, because we don 7 want to necessarily destroy any value that might exist”.

B. The Background

4 The background to these proceedings is uncontroversial and is set out in the Petitioner's written submissions. On 18 May 2021, the Petitioner served a statutory demand on the Company (then known as Madagascar Oil Ltd) pursuant to section 162 (a) of the Act demanding repayment of US $36,816,841.18, due pursuant to the Facility A Loan, issued on 15 June 2017.

5 On 20 August 2021, the Petitioner presented a petition in respect of the Company (by then known as Green Acquisition Ltd) on the grounds of the Company's insolvency.

6 The Petitioner agreed to withdraw that petition as the Company and Petitioner agreed to the Twelfth Amendment & Restatement of the Facilities Agreement (“12 ^th A&RFA”), which in turn extended the repayment date for the amounts owed to the Petitioner by the Company to 31 August 2022. The Company was unable to honour the 12 ^th A&RFA agreement and the amounts owed to the Petitioner were not repaid by 31 August 2022.

7 On 2 September 2022, the Petitioner served the Statutory Demand on the Company (again known as Madagascar Oil Ltd) pursuant to section 162 (a) of the Act demanding repayment of US $45,796,237, due pursuant to the Facility A Loan and Facility caps the Loan.

8 On 29 September 2022, the Petitioner presented the Petition in respect of the Company (now known as US Holdings Limited) on the grounds of insolvency.

9 On 27 October 2022, by way of a letter to the Petitioner's attorneys, the Company's attorneys contended that the Petition was subject to an arbitration agreement. In the end the contention that the issues raised and relief sought in the Petition were the subject matter of mandatory arbitration proceedings was not pursued.

10 On 28 October 2022, at the hearing the Petitioner made known to the Court and the Company its intention to have JPLs appointed in the first instance in lieu of a winding up order. The Court ordered the issue of whether JPLs should be appointed, as well as whether the Petition is subject to an arbitration, should be dealt with by way of a rolled up hearing.

C. Position of the Parties

11 The Petitioner's application for the winding up order and the appointment of the JPLs is supported by the two affidavits of Mr Stephen Hope, Managing Member of the General Partner of the Petitioner, dated 2 November 2022 and 6 December 2022. In his second affidavit Mr Hope states that the purpose of filing the petition is either to receive payment for the Petition that from the Company or to appoint independent officers of the Court as JPLs for the purposes of evaluating whether there is a restructuring alternative to full winding up which will allow the Company to eliminate its due and unpaid debts and continue as a going concern, and which will repay creditors more than they would receive in liquidation alternative.

12 Mr Hope contends that the Petitioner expects that if the JPLs are appointed, they will consider in particular whether any of the following are in the interests of the stakeholders of the Company:

• (i) whether or not there are any viable options for maintaining the current capital structure and refinancing the defaulted unsecured debts of the Company, thereby allowing the Company to continue as a going concern without diluting the current equity interests;

• (ii) if no such means are available, whether there are any options to revise the current capital structure of the Company to eliminate the defaulted debt of the Company and allow it to continue as a going concern through a debt for equity swap together with interim funding and/or hybrid debt and equity capital raising; and

• (iii) if neither of the foregoing option are available, whether to pursue a process (following the winding up order or otherwise) to realise the assets of the Company, if any, for the benefit of the unsecured creditors of the Company, including the Petitioner.

13 Mr Hope considers that, for the following reasons, there is a benefit to the appointment of full powers JPLs in lieu of winding up order:

• (i) it takes the Company out of the hands of a sole director, Mr Njoo, who has a substantial conflict of interest in conducting any capital raising restructuring exercise since he indirectly owns over 80% of the equity in the Company and nearly 100% of the subordinated unsecured debt of the Company;

• (ii) it ensures that any proposal for restructuring the Company will be accompanied by an independent statement of the alternatives considered and the relative merits of those proposals; and

• (iii) it puts in place credible and reputable management without a track record of broken promises to liaise with the Office of National Mines and Strategic Industries of the Government of Madagascar ( “MOSA” or “OMNIS”) and the Government of Madagascar regarding the Company's plans to restructure and recapitalise the Company for the purposes of putting it in a position to meet its obligations under the production sharing contract for the production of oil from an area in Madagascar between a subsidiary of the Company and OMNIS (collectively referred to as “PSC”).

14 The Company's evidence is set out in the two affidavits filed by Mr Njoo Kok Kiang, a director of the Company, dated the 15 November 2022 and 17 November 2022. Mr Njoo contends that the Petition should be dismissed for a number of reasons including that the Petition is defective and has irregularities, that the subject matter of the Petition is subject to an arbitration agreement between the parties; and that the petition is an abuse of process and that there are no grounds for the appointment of JPLs.

15 It is said on behalf of the Company that this is not an insolvency case where liquidators are sought for the purpose of realising and distributing the assets of the Company, but rather a battle of control of the PSC which has, as of June 2022, just become income producing. As such, the Company contends, the petition is an abuse of process and should be dismissed.

16 The Company contends that in relation to the application to appoint JPLs, that application should be dismissed because:

• (i) there is no evidence before the Court of any mismanagement or misconduct on the part of the Company or a risk of dissipation of assets (or other grounds for the appointment of joint provisional liquidators) that would justify the granting of the orders sought by the Petitioner; and

• (ii) the appointment of JPLs to achieve any restructuring is unnecessary as the alleged benefits of the order sought are achieved by the appointment of independent non-executive directors from Alvarez and Marsal.

17 The reference to the appointment of independent non-executive directors, as confirmed by the first affidavit of Mr Duncan Reynolds dated 16 December 2022, is a reference to the appointment of the Edward Simon Middleton and James Hooper of Alvarez & Marsal Asia as independent non-executive directors with effect from 15 December 2022. Mr Reynolds states that both have extensive experience with restructuring and insolvency matters and are well placed to assist the Company with restructuring its debts. The shareholders have undertaken not to remove Mr Middleton and Mr Hooper as directors during the period of three months from the date of their appointment i.e. before 15 March 2023.

18 The Court has also reviewed the engagement letter with Alvarez &...