Whittman v UCI Holdings Limited
[2016] NZHC 1754
•29 July 2016
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2016-404-1213 [2016] NZHC 1754
UNDER the Insolvency (Cross-Border) Act 2006 BETWEEN
BRIAN WHITTMAN AS FOREIGN REPRESENTATIVE OF UCI HOLDINGS LIMITED
Applicant
AND
UCI HOLDINGS LIMITED Respondent
Hearing: 27 July 2016 Counsel:
D J Friar & N Moffatt for Applicant
M Kersey for Credit SuisseJudgment:
29 July 2016
JUDGMENT OF DUFFY J
This judgment was delivered by me on 29 July 2016 at 3.30 pm pursuant to
Rule 11.5 of the High Court Rules.
Registrar/ Deputy Registrar
Solicitors:
Bell Gully, Auckland
Russell McVeagh, Auckland.
BRIAN WHITTMAN AS FOREIGN REPRESENTATIVE OF UCI HOLDINGS LIMITED v UCI HOLDINGS LIMITED [2016] NZHC 1754 [29 July 2016]
Introduction
[1] Mr Brian Whittman has been appointed foreign representative of UCI Holdings Ltd pursuant to an order of the United States Bankruptcy Court for the District of Delaware, United States of America (USA).1 He applies for orders under the Insolvency (Cross-Border) Act 2006 (the ICBA) for the USA bankruptcy proceeding to be recognised as a foreign proceeding under art 17(2)(a) of the ICBA. If the application is granted an automatic stay of proceedings in the New Zealand jurisdiction will follow.2 The application is unopposed, and so it has proceeded
before me by way of formal proof.3
[2] The UCI Group of companies (UCI Group) is engaged in the design, manufacture and distribution of vehicle replacement parts, primarily in the USA, where it employs approximately 1,800 employees. The UCI Group does not supply any products or have any operations or employees in New Zealand. However, the parent company, UCI Holdings Ltd, is incorporated in New Zealand. This may be because it is indirectly wholly-owned by Mr Graeme Hart and four of its six directors reside in New Zealand.
[3] A number of pressures have impacted on the UCI Group’s business and have
adversely affected its financial results. As a result the UCI Group missed its
$17.25 million semi-annual interest payment to bondholders due on 16 February
2016. Without restructuring it seems the Group will be unable to comply with its debt obligations. So, on 2 June 2016 the UCI Group, including UCI Holdings Ltd, filed for Chapter 11 bankruptcy in the USA. Chapter 11 enables a debtor to restructure its business under the supervision of the court. A Chapter 11 petition operates as an automatic stay on specified actions against the relevant estate without
further order.4
1 Mr Whittman’s appointment followed UCI Holdings and other companies in the UCI Group filing a voluntary petition for relief under Chapter 11 of Title 11 of the United States Code. Mr Whittman is the Chief Restructuring Officer of UCI International LLC, an indirect wholly owned subsidiary of UCI Holdings Ltd. He is a Certified Insolvency and Restructuring Adviser and a Certified Public Accountant.
2 See art 20 of the ICBA.
3 High Court Rules, r 15.9.
4 See s 362 of the United States Bankruptcy Code.
[4] The United States Bankruptcy Court’s foreign representative order requests the assistance of the New Zealand courts to recognise Mr Whittman as foreign representative, to give full force and effect to its order, and to “act in aid of and be auxiliary to the Bankruptcy Court in relation to the protection of UCI Holdings’ estate in New Zealand, including by giving effect to the automatic stay under Bankruptcy Code section 362(a) in New Zealand”.
The Insolvency (Cross-Border) Act 2006
[5] The ICBA enacts in domestic New Zealand law the UN Model Law on Cross-border Insolvency.5 This Model Law is designed to create a uniform approach to cross-border insolvency that allows insolvency proceedings to be conducted in a unified way and to ensure fair outcomes across multiple countries.6
[6] The Act provides a framework for facilitating insolvency proceedings when a person is subject to insolvency administration (whether personal or corporate) in one country, but has assets or debts in another country.7 In particular, when a foreign proceeding is recognised as a foreign main proceeding, this triggers an automatic stay on proceedings in order to allow the foreign main proceeding to control the affairs of the debtor.8 However, a court may on application by a creditor or interested person make an order that the stay or suspension does not apply in respect of any particular proceeding.9 Schedule 1 of the ICBA (Schedule 1) sets out the terms of the Model Law, which by virtue of s 7 of the ICBA and art 1 of the Schedule, applies in the circumstances here.10
[7] Article 4 confers jurisdiction on the High Court. Article 9 entitles a foreign representative, such as Mr Whittman, to apply directly to the High Court. Article 25
5 Insolvency (Cross-border) Act, 3 3(a); the rules applying to cross-border insolvency proceedings are contained in Schedule 1 of the Act; those rules correspond for the most part to the provisions of the UN Model Law on Cross-border Insolvency.
6 See preamble in Schedule 1 of the Act.
7 See 3(b)(i).
8 See art 20.
9 See art 20(2).
10 In Williams v Simpson HC Hamilton, CIV 2010-419-1174, 17 September 2010 at [33]-[46] Heath J provided an authoritative treatment of the scheme and purpose of the Act.
in Chapter IV requires that the High Court “shall co-operate to the maximum extent
possible with foreign courts or foreign representatives”.
[8] Chapter III of the Model Law in Schedule 1 sets out when a New Zealand Court will recognise a foreign proceeding. It distinguishes between a “foreign main proceeding” which takes place where the debtor has the centre of its main interests, and a “foreign non-main proceeding” which, otherwise, takes place where the debtor has an establishment. Unless it would be manifestly contrary to the public policy of New Zealand, the Court will recognise foreign proceedings if the formal requirements of art 17 are met regarding the nature of the proceedings, the identity of the foreign representative, and the form of the application.
Position of other interested parties
[9] The other concerned parties are the principal creditors of UCI Holdings Ltd. They were served under r 24.57(2) of the HCR. They include: Credit Suisse, Wilmington Trust NA, Rank Group Finance Holdings Ltd, Rank Group Ltd, UCI Holdings (No 2) Ltd, and the Inland Revenue Department. Service on UCI Holdings Ltd was dispensed with as Mr Whittman is its foreign representative.
[10] None of the creditors oppose the orders being made in this jurisdiction:
(a) Credit Suisse filed a memorandum on 29 June 2016 confirming it does not oppose any orders but stating that any final relief granted in New Zealand should be on the condition that UCI Holdings complies with any order of the Bankruptcy Court in Delaware.
(b)Rank Group and UCI Holdings (No 2) confirmed by email they do not oppose the orders sought.
(c) Wilmington Trust NA, trustee for Bondholders, confirmed by email it does not intend to take a position.
(d)IRD filed a memorandum on 12 July 2016 confirming it will abide by the decision of the Court. According to the applicant UCI Holdings
Ltd no longer has outstanding tax liability in New Zealand for the
2014 and 2015 tax years.
[11] Credit Suisse seeks that the Court make the granting of the orders sought conditional on UCI Holdings’ complies with any order of the United States Bankruptcy Court in Delaware. I see no reason to impose this condition. Credit Suisse has not formally opposed the orders sought. This Court is not in an easy position to supervise how UCI Holdings conducts itself before the United States Bankruptcy Court. Any default or misconduct that falls within the jurisdiction of that Court is best left to it to regulate.
Should the USA Chapter 11 proceedings be recognised under the ICBA?
[12] A foreign proceeding is a collective judicial or administrative proceeding in a foreign state under a law relating to insolvency in which the assets and affairs of the debtor are subject to control or supervision by a foreign court, for the purpose of reorganisation or liquidation.11
[13] Mr Whittman has provided expert evidence from Jessica C.K. Boelter to the effect that a Chapter 11 proceeding is a collective judicial proceeding in the USA under the United States Bankruptcy Code, which in this jurisdiction’s terminology relates to insolvency. Under the Code the assets and affairs of the debtor are subject to control or supervision by the United States Bankruptcy Court. Chapter 11 proceedings have previously been recognised in New Zealand and Australia as
qualifying for recognition under the ICBA as a foreign proceeding.12 I am satisfied
that the Chapter 11 proceedings initiated by UCI Holdings qualify as a foreign proceeding.
[14] A foreign representative includes a person or body authorised in a foreign proceeding to act as a representative of the foreign proceeding.13 Here the United
States Bankruptcy Court has granted an order authorising Mr Whittman to act as a
11 Art 2(a).
12 See for example Re Pacific Northstar Property Group LLC HC Auckland, CIV 2009-404-6312,
29 September 2009 at [7]; and in the Australian jurisdiction Re Buccaneer Energy Ltd [2014] FCA 711.
13 Art 2(a).
foreign representative of UCI Holdings’ estate in any judicial or other proceedings in any foreign country including New Zealand. The order specifically recognises that Mr Whittman’s representative role includes acting to seek recognition of UCI Holdings’ Chapter 11 filing in New Zealand. I am satisfied that Mr Whittman is a properly appointed foreign representative.
[15] Under art 15 a foreign representative may apply to the High Court for recognition of a foreign insolvency proceeding. The requirements for recognition are set out in articles 15 and 17. Additional requirements are imposed by subpart 15 of Part 24 of the High Court Rules. I have carefully considered all the material provided to me in this application. I am satisfied the Chapter 11 proceeding brought by UCI Holdings warrants recognition as a foreign insolvency proceeding.
[16] Therefore, the key issue remaining for consideration seem to me to be whether the Chapter 11 proceeding in the USA qualifies either as a “foreign main proceeding”, or a “foreign non-main proceeding”.
[17] Mr Whittman submits that a proceeding must be recognised under art 17(2)(a) as a “foreign main proceeding” if it “is taking place in the State where the debtor has the centre of its main interests”. There is a presumption that a company’s centre of main interest (COMI) is in the place of registration (in this case New Zealand).14 However, if the locality where the company carries out its business is objectively different from its place of registration that locality will be the company’s COMI.
[18] Mr Whittman argues that the COMI of UCI Holdings is in the USA. To establish this he relies on the following factors as pointing to the COMI being in the USA:
(a) UCI Holdings Ltd has the same management as the UCI Group
(which is based in the US);
14 See art 16(3).
(b)The chief financial officer and the chief executive officer of UCI Holdings are based in the USA, and UCI Holdings files reports with the Securities and Exchange Commission (USA);
(c) UCI’s primary assets are the shares in its subsidiary (“UCI Acquisitions”) which is incorporated and operating in the USA;
(d) The companies in the UCI Group operate “predominantly” in the
USA;
(e) The UCI Group has approximately 1,800 employees, all in the USA (and none based in New Zealand);
(f) No sales are made in New Zealand; and 92 per cent are made in the
USA;
(g)UCI’s major creditors are Credit Suisse and the Trustee for unsecured bondholders each of which is based in the USA, the contracts governing these relationships are subject to exclusive choice of law and jurisdiction clauses in favour of New York city, which suggests that key creditors of UCI Holdings would regard the company as operating in the USA;
(h) UCI complies with USA financial reporting requirements; and
(i)UCI is regulated by the Securities Exchange Commission (USA) because it issued debt in the USA and registered this with the Commission. Consequently, it has been required to file public reports with the Commission and publicly file its USA financial statements with the Commission.
[19] Mr Whittman submits that all of the above are public and objective facts that point to the COMI of UCI Holdings being the USA.
[20] To the contrary, Mr Whittman submits that the factors pointing to New Zealand being the capital COMI for UCI Holdings are narrow and predominantly not ascertainable by third parties. First, UCI Holdings has two New Zealand bank accounts which make up less than one per cent of its assets and neither of these accounts are publicly accessible. Second, it has financial statements prepared in New Zealand and files tax returns here; certainly the latter is not publicly accessible information. Third, four of its six directors are located in New Zealand. However, the nationality of the directors has no significant bearing on the COMI of a
company.15 Fourth, UCI Holdings has entered into a general security deed and a
specific security deed that have non-exclusive jurisdiction clauses in favour of New Zealand law. However, both deeds secure obligations in a loan agreement that is governed by USA law. In short, there is little in the above information that is ascertainable by a third party, let alone any information that might suggest any level of business involvement in New Zealand.
[21] I accept Mr Whittman’s submission that the COMI of UCI Holdings is clearly the USA. The evidence weighs heavily in favour of this being so. It shows that the function of UCI Holdings is simply to act as a holding company of other companies in the UCI Group, all of which are centred in the USA, and as a guarantor of their obligations. If the other companies in the UCI Group were not operating in the USA there would be little if any reason for UCI Holdings to exist. The commercial realities and group structure all point to the USA and not New Zealand being the COMI for UCI Holdings.
[22] I am satisfied that the Chapter 11 proceeding brought by UCI Holdings should be recognised as a foreign main proceeding. The result of me so finding is that the following stay would automatically take effect under art 20:
(1) Upon recognition by the High Court of a foreign proceeding that is a foreign main proceeding,
(a) commencement or continuation of individual actions or individual proceedings concerning the debtor’s assets, rights, obligations, or liabilities is stayed;
(b) execution against the debtor’s assets is stayed; and
15 Re Stanford [2009] EWHC 1441 (Ch) at [98].
(c) the right to transfer, encumber, or otherwise dispose of any assets of the debtor is suspended.
[23] However, a stay under art 20(1) is subject to the remaining provisions in art 20(2) – (4), which provide:
(2) Paragraph (1) of this article does not prevent the Court, on the application of any creditor or interested person, from making an order, subject to such conditions as the Court thinks fit, that the stay or suspension does not apply in respect of any particular action or proceeding, execution, or disposal of assets.
(3) Paragraph (1)(a) of this article does not affect the right to commence individual actions or proceedings to the extent necessary to preserve a claim against the debtor.
(4) Paragraph (1) of this article does not affect the right to request the commencement of a New Zealand insolvency proceeding or the right to file claims in such a proceeding.
[24] Here Mr Whittman seeks a modification of the automatic stay which art 20(1) would impose so that the stay is consistent with the terms of the stay directed in the USA.
[25] The stay in the USA allows certain actions to be taken as authorised by United States bankruptcy law and/or by the United States Bankruptcy Court. Mr Whittman submits that it would be entirely inefficient to require parties to apply both the United States Bankruptcy Court and to the New Zealand High Court for approval in relation to every such step. Accordingly, given that the Chapter 11 proceeding in the USA is the foreign main proceeding, and for reasons of both comity and of practicality, Mr Whittman submits that the New Zealand stay should be limited under art 20(2) such that it does not prevent parties from taking steps that are permitted by the United States bankruptcy law or the United States Bankruptcy Court. I am persuaded by that submission and accordingly impose that qualification on the stay ordered under art 20(1).
[26] Recognition of the USA Chapter 11 proceeding as a foreign main proceeding disposes of this application.
Result
[27] I grant orders as sought in the application:
(a) The proceeding in relation to UCI Holdings Limited in the United States Bankruptcy Court, District of Delaware, proceeding number 16-11364, jointly administered under proceeding 16-11354 (the Chapter 11 proceeding) is recognised as a foreign main proceeding under art 17(2)(a).
(b)The stay and suspension under art 20(1) are modified such that they do not prohibit any person from taking steps that are authorised by the United States Bankruptcy Court in the Chapter 11 proceeding, or by United States bankruptcy law as a result of the filing of the Chapter 11 proceeding.
(c) Leave is reserved to the applicant to apply in this proceeding for further orders and relief from the High Court.
(d)Leave is reserved to any person who claims to be a creditor who is served with notice of these orders to apply for relief in relation to these orders.
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