In re Ocean Rig UDW Inc.

• Decision Date: 24 August 2017
• Docket Number: Case No. 17–10736 (MG)
• Parties: IN RE OCEAN RIG UDW INC., et al., Debtors in Foreign Proceedings.
• Court: U.S. Bankruptcy Court — Southern District of New York

570 B.R. 687

IN RE OCEAN RIG UDW INC., et al., Debtors in Foreign Proceedings.

Case No. 17–10736 (MG)

United States Bankruptcy Court, S.D. New York.

Signed: August 24, 2017

ORRICK, HERRINGTON & SUTCLIFFE LLP, Counsel for the Petitioners, Simon Appell and Eleanor Fisher, in their capacities as the Joint Provisional Liquidators and Proposed Foreign Representatives, 51 West 52nd Street, New York, New York 10019, By: Evan C. Hollander, Esq., Raniero D'Aversa, Jr., Esq., Monica A. Perrigino, Esq.

LAW OFFICE OF STEVEN J. FINK PLLC, Counsel for the Petitioners, Simon Appell and Eleanor Fisher, in their capacities as the Joint Provisional Liquidators and Proposed Foreign Representatives, 81 Main Street, Suite 405, White Plains, NY 10601, By: Steven J. Fink, Esq.

LAW OFFICES OF TALLY M. WIENER, ESQ., Objector to Recognition, 119 West 72nd Street, PMB 350, New York, NY 10023, By: Tally M. Wiener, Esq.

MEMORANDUM OPINION GRANTING RECOGNITION OF FOREIGN DEBTORS' CAYMAN ISLANDS PROCEEDINGS AS FOREIGN MAIN PROCEEDINGS

MARTIN GLENN, UNITED STATES BANKRUPTCY JUDGE

In these four jointly administered chapter 15 cases, Simon Appell and Eleanor Fisher, the joint provisional liquidators and authorized foreign representatives (the "JPLs") of Ocean Rig UDW Inc. ("UDW"), Drill Rigs Holdings Inc. ("DRH"), Drillships Financing Holding Inc. ("DFH") and Drillships Ocean Ventures Inc. ("DOV") (UDW, DRH, DFH and DOV, together, the "Foreign Debtors"), seek recognition in this Court as foreign main proceedings or foreign nonmain proceedings of four proceedings pending before the Grand Court of the Cayman Islands (the "Cayman Court"). The four proceedings in the Cayman Court are Financial Services Division Cause Nos. FSD0057/2017 (UDW), FSD0059/2017 (DRH), FSD0056/2017 (DFH) and FSD0058/2017 (DOV) (the "Cayman Provisional Liquidation Proceedings"). The Foreign Debtors are each holding companies, with UDW owning each of the other three Foreign Debtors and they, in turn, owning a large group of non-debtor companies that directly or indirectly own a fleet of deepwater oil drilling rigs that are generally leased to exploration oil and gas companies. UDW stock is publicly traded in the U.S. and elsewhere. The sharp decline in oil and gas prices over the last few years has taken a major toll on the finances of the Foreign Debtors, with most of their drilling rigs currently not in operation.

The JPLs' goal is to have the Cayman Court sanction four schemes of arrangement (one for each of the Foreign Debtors) negotiated and proposed by the Foreign Debtors, and then, if sanctioned by the Cayman Court, have this Court recognize and enforce the schemes in these chapter 15 cases. The four schemes propose a major restructuring of the Foreign Debtors' financial debt, issuing new debt and cash and converting much of their fixed debt into equity, very substantially diluting the current equity ownership of UDW. The Cayman Court authorized the Foreign Debtors to convene creditors' meetings and vote on the four proposed schemes. The creditors' meetings took place on August 11, 2017, and according to a status report filed in this Court by the JPLs, the creditors voted to support the four schemes.¹ Sanction hearings are scheduled in the Cayman Court on September 4, 5, and 6, 2017. See Fourth Status Report of Joint Provisional Liquidators and Foreign Representatives Simon Appell and Eleanor Fisher (ECF Doc. # 109).

At least one substantial UDW creditor, Highland Capital Management LP ("Highland"), is expected to oppose sanctioning of the UDW scheme. If the Cayman Court nevertheless sanctions the schemes, this Court anticipates that Highland will oppose recognition and enforcement of the UDW scheme in this Court. Highland previously objected to recognition of the UDW proceeding as a foreign main or nonmain proceeding, but Highland dropped that objection, reserving its right to contend that the UDW scheme should not be recognized and enforced by this Court if it is sanctioned by the Cayman Court. But after Highland withdrew its objection to recognition, Tally M. Wiener, Esq. ("Wiener"), a lawyer who asserts that she is a shareholder of UDW, filed an objection to recognition. The Court held an evidentiary hearing on the contested recognition motion on August 16, 2017. Until sometime in 2016, each of the Foreign Debtors had its center of main interests ("COMI") in the Republic of the Marshall Islands ("RMI"). It is the shift in COMI from the RMI to the Cayman Islands, where the provisional liquidation and scheme of arrangement proceedings are pending, that is the focus of the issues that must be addressed in determining whether to recognize the foreign proceedings as foreign main, or in the alternative, foreign nonmain proceedings.

For the reasons explained below, the Court concludes that each the four Cayman Court proceedings should be recognized as a foreign main proceeding.

I. BACKGROUND²

The JPLs commenced chapter 15 cases for each of the Foreign Debtors (collectively, the "Chapter 15 Cases") by filing the Verified Petition of Ocean Rig UDW Inc., et al. (in Provisional Liquidations) and Motion of the Joint Provisional Liquidators for (A) Recognition of the Cayman Proceedings as Foreign Main Proceedings or, in the Alternative, as Foreign Nonmain Proceedings, and (B) Certain Related Relief (ECF Doc. # 1) (together with each Foreign Debtor's Form of Voluntary Petition, the "Verified Petition"). The JPLs seek (i) entry of an order granting recognition of (a) the Cayman Provisional Liquidation Proceedings and (b) subsequent applications for the sanctioning of schemes of arrangement in respect of the Foreign Debtors under section 86 of Part IV of the Companies Law (the "Cayman Schemes," and, together with the Cayman Provisional Liquidation Proceedings, the "Cayman Proceedings") as foreign main proceedings or, in the alternative, as foreign nonmain proceedings, and (ii) certain related relief. In support of the Verified Petition, the JPLs submitted a Memorandum of Law (ECF Doc. # 3). The JPLs supported their requested relief with the Declaration of Simon Appell Pursuant to 28 U.S.C. § 1746 and Statements and Lists Required by Bankruptcy Rule 1007(a)(4) (the "Appell Declaration," ECF Doc. # 4), the Declaration of Antonios Kandylidis Pursuant to 28 U.S.C. § 1746 (the "Kandylidis Declaration," ECF Doc. # 5), the Declaration of Rachael Reynolds in Support of the Verified Petition (the "Reynolds Declaration," ECF Doc. # 6)³ and the Declaration of Dennis Reeder Pursuant to 28 U.S.C. § 1746 (the "Reeder Declaration," ECF Doc. # 7). On July 10, 2017, Wiener filed an objection to the JPLs' recognition request. See Objection to the Motion of the Joint Provisional Liquidators of Ocean Rig UDW Inc. et al. for Recognition of Foreign Main or Nonmain Proceedings ("Wiener Objection," ECF Doc. # 89). The Wiener Objections asserts that Wiener is a shareholder of Ocean Rig UDW Inc., an assertion she has never backed up with any evidence. (Id. at 1.)

As directed by the Court, the counsel for the JPLs and Wiener prepared a Recognition Hearing Joint Pretrial Order ("Pretrial Order") that was approved and entered by the Court on July 26, 2017. (ECF Doc. # 102.) The Pretrial Order identified the issues to be tried, and included the JPLs' witness list (with direct evidence offered by declaration and with in-court cross examination), and the list of trial exhibits that each side proposed to offer. The JPLs identified four trial witnesses, but based on a stipulation between counsel, only three of the witnesses—Simon Appell, Antonios Kandylidis, and Rachel Reynolds—testified at trial with direct testimony by declaration (Appell Declaration, PX–5; Kandylidis Declarations, PX–6 and PX–10 and exhibits; and Reynolds Declaration, PX–8). Wiener objected to portions of the Appell, Kandylidis and Reynolds Declarations; the Court ruled on the objections at the final pretrial conference on August 14, 2017. As limited by the stipulation of the parties and the Court's ruling on Wiener's objections, the Appell, Kandylidis and Reynolds Declarations were admitted in evidence as the witnesses' direct testimony. Wiener cross-examined each of these witnesses during the trial. Wiener did not identify any witnesses in the Pretrial Order or call any witnesses during the trial. Numerous exhibits offered by both sides were admitted in evidence during the trial as well.

In a letter to the Court dated August 15, 2017, Wiener challenged whether venue of these chapter 15 cases in the Southern District of New York is proper. (ECF Doc. # 112.) The JPLs responded to and opposed Wiener's venue argument in a letter also filed on August 15, 2017. (ECF Doc. # 114.) Venue was not identified as an issue for trial in the Pretrial Order. In any event, as set forth below, Wiener's venue argument is simply wrong; venue properly lies in this Court.

While Wiener asserted in her Objection that she is a UDW Inc. shareholder, she in fact offered no evidence at trial supporting that contention. Therefore, Wiener failed to establish that she is a party-in-interest with standing to contest recognition of the Foreign Debtors' Cayman Proceedings. Because this Court nevertheless must find that the JPLs have established that recognition is proper in order to grant the recognition motion, the Court will treat Wiener's Objection as if she had established her standing to object to recognition and rule on her arguments on the merits.

A. The Businesses of the Foreign Debtors

UDW is the holding company of the Ocean Rig Group (the "Group") and the direct parent of the three other Foreign Debtors (DFH, DOV and DOH (collectively, the "Subsidiary Debtors")).

UDW registered in April 2016 as an exempted company limited by shares under § 202 of the Cayman Companies Law. Before then, UDW was registered as a non-resident corporation in the RMI. The Subsidiary Debtors are registered as non-resident corporations in the RMI and are registered as foreign companies under § 186 of...