In re Betcorp Ltd.

• Decision Date: 09 February 2009
• Docket Number: No. BK-S-08-21594-BAM.,BK-S-08-21594-BAM.
• Citation: 400 B.R. 266
• Parties: In re BETCORP LIMITED (In Liquidation), Petitioner.
• Court: U.S. Bankruptcy Court — District of Nevada

400 B.R. 266

In re BETCORP LIMITED (In Liquidation), Petitioner.

No. BK-S-08-21594-BAM.

United States Bankruptcy Court, D. Nevada.

February 9, 2009.

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Barry F. Irwin, Scott Bennett Kitei, Kirkland & Ellis LLP, Ryan B. Bennett, Chicago, IL, Wade W. Rabenhorst, Campbell & Williams, J. Colby Williams, Las Vegas, NV, for Petitioner.

OPINION ON PETITION FOR RECOGNITION

BRUCE A. MARKELL, Bankruptcy Judge.

                                              Table of Contents
                  I.  INTRODUCTION ...........................................................271
                 II. BACKGROUND ..............................................................271
                     A. Betcorp's Gaming Operations and Corporate Governance .................272
                     B. Changes in United States Gaming Law, Betcorp's Cessation of
                Operations, and Its Subsequent Winding Up ..........................273
                     C. 1st Technology's Claim ...............................................274
                III. RECOGNITION OF BETCORP'S WINDING UP .....................................275
                     A. Is Betcorp's Winding Up a "Foreign Proceeding" as Defined by 11
                U.S.C. § 101(23)? ............................................275
                        1. A "Proceeding" ....................................................277
                        2. Judicial or Administrative in Character ...........................280
                        3. A Collective Proceeding ...........................................281
                        4. Located in a Foreign Country ......................................281
                        5. Authorized or Conducted under a Law Related to Insolvency or the
                             Adjustment of Debts .............................................281
                        6. Foreign Court's Control or Supervision of the Debtor's Assets and
                             Affairs .........................................................283
                        7. Reorganization or Liquidation Purpose .............................284
                     B. Does Betcorp's Winding Up Proceeding Meet the Requirements for
                Recognition Under Section 1517? ....................................285
                

                1. Is the Foreign Proceeding for Which Recognition Is Sought a
                             Foreign Main Proceeding or Foreign Nonmain Proceeding? ..........285
                            i. Factors Relevant to the COMI Determination ....................286
                           ii. Timing of the COMI Determination ..............................290
                          iii. Betcorp's COMI ................................................292
                        2. Is the Foreign Representative Applying for Recognition a Person or
                             Body? ...........................................................294
                        3. Does the Petition Meet the Requirements of Section 1515? ..........294
                 IV. CONCLUSION ..............................................................295
                

I. INTRODUCTION

Simon John Cathro, an Australian liquidator, seeks recognition under chapter 15 of the Bankruptcy Code for the ongoing winding up and liquidation, in Australia, of Betcorp Limited, an Australian company. In particular, the petition seeks recognition of the winding up as a "foreign main proceeding." If granted, that recognition would entitle Betcorp to the protections of a variety of Bankruptcy Code provisions, the most important of which for Mr. Cathro's purposes is the automatic stay. See 11 U.S.C. § 1520(a)(1) (providing that 11 U.S.C. § 362 applies to a chapter 15 debtor upon recognition).

A United States company, 1st Technology LLC, opposes recognition. It has sued Betcorp for patent infringement, and that lawsuit is currently pending in the United States District Court for the District of Nevada. 1st Technology would prefer (and believes it is entitled) to continue to litigate its claims in a United States court, rather than pursue those claims in Betcorp's Australian liquidation.

Upon consideration of the evidence presented and for the reasons stated below, the court grants Mr. Cathro's petition for recognition of the Australian voluntary winding up as a foreign main proceeding under chapter 15 of the Bankruptcy Code.¹

II. Background

Betcorp was formed and registered as a company under Australian law on February 26, 1998. Declaration of Simon John Cathro ¶ 9 (dkt.# 6) ("Cathro Decl."). When it was active in business, Betcorp was a publicly-traded entity regulated by the Australian Securities and Investments Commission ("ASIC").² Id. From the time the company was formed until it ceased operations on October 31, 2006, its business activity involved a mélange of gaming activities, conducted through a variety of affiliate and subsidiary entities.³ Supplemental Declaration of Simon John Cathro ¶ 10 (dkt.#35) ("Cathro Supp."). The company ceased operations after changes in United States law made its business model unworkable. Betcorp's members then voted to liquidate the company through a members' "voluntary winding up" under Australian law, a process which is ongoing. See Exhibits to Verified Petition (dkt. # 2, ex. 5 and 6). This process required the appointment of at least one liquidator registered with the ASIC. Throughout most of the winding up process, the appointed liquidators have been in discussions with 1st Technology regarding the patent infringement claims. These events are discussed in more detail below.

A. Betcorp's Gaming Operations and Corporate Governance

When it first began business operations, Betcorp initially created and operated a single subsidiary: Consolidated Sportsbet Australia Pty Limited. Transcript of Testimony of Simon John Cathro, Hearing on Oct. 29, 2008, at p. 54 ("TR").⁴ Sportsbet operated solely in Australia, and employed between 20 and 30 people.⁵ Id. at 54-55. By the end of 2002, Betcorp's management decided to diversify the company's gaming operations. To that end, on January 23, 2003, the company began offering on-line and telephone gaming services through a subsidiary located in Antigua named Tasman Gaming. Cathro Supp. ¶ 12. This business operated under a gaming license issued by the government of Antigua and Barbuda, West Indies. Id.

Tasman eventually became the company's primary revenue generator. TR, p. 69. However, Betcorp created and operated other subsidiaries in order to further the company's business strategy of providing a "one-stop shop" for online gamblers. See Betcorp's "Annual Report and Accounts 2005" (dkt. # 35, ex. 4-8); see also TR, p. 65. As of 2005, Betcorp owned and operated the following subsidiaries:

• BCL (Asia) Pty Limited (incorporated in Australia);

• Tasman Gaming, Inc. (incorporated in Antigua);

• WWI AG Limited (incorporated in Antigua);

• Tasman Investments, Inc. (incorporated in Antigua);

• Swan Holdings (incorporated in Antigua);

• Tartar Sauce Investments, Ltd. (incorporated in Antigua);

• Sinsational Intertainment, Inc. (incorporated in Antigua);

• Oasis Antigua Holdings, Inc. (incorporated in Antigua);

• Applewick Holdings Ltd. (incorporated in Cyprus);

• Betcorp (UK) Limited (incorporated in the United Kingdom); and

• Cyber Processing Corp. Ltd. (incorporated in the Federation of St. Kitts and Nevis).

Cathro Supp. ¶ 11.⁶

Although Betcorp was involved, through these subsidiaries, in business operations in several countries, Australia remained its administrative and executive nerve center. Reflecting the fact that the majority of shareholders resided in or were located in Australia, and that it was an Australian corporation, Australian law governed all corporate activities. Cathro Decl. ¶ 13. The actual statistics overwhelmingly support a center of member ownership in Australia. According to Mr. Cathro, as of September 24, 2007:

• 1,468 of the 1,606 shareholders of Betcorp, or 91.4%, resided in Australia;

• 4,268,617 of the 6,353,426 Betcorp shares (or 67.2%) were held by members who resided in Australia; and

• 138 members (or 8.6%) resided in jurisdictions outside of Australia, of which nine members (or 0.05%) resided in the United States and held but 10,168 (or 0.02%) of the shares of Betcorp.

Id. As an Australian company, all Betcorp shareholder meetings have taken place in Australia. Cathro Supp. ¶ 6.

With respect to management, most Betcorp directors have been Australian-born individuals. Of the twenty-five individuals that have served as directors, only five did not reside in Australia. Cathro Supp. ¶ 1. Four of these non-Australian directors resided in the United Kingdom, and one resided in Antigua. Id. No Betcorp directors resided in the United States during their tenure. Id. These directors participated in both telephonic and in-person meetings. Cathro Supp. ¶ 7. When there were in-person meetings, the majority of them took place in Australia. Id.

Corporate audits were performed by the Sydney, Australia offices of two accounting firms: Ernst & Young (prior to 2006), and Grant Thornton (beginning in 2006). Cathro Supp. ¶ 8. Betcorp filed income tax returns with the Australian Tax Office since its incorporation, and paid Australian income tax on its earnings. Cathro Supp. ¶ 9. Finally, Betcorp's registered office has been in Australia from its incorporation to present. Cathro Decl. ¶ 11; TR, pp. 54-55.

B. Changes in United States Gaming Law, Betcorp's Cessation of Operations, and Its Subsequent Winding Up

On October 13, 2006, the United States passed the Unlawful Internet Gambling Enforcement Act, Pub.L. No. 109-347, 120 Stat. 1884 (codified as 31 U.S.C. §§ 5361-67). The Act prevented Betcorp from receiving funds transfers related to gaming activities from United States customers. This was a major blow to Betcorp's business model since at the time of enactment, most of the company's customers resided in the United States. Cathro Decl. ¶¶ 14-16.

Immediately after the passage of the Unlawful Internet Gambling Enforcement Act, the company ceased operations in the United States, and eventually ceased all operations completely.⁷ Cathro Decl. ¶ 15. Preparations for the dissolution of the company were made, and in August of 2007,...