In Re Bozel S.A., Bankruptcy No. 10-11802 (AJG).

Citation434 B.R. 86
Decision Date20 July 2010
Docket NumberBankruptcy No. 10-11802 (AJG).,Adversary No. 10-03249 (AJG).
PartiesIn re BOZEL S.A., Debtor.Andrew Bickerton as Liquidator of Wellgate International Limited and Crastvell Trading Limited, Plaintiffs,v.Bozel S.A. and Michel Marengère, Defendants.
CourtUnited States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Southern District of New York

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Damon Morey LLP, by Daniel F. Brown, Esq., William F. Savino, Esq., Buffalo, NY, Proposed Attorneys for the Debtor, Debtor-In-Possession, and Defendant Bozel S.A.

Joseph G. Makowski, Esq., Buffalo, NY, Attorney for Defendant Michel Marengère.

Greenberg Traurig, LLP, by Allen G. Kadish, Esq., Adam Dembrow, Esq., Attorney for Andrew Bickerton as Liquidator of Wellgate International Limited, Plaintiff.

Mark D. Bloom, Esq., Miami, FL, (admitted pro hac vice).

Paul J. Keenan, Esq., Miami, FL, (admitted pro hac vice).

Klestadt & Winters, LLP, by Tracy L. Klestadt, Esq., New York, NY, Attorneys for Crastvell Trading Limited, Plaintiff.

OPINION REGARDING DEFENDANTS' MOTION FOR PERMISSIVE ABSTENTION AND/OR A STAY OF THE PROCEEDINGS PENDING RESOLUTION OF LUXEMBOURG PROCEEDINGS

ARTHUR J. GONZALEZ, Chief Judge.

Before the Court is a complaint and claims for relief (the “Complaint”) by Plaintiffs Andrew Bickerton (the Liquidator), in his capacity as Liquidator of Wellgate International Ltd. (“Wellgate”) and Crastvell Trading Limited (“Crastvell”) against Defendant Bozel, S.A. (the Debtor) and Michel Marengère (“Marengère,” together with the Debtor, the Defendants) seeking (1) a judicial determination that, as a matter of corporate governance, the Liquidator of the Debtor's sole shareholder has the authority to take any and all actions consistent with that position, including but not limited to removing the Debtor's director, Marengère, from his role as the Debtor's sole director, and directing Marengère and the Debtor to turn over to the Liquidator books, records, and documents and to submit to the Liquidator's authority; (2) an order granting a preliminary, and then permanent, injunction pursuant to 11 U.S.C. § 105 and Bankruptcy Rule 7065(a) restraining and enjoining Marengère, and any individual or entity controlled or directed by him, (i) from exercising, or attempting to exercise, any control over the assets of the Debtor or of any of its non-debtor subsidiaries, (ii) from interfering in any way with the rights of the Liquidator, including the Liquidator's rights to assert control over the assets of the Debtor and of any of its non-debtor subsidiaries, and (b) directing Marengère, and any individual or entity controlled or directed by him, to turn over to the Liquidator any and all books and records of the Debtor and of any of its non-debtor subsidiaries; and (3) such other and further relief as the Court deems just and proper.

Background

The Liquidator was duly appointed by the Eastern Caribbean Supreme Court in the High Court of Justice, British Virgin Islands (the “BVI Court) pursuant to the British Virgin Islands Insolvency Act, 2003 (the “BVI Insolvency Act”) as the liquidator of Wellgate, a company organized under the laws of British Virgin Islands (“BVI”). Wellgate, a company in the business of financing the merger and acquisition of distressed assets and non-core subsidiaries of large conglomerates, owns 100% of the stock of the Debtor. The Debtor 1 is a holding company that owns 100% of the stock in Bozel LLC (Bozel LLC), 2 Bozel Europe S.A.S. (Bozel Europe),3 and Bozel Mineracao Itda 4 (Bozel Brazil,” and together with Bozel LLC and Bozel Europe, the “Bozel Subsidiaries”). The Debtor invented Calcium Silicon Cored Wire, an industry-preferred ingredient in the production of high quality steel and steel alloys and is a worldwide leader in the sale of calcium silicon (“CaSi”), selling over 40% of the world's CaSi powder output.

The second Plaintiff in the above-captioned adversary proceeding (the “Adversary Proceeding”), Crastvell, is a BVI company that is the Debtor's largest secured creditor. Defendant Marengère purports, and the Liquidator disputes, that he is the Debtor's managing director.

In an order dated March 9, 2010 and entered on March 10, 2010 (the “BVI Order”), the BVI Court appointed the Liquidator as the liquidator in Wellgate's insolvency proceeding pursuant to the BVI Insolvency Act. Among other things, the BVI Order authorized the Liquidator to carry on the business of Wellgate, sell or otherwise dispose of its property, and undertake all acts and execute any document on behalf of Wellgate. Pursuant to his appointment, the Liquidator has a duty to investigate and report on the business of Wellgate, which includes business affairs of the Debtor and the Bozel Subsidiaries. 5

On April 6, 2010 (the “Petition Date”), the Debtor filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code. Pursuant to § 1707(a) and § 1108 of the Bankruptcy Code, the Debtor continues to operate its business as a debtor-in-possession.

On April 7, 2010, the Liquidator executed a document of the Debtor entitled “Resolutions of the Sole Shareholder” (the “Shareholder Resolution”) which, among other things, resolves “to remove Mr. Michel Marengère from his office of director ( administrateur ) and of day-to-day managing director ( administrateur-délégué ) of [the Debtor] and to give effect to this removal as at [sic] March 10, 2010.” (Compl.Ex.H.) On April 8, 2010, the Liquidator caused the Journal Officiel du Grand-Duché de Luxembourg to publish an “ Extrait des résolutions(“Resolutions Certificate”), which sets forth the Shareholder Resolutions in substantial part.6 The Debtor alleges, and the Liquidator disputes, that the Shareholder's Resolution was improper and void ab initio as a matter of Luxembourg law.

On April 28, 2010, the Liquidator filed a motion (1) to enforce corporate governance rights, (2) to designate responsible persons, or in the alternative, (3) for relief from the automatic stay (the “Governance Motion”) 7 and an ex parte application (the Ex Parte Application) to shorten time for notice and hearing on the Governance Motion. On April 29, 2010, the Debtor filed an objection to the Ex Parte Application.

On May 5, 2010, Marengère commenced two proceedings against the Liquidator in Luxembourg (the “Luxembourg Proceedings”). Among other things, the first proceeding (the “Summary Proceeding”) seeks a judicial declaration that the Shareholder Resolution filed by the Liquidator is suspended with immediate effect. The second proceeding (the “Commercial Proceeding”) seeks a declaration that the Shareholder Resolution filed by the Liquidator is void ab initio under Luxembourg law and further declaration that the Liquidator's actions declaring himself the Debtor's sole managing director and manager is void because (1) no order for his appointment was domesticated in Luxembourg; (2) the Liquidator's actions outside BVI were not authorized; (3) the Liquidator's actions violate Luxembourg law; and are (4) contrary to existing Bozel S.A. governance agreements (the “Bozel Governance Agreement”). Also on May 5, 2010, the Court held a hearing on the Ex Parte Application and a status conference in the Debtor's Chapter 11 case where the Debtor advised the Court about the Luxembourg Proceedings. The Court convened a conference call with the parties on May 6, 2010 and directed (1) the Liquidator to raise the corporate governance issues as alleged in the Governance Motion by way of an adversary proceeding, and (2) that the parties agree on a schedule for briefing and arguments on the issue of the Court's jurisdiction over the corporate governance issues, including the validity of the Shareholder Resolution under Luxembourg law.

To address some of the allegations raised by the Liquidator regarding Marengère's management of the Debtor and the Bozel Subsidiaries,8 the Court entered an order directing the appointment of a Chapter 11 examiner on May 13, 2010. An order approving the appointment of James L. Garrity Jr. as an examiner in the Debtor's Chapter 11 case was entered on May 25, 2010.

As directed by the Court at the May 6, 2010 telephone conference, the Plaintiffs filed the Adversary Proceeding on May 7, 2010.

Subsequently, the Court held a hearing on May 19, 2010 and ruled that it has “related to” jurisdiction pursuant to 28 U.S.C. § 1334(b) to consider the corporate governance dispute raised in the Adversary Proceeding.

On May 28, 2010, the Debtor filed a motion for permissive abstention pursuant to 28 U.S.C. § 1334(c)(1) and comity as to the Complaint, or in the alternative, a stay of the Debtor's Chapter 11 proceedings pending resolution of the Luxembourg Proceedings (the Abstention Motion). On June 2, 2010, the Plaintiffs filed an objection to the Abstention Motion (the “Objection to Abstention”) and the Plaintiffs' Initial Trial Brief. On June 11, 2010, the Debtor filed the Defendant's Trial Brief.

On June 18, 2010, the Court held a conference call informing the parties that the scheduled hearing on June 23, 2010 would address only the issues of (1) whether the Court should exercise permissive abstention pursuant to § 1334(c)(1) and international comity and (2) whether the Court has personal jurisdiction over Marengère. The hearing (the “Abstention Hearing”) on these two issues began as scheduled on June 23, 2010 and concluded on June 24, 2010.

The Liquidator's Standing9

The Debtor argues that this Court lacks subject matter jurisdiction over the claims as alleged in the Complaint because the Liquidator lacks standing to pursue the Adversary Proceeding in absence of recognition of the BVI Proceeding pursuant to Chapter 15 of the Bankruptcy Code.

§ 1501(b) of the Bankruptcy Code, in relevant parts, provides:

(b) This chapter applies where-
(1) assistance is sought in the United States by a foreign court or a foreign representative in connection with a foreign proceeding;
(2) assistance is sought
...

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