In re Comair Ltd. (In Bus. Rescue)
| Docket Number | 21-10298 (JLG) |
| Decision Date | 14 November 2021 |
| Parties | In re: Comair Limited (In Business Rescue), Debtor in a Foreign Proceeding. |
| Court | U.S. Bankruptcy Court — Southern District of New York |
NOT FOR PUBLICATION
PILLSBURY WINTHROP SHAW PITTMAN LLP Attorneys for Foreign Representatives of Comair Limited (in Business Rescue) John A. Pintarelli, Esq., Anne C. Lefever, Esq., Dania Slim, Esq.
KIRKLAND & ELLIS LLP, KIRKLAND & ELLIS INTERNATIONAL LLP Attorneys for The Boeing Company David R. Seligman, Esq. Susan D. Golden, Esq., Michael B. Slade, Esq.
HON JAMES L. GARRITY, JR. U.S. BANKRUPTCY JUDGE.
Introduction[1]
Before the Court is the motion (the "Motion")[2] of Richard A. Ferguson, in his capacity as the Business Rescue Practitioner and foreign representative (the "Foreign Representative") of Comair Limited (the "Debtor"[3] or "Comair") for the entry of an order permitting him to conduct discovery of The Boeing Company ("Boeing") pursuant to section 1521 of the Bankruptcy Code and Rules 2004 and 9016 of the Federal Rules of Bankruptcy Procedure. Boeing opposes the Motion (the "Response").[4] The Foreign Representative filed a reply to the Response (the "Reply").[5]
For the reasons set forth below, the Court finds that the Foreign Representative has established grounds under section 1521(a)(4) to conduct discovery of Boeing relating to causes of action that Comair may hold against Boeing and the extent of Comair's potential monetary recovery from Boeing. The Court directs the parties to meet and confer in an effort to resolve their disputes regarding the breadth of the Foreign Representative's Request for Production (defined below). To the extent that they are unable to resolve their disputes, they are directed to contact Chambers to schedule a conference in accordance with Local Bankruptcy Rule 7007-1 and the Court's Chambers' Rules governing discovery disputes.
This Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157 and 1334 and the Amended Standing Order of Referral of Cases to Bankruptcy Judges, dated January 31, 2012 (Preska, C.J.). This is a core proceeding under 28 U.S.C. § 157(b)(2)(P).
Comair is one of the largest regional commercial airline companies in southern Africa. See Collyer Decl. ¶ 9. It operates its airline business under two brands, British Airways, as part of a license agreement with British Airways PLC, and Kulula.com. Id. In or about May 2020 Comair employed more than 2, 000 employees and operated a fleet of 27 aircraft. Id. Comair's airline business offers scheduled and non-scheduled, full, and low-cost airline services within southern Africa. Id.
During the period of 2015 through 2019, Comair experienced significant financial challenges as, among other things, its total debt rose approximately $200 million to $350 million, as it sought to renew its aircraft fleet and incurred related capital expenditures; its financing expenses and operating costs grew at a rate that outpaced revenue growth; and between 2018 and 2019, its operating profits (before interest expense) fell by nearly $46 million to less than $1 million. Id. ¶ 12. To make matters worse, effective March 26, 2020, the President of South Africa imposed a nationwide lock-down and travel ban to curb the spread of COVID-19. Id. ¶ 15. The grounding of aircraft and unprecedented COVID-19 crisis severely adversely impacted Comair's operations and further compromised its already unstable financial situation. Id. In response to the travel ban, Comair took aggressive measures to rightsize operations and become more efficient. Id. ¶ 16. To preserve liquidity and strengthen its balance sheet, Comair cancelled its pending acquisitions, deferred investments, cut jobs and salaries, and reduced operational costs. Id. Still, Comair continued to experience mounting losses and depressed revenues and could not meet its ongoing financial obligations. Id. ¶ 17.
On May 4, 2020, Comair's board of directors adopted a board resolution to commence business rescue proceedings and appoint Richard Ferguson and Shaun Collyer as joint business rescue practitioners (the "Business Rescue Practitioners") under Chapter 6 of the South African Companies Act 71 of 2008 (the "Companies Act").[6] Collyer Decl. ¶ 17, Ex. A (the "Board Resolution"). On May 5, 2020, Comair commenced its business rescue proceeding (the "South African Proceeding") by filing the Board Resolution and the Notice of Beginning of Business Rescue Proceedings (Form CoR 123.1) with the Companies and Intellectual Property Commission of the Republic of South Africa ("Commission"). Id. ¶ 2. That same day, it filed its Notice of Appointment of Business Rescue Practitioners (Form CoR123.2), together with supporting documents, with the Commission. Id. On May 7, 2020, Messrs. Ferguson and Collyer caused notice of the commencement of the South African Proceeding and of their appointment as Business Rescue Practitioners to be provided to creditors, shareholders, employee representatives and other affected persons. Id. ¶ 23.
A business rescue proceeding facilitates the rehabilitation of a financially distressed company by providing for, among other things, "the development and implementation, if approved, of a business rescue plan to rescue the company by restructuring its business, property, debt, affairs, and equity in a manner that maximizes the likelihood of the company continuing into existence on a solvent basis or, if that is not possible, results in a better return for the company's creditors or shareholders than would result from the immediate liquidation of the company." Harduth Decl. ¶ 8 (quoting Companies Act § 128(1)(b)). Comair commenced the South African Proceeding in an effort to save the company from liquidation. Collyer Decl. ¶ 22. Its key objectives included "[(i)] discharging certain pre-filing liabilities, [(ii)] cutting the size of [its] aircraft fleet and thereby reducing operating expenses on a go-forward basis, [(iii)] renegotiating and/or refinancing certain aircraft finance and lease agreements, [(iv)] identifying unprofitable business segments and selling or otherwise disposing of related assets, [(v)] raising new debt and equity financing to fund the company following emergence, and [(vi)] providing a meaningful distribution to creditors." Id.
On September 2, 2020, after discussions and negotiations with Comair's management, shareholders, creditors' committee and an employee representatives committee, the Business Rescue Practitioners published a business rescue plan (the "Rescue Plan").[7] Id. ¶¶ 24, 27. On September 18, 2020, a majority (93%) of Comair's creditors approved the Rescue Plan. Id. ¶ 29. The Rescue Plan contemplates funding of up to ZAR1.2 billion ($80 million), including ZAR600 million ($40 million) of new debt, ZAR100 million ($6.67 million) in pre-payments from certain trade counterparties, and ZAR500 million ($33.33 million) of new equity capital provided by investors. Id. ¶ 28. As a condition precedent to the new equity investment, Comair was required to negotiate a collective agreement with its trade unions to reduce its workforce by 400 or roughly 20%. Id. The Rescue Plan also contemplates a reduction in Comair's fleet from 27 to 25 aircraft (15 owned and 10 leased). Id.
The Rescue Plan, as approved, includes a procedure for the Business Rescue Practitioners to amend the Rescue Plan. See Rescue Plan § 13. In part, it states:
The [Business Rescue Practitioners] shall have the ability, in their sole and absolute discretion, to amend, modify or vary any provision of this Business Rescue Plan, provided that (i) any amendment will not be materially prejudicial to any of the Affected Persons; [and] (ii) at all times the [Business Rescue Practitioners] act reasonably[.]
Id. § 13.2. The plan further specifies that any amendment will take effect 24 hours after the Business Rescue Practitioners provide written notice of the amendment to all "Affected Persons," defined as Comair's shareholders, creditors, and employees. Id. §§ 13.3, 1.3.3; see also id. § 13.5 (). In addition, the Rescue Plan requires that the Business Rescue Practitioners "provide regular monthly updates relating to the Business Rescue Proceedings and the Implementation of the [] Rescue Plan . . . in accordance with section 132(3)(a) of the Companies Act" as long as the Rescue Plan has not concluded (the "Status Updates"). See id. § 4.4.[8] The Business Rescue Practitioners have issued Status Updates. See, e.g., July 8 2021 Status Update (defined and discussed below).[9] The Business Rescue Practitioners' implementation of the Rescue Plan has been complicated by developments in the COVID-19 pandemic. Since the Business Rescue Practitioners filed the Verified Petition (defined below) in this Court on February 16, 2021, the South African Government imposed new restrictions to curb the country's COVID-19 infection rate. Among other things, the South African government forbid leisure travel to the Gauteng Province-the location of Johannesburg, South Africa's most populous city. See July 8, 2021 Status Update ¶ 5. These restrictions forced Comair to suspend all flight operations as of July 5, 2021 and place their aircraft into short term storage. Id. Grounding its fleet prevented Comair from generating any significant revenue, brought Comair further financial and operational uncertainty and, thus, upended the execution of the Rescue Plan. Se...
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