In re Culligan Ltd.
| Decision Date | 02 July 2021 |
| Docket Number | 20-12192 (JLG) |
| Parties | In re: CULLIGAN LTD., [1] Debtor in Foreign Proceedings. |
| Court | U.S. Bankruptcy Court — Southern District of New York |
NOT FOR PUBLICATION
ALLEGAERT BERGER & VOGEL LLP
By Lawrence P. Gottesman
David A. Berger
David A. Shaiman
Counsel to the Foreign Representatives
TOGUT SEGAL & SEGAL LLP
By: Kyle J. Ortiz
Brian F. Shaughnessy
Amanda C. Glaubach
Co-Counsel to the New York Plaintiffs
SINGLER PROFESSIONAL LAW CORPORATION
Before the Court is the motion (the "Recognition Motion")[2] of Charles Thresh and Michael Morrison, in their capacities as the joint liquidators and authorized foreign representatives (in such capacity, the ") of Culligan, Ltd., a Bermuda exempted company incorporated under the laws of Bermuda (the "Debtor" or "Culligan") that is subject to a court-supervised liquidation proceeding under the Companies Act of 1981 (the "Bermuda Companies Act") entitled In the Matter of Culligan Limited (In Members' Voluntary Liquidation and In the Matter of the Companies Act 1981, pending before the Supreme Court of Bermuda (the "Bermuda Court"), Companies (Winding Up) Commercial Court, 2019: No. 278 (the "Bermuda Liquidation") for the entry of an order (i) recognizing the Bermuda Liquidation as a "foreign main proceeding," as defined in section 1502(4) of the Bankruptcy Code; (ii) recognizing each of the Foreign Representatives as a "foreign representative," as defined in section 101(24) of the Bankruptcy Code; (iii) recognizing, granting comity to, and giving full force and effect in the United States to the Bermuda Liquidation; and (iv) granting such other relief as the Court deems just and proper. The "New York Plaintiffs"[3] oppose the Recognition Motion (the "Objection").[4] The Foreign Representatives have filed a reply to the Objection (the "Reply").[5] For the reasons set forth below, the Court overrules the Objection and grants the Recognition Motion.
The Court has jurisdiction over these matters pursuant to 28 U.S.C §§ 1334(a) and 157(a) and the Amended Standing Order of Referral of Cases to Bankruptcy Judges of the United States District Court for the Southern District of New York (M-431), dated January 31, 2012 (Preska, C.J.). This is a core proceeding under 28 U.S.C. § 157(b)(2)(P).
FACTS[6]
The Debtor was incorporated in Bermuda as an exempted company under the Bermuda Companies Act. Original Thresh Decl. ¶ 7. Its business was the distribution of water purification and filtration units through franchise dealers in North America. Id. ¶ 8. In 2004, Clayton Dubilier & Rice, LLC, the successor in interest of Clayton Dubilier & Rice, Inc. (collectively, "CDR"), acquired all of the operating companies and intermediary holding companies which comprised the "Culligan System" from Vivendi/Veolia, a French conglomerate, through a $610 million leveraged buyout (the "LBO"). Singler Decl. ¶ 6a. In that transaction, CDR contributed $200 million and borrowed $410 million secured by the operating assets of the Culligan Entities. Id. ¶ 6c. As a result of the LBO, the Debtor was formed as an ultimate shell parent company, with its sole asset being 100% of the equity of Culligan Investments, S.á.r.l., a Luxembourg entity ("Culligan Investments"). Id. ¶ 6a. In turn, Culligan Investments owned all the equity of the other entities comprising the Culligan System. Id. The Debtor was a holding company for various other holding and operating companies in the Culligan System (the "Culligan Entities") but did not directly conduct any business operations. Id. Culligan International Company ("Culligan International") is a Delaware Corporation with its principal business operations and executive offices in Illinois. Id. It was the primary operating company and source of revenue within the Culligan Entities. Id.
In 2006, the Debtor repaid CDR for its initial $200 million dollar investment in the Debtor, and then in 2007 CDR caused the Culligan Entities to recapitalize by borrowing more than $850 million which it used to refinance $400 million in existing debt and to pay a $375 million dividend to shareholders. Id.
In or about May 2012, the Debtor underwent an out-of-court restructuring (the "Restructuring Transaction") pursuant to which it transferred 100% of the equity in Culligan Investments, one of its subsidiaries, into a new company, Culligan Newco Ltd. ("Newco"). Original Thresh Decl. ¶ 9. The Debtor was solvent after it closed the Restructuring Transaction, as it had only cash and no liabilities. Id. ¶ 10. On April 29, 2013, the Debtor entered into a members' voluntary liquidation ("MVL") under applicable Bermuda law. Id.[7] On that day, pursuant to a resolution of the Debtor's shareholders, the Foreign Representatives were appointed joint liquidators of the Debtor for the purpose of winding-up the Debtor. Id.; see also id., Ex. C.[8]
In June 2017, Newco paid $11.67 million to the Debtor. That left the Debtor with $11.87 million in cash. Original Thresh Decl. ¶ 40. The Foreign Representatives-as joint liquidators in the MVL-determined that a distribution should be made to shareholders under the MVL in the amount of approximately $11.34 million. Id. ¶ 41. In calculating the amount of the distribution, they reserved $500, 000 to pay liquidation fees and expenses, as well as fees related to the New York Action (as defined below). Id. ¶ 45.[9] To date, the Foreign Representatives have distributed $11.1 million in funds, which includes a total of $396, 699.58 to 56 of the 71 plaintiffs in the New York Action. Id. ¶ 46. The Debtor has approximately $240, 000 remaining in payment obligations to multiple shareholders (including $37, 235.98 to the 15 remaining unpaid New York Plaintiffs) relating to that shareholder distribution. Id.
Under the Bermuda Companies Act, liquidators appointed under a MVL can also "exercise any of the other powers of . . . the [Act] given to the liquidator by the Court." See Luthi Decl. ¶ 30 n.7. Under the Bermuda Companies Act, where a liquidator believes that the company is no longer solvent it can petition the Bermuda Court for a winding up order. Id. That is what happened here. In June 2019, Debtor had $288, 000 in cash ($48, 000 in excess of its obligations to shareholders re: the distribution) and the Foreign Representatives determined Debtor had become insolvent due to expected future liabilities arising from the estimated fees of the New York Action. Original Thresh Decl. ¶ 48. On July 2, 2019, the Foreign Representatives petitioned the Bermuda Court for court supervision of the Bermuda Liquidation. On August 23, 2019, the Bermuda Court entered an order in the Bermuda Liquidation converting the Debtor's MVL into a court-supervised liquidation (the "Liquidation Order"). Luthi Decl. ¶ 37. That order also confirmed the Foreign Representatives as joint liquidators of the Debtor. Id; Reply Berger Decl. ¶ 14.[10] In part, the Liquidation Order provides, as follows:
Reply Berger Decl. ¶ 50; id. Ex. A.
On May 30, 2012, the New York Plaintiffs commenced a derivative action against, among others, the Debtor's directors and controlling shareholders in the Supreme Court of the State of New York, County of New York (the "New York Court"), entitled, Culligan Soft Water Company, et al. v. Clayton Dubilier & Rice LLC, et al, Index No. 651863/2012 (the "New York Action"). Singler Decl. ¶ 5. The Debtor is the Nominal Defendant. Id. ¶ 5.[11] The New York Plaintiffs are minority shareholders. They consist of 71 of the total 262 Culligan water dealers, and in the aggregate, they hold approximately 3.8% of the Debtor's shares. Original Thresh Decl. ¶¶ 13, 15. In support of the New York Action, the plaintiffs contend that the consolidated Culligan Entities, including the Debtor, had neither retained earnings nor profits to sufficient to pay either the $200 million return of capital to CDR or the $375 million dividend, and thus made those payments in violation of N.Y. B.C.L. § 510(b). Singler Decl. ¶ 6d.
On July 12, 2012, on the heels of the Restructuring Transaction, the New York Plaintiffs filed a First Amended Complaint as of right, to among other things, add Newco as a defendant. Singler Decl. ¶ 8a.; Original Thresh Decl. ¶ 21. All the Defendants filed motions to dismiss the First Amended Complaint based primarily on the argument that Bermuda law not New York law, governs the transactions at issue, and that Bermuda law does not allow for derivative actions. Singler Decl. ¶ 8a. On March 13, 2013, the New York Court granted the motions to dismiss, finding that Bermuda law applied and that the New York Plaintiffs did not meet the narrow exceptions under Bermuda Law to...
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