In re Genever Holdings LLC
| Decision Date | 01 September 2021 |
| Docket Number | 20-12411-JLG |
| Parties | In re: GENEVER HOLDINGS, LLC, Debtor. |
| Court | U.S. Bankruptcy Court — Southern District of New York |
NOT FOR PUBLICATION
GOLDBERG WEPRIN FINKEL GOLDSTEIN LLP Counsel for the Debtor Kevin J. Nash, Esq.
O'MELVENY & MYERS LLP Counsel for Pacific Alliance Asia Opportunity Fund L.P. Stuart Sarnoff, Esq. Edward Moss Esq.
MAYER BROWN LLP Counsel for Pacific Alliance Asia Opportunity Fund L.P. Douglas E. Spelfogel, Esq. Derek L. Wright, Esq.
TROUTMAN PEPPER HAMILTON SANDERS LLP Counsel for Bravo Luck Limited Francis J. Lawall, Esq.
WILLIAM K. HARRINGTON UNITED STATE TRUSTEE, REGION Richard C. Morrissey, Esq.
Introduction[1]
Genever Holdings LLC (the "Debtor") is a New York limited liability company whose purported sole asset is the apartment Residence in The Sherry Netherland Hotel in New York City. It commenced this single asset chapter 11 case on the heels of the entry of a judgment in New York State Court in favor of Pacific Alliance Asia Opportunity Fund, L.P. ("PAX"), and against Mr. Kwok Ho Wan a/k/a Miles Kwok ("Mr. Kwok"), the Debtor's principal, as guarantor of certain indebtedness due and owing to PAX by a non-Debtor entity affiliated with Mr. Kwok. In the State Court Litigation, PAX contends that it can pierce the corporate veil and seize the Residence in satisfaction of the judgement. Bravo Luck Limited ("Bravo Luck") is among the Debtor's creditors. It is a British Virgin Islands ("BVI") corporation under the control of Mr. Kwok's son, Mr. Qiang Guo. It contends that it advanced $70 million used to purchase the Residence. It maintains that it is the rightful owner of the Residence - and thus contests PAX's assertion that it can seize the Residence in satisfaction of its judgment. Alternatively, it contends that it is a creditor of the Debtor. It has filed a proof of claim herein.
The Debtor says that it commenced this case to maximize the value of the Residence for the benefit of its creditors. It has reached a settlement with Bravo Luck and PAX that is embodied in the agreement that is the subject of one of the motions before the Court. In broad strokes, the Settlement Agreement calls for PAX to be granted relief from the automatic stay so that the State Court Litigation can proceed to judgment on all matters, including the veil piercing issues (but not execution of any judgment), and for the Debtor to sell the Residence and escrow the sales proceeds pending resolution of the dispute over the ownership of the Residence. PAX is clear that it does not trust the Debtor to conduct an open and honest process to sell the Residence and will not agree to an arrangement that leaves the Debtor with any control over the sale process. As such, a key element of the agreement is that it calls for the Debtor to hire the Hon. Melanie J. Cyganowski (Ret.) ("Ms. Cyganowski"), as its employee, pursuant to the terms of that certain Engagement Letter, to act as the Debtor's Sales Officer and to vest her with complete control over the sale process.[2] In furtherance of the Settlement Agreement, and to help insure that Ms. Cyganowski can operate independently from the Debtor's Member and Manager, the Debtor has agreed to amended its Operating Agreement (subject to the Court's approval of the Motions) to provide that the Debtor cannot revoke or terminate Ms. Cyganowski's appointment as its Sales Officer and that neither the Debtor nor its members or managers can terminate Ms. Cyganowski's employment without an order of this Court.
The matters before the Court are the Debtor's motion pursuant to sections 105 and 363(b) of the Bankruptcy Code to retain Ms. Cyganowski under the terms of the Engagement Letter, as supplemented by relevant provisions of the Settlement Agreement (the "Sales Officer Motion"), [3]and its motion pursuant to Rule 9019 of the Federal Rules of Bankruptcy Procedure (the "Bankruptcy Rules") to approve the Settlement Agreement (the "Settlement Motion," with the Sales Officer Motion, the "Motions").[4] The United States Trustee (the "U.S. Trustee") objects to the Motions (collectively, the "Objection"). Essentially, he contends that there is no authority under the Bankruptcy Code for the Debtor to retain Ms. Cyganowki as the Sales Officer on the terms set forth in the Engagement Letter and the Settlement Agreement. The Debtor, PAX and Bravo Luck oppose the Objection.
The Court finds that the Settlement Agreement is fair and reasonable, and that the Debtor has demonstrated grounds under sections 105(a) and 363(b) of the Bankruptcy Code for employing Ms. Cyganowski as its Sales Officer pursuant to the terms of the Engagement Letter and Settlement Agreement. However, certain of the proposed terms of Ms. Cyganowski's employment exceed the scope of relief available to the Debtor under sections 105(a) and 363(b). For that reason, the Court denies the Motions.
This Court has jurisdiction over the Motions 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 matter is a core proceeding under 28 U.S.C. § 157(b)(2).
On March 16, 2011, Shiny Times Holdings Ltd. ("Shiny Times"), an entity controlled by Mr. Kwok that is incorporated in the BVI, and PAX entered into the "2011 Loan Facility." That agreement superseded prior agreements and memorialized Shiny Times' debt to PAX as of December 31, 2010 at $46, 426, 489, with a 15% annual interest rate and a June 30, 2012 repayment date. See Moss. Decl. I Exs. 3, 4.[5] The 2011 Loan Facility was conditioned on Mr. Kwok's execution of a personal guarantee that secured performance by Shiny Times. In March 2011, Mr. Kwok and PAX entered a contract (the "2011 Personal Guarantee") under which Mr. Kwok personally guaranteed the 2011 Loan Facility. Shiny Times defaulted under the 2011 Loan Facility and the parties failed to consummate a settlement agreement. See id. Exs. 6-9. In 2015 PAX initiated liquidation proceedings against Shiny Times in the BVI seeking to recover the debt. Shiny Times was found to be insolvent in the liquidation proceeding -- so PAX recovered nothing. See id. Ex. 23. On April 18, 2017, PAX filed suit against Mr. Kwok in New York Supreme Court for breach of the 2011 Personal Guarantee (the "State Court Litigation"). On September 15, 2020 the state court granted PAX summary judgment holding Mr. Kwok liable under the 2011 Personal Guaranty. See id. Ex. 50.
On October 12, 2020, the Debtor filed a voluntary petition for relief (the "Petition") under chapter 11 of the Bankruptcy Code in this Court (the "Chapter 11 Case"). See Official Form 201 Voluntary Petition for Non-Individuals Filing for Bankruptcy [ECF No. 1]. The Debtor has offices at The Sherry Netherland Apartments, 781 Fifth Avenue, Unit 1801, New York, NY 10022 (the "Residence"). See Debtor's Declaration Pursuant to Local Bankruptcy Rule 1007-2 [ECF No. 1] ("Rule 1007 Decl.") ¶ 1. The Debtor is a New York limited liability company. Mr. Kwok is the sole Member of the Debtor and is the Manager designated under the Debtor's Operating Agreement. See id. ¶ 22. The Debtor is wholly owned by Genever Holdings Corp. ("Genever BVI"), an entity incorporated in the BVI. Mr. Kwok is Genever BVI's sole shareholder and director. The Debtor's sole asset is its ownership interest in the Residence which is memorialized by approximately 3, 000 shares of Sherry Netherland cooperative stock and corresponding proprietary leases. See id. ¶ 3. The Debtor says that it acquired the Residence in 2015 for the sum of approximately $70 million, largely with funding provided by Bravo Luck pursuant to a certain trust agreement, plus approximately $5 million advanced by Mr. Kwok's son, Mr. Qiang Guo. See id. ¶ 4. The trust recognizes Bravo Luck as the beneficial owner of the Residence on the basis that it funded most of the purchase price. See id. ¶ 5. Since the acquisition of the Residence, Bravo Luck has also chiefly funded maintenance charges and assessments. See id.
The Debtor commenced this Chapter 11 Case so that "[b]efore the [Residence] become[s] further entangled in litigation involving competing claims of ownership, the Debtor . . . [can] gain the needed flexibility to be in a position to maximize value under the rehabilitative power of the Bankruptcy Court." See id. ¶ 10. The Debtor explains that:
an important threshold goal of the Chapter 11 case is to obtain a resolution of the competing claims relating to the [Residence] as between Bravo [Luck] and [PAX]. Once this issue is resolved or settled, the matter involving [PAX] will be clarified and the Debtor will then be in a position to promulgate a plan of reorganization. Pending such a determination, Chapter 11 will help the Debtor preserve the status quo.
Id. at ¶ 12. Several parties in interest have sought and opposed varying requests for relief during the pendency of this case. On or about December 16, 2020, PAX moved pursuant to section 362(d) of the Bankruptcy Code for entry of an order modifying the automatic stay, so that it may proceed with the State Court Litigation, and address attendant claims of non-debtor third-parties (the "Stay Relief Motion").[6] On or about January 5, 2021, Bravo Luck objected to the Stay Relief Motion.[7] The Debtor filed a response objecting to the Stay Relief Motion.[8] On or about January 8, 2021 PAX moved for an order under section 1112(b) of the Bankruptcy...
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