In re Global Ocean Carriers Ltd.

• Decision Date: 05 July 2000
• Docket Number: No. 00-955(MFW) to 00-969(MFW).,00-955(MFW) to 00-969(MFW).
• Citation: 251 BR 31
• Parties: In re GLOBAL OCEAN CARRIERS LIMITED, et al., Debtors.
• Court: U.S. Bankruptcy Court — District of Delaware

251 B.R. 31 (2000)

In re GLOBAL OCEAN CARRIERS LIMITED, et al., Debtors.

No. 00-955(MFW) to 00-969(MFW).

United States Bankruptcy Court, D. Delaware.

July 5, 2000.

OPINION¹

MARY F. WALRATH, Bankruptcy Judge.

This case is before the Court on the request of Global Ocean Carriers Limited ("Global Ocean") and fifteen of its affiliates² (collectively "the Debtors") for confirmation of their Modified First Amended Plan of Reorganization ("the Modified Plan"). In connection with confirmation, the Debtors also request that their Motion for substantive consolidation be granted and that the ballot of Credit Lyonnais in favor of the Modified Plan be accepted (though filed beyond the voting deadline). The holders of approximately $92 million of the $126 million in outstanding notes ("the Ad Hoc Committee of Noteholders") supports the Debtors' requests. A small noteholder and minority shareholder, Arabella Holdings, Inc. ("Arabella") objects to the relief requested by the Debtors and asks that the cases be dismissed.

For the reasons given below, confirmation of the Modified Plan is denied. Substantive consolidation is also denied without prejudice to the Debtors renewing their motion on notice to all affected creditors. However, Arabella's motion to dismiss these cases is denied, since the Debtors are eligible to file the instant cases.

I. FACTUAL BACKGROUND

The Debtors are involved in the international shipping industry. Global Ocean and most of the other Debtors are headquartered in Athens, Greece.³ The books and records of the Debtors are located in Athens, Greece. The Debtors are incorporated in Liberia, Cyprus or Singapore with the exception of Marine which is incorporated in the United States, in Delaware.

Global Ocean is the ultimate parent of all the Debtors; the other Debtors are direct or indirect subsidiaries of Global Ocean. Certain of the Debtors own ocean-going vessels. Each vessel is owned by a separate subsidiary for liability purposes. The Debtors collectively own 10 feeder container vessels and 2 Panamax dry bulk carriers.

The vessels are maintained and operated through a non-debtor, Sovereign Navigation Corporation ("Sovereign")⁴, pursuant to a Management Agreement with Global Ocean. (Exhibit A-9.) Sovereign performs the general administrative tasks for the Debtors, maintains the books and records of all the Debtors, collects the revenues and deposits them to the bank accounts of Global Ocean, and supervises the chartering and maintenance of the vessels. The daily maintenance, provisioning and chartering of the vessels is done by Tsakos Shipping and Trading, S.A. ("Tsakos Shipping"), under a Technical Management Agreement with Sovereign. (Exhibit A-33.) Most of the vessels are under charter to other companies. Many of the charters are at market or above market rates and are due to expire relatively soon.

Global Ocean is a publicly traded company whose stock was registered on the American Stock Exchange until shortly before the bankruptcy filing. The Tsakos family controls more than 50% of the stock. (Exhibit D-5.) Global Ocean owes approximately $51 million to Credit Lyonnais, which is guaranteed by the Hanjin Debtors and is secured by a first preferred ship mortgage on each of the three Hanjin vessels. In 1997, Global Ocean issued $126 million in 10 ¼% Senior Notes due 2007 ("the Notes"). The Notes were guaranteed by all the other Debtors. The Notes, though unsecured and subordinated to certain senior secured debt, restricted the Debtors' ability to grant security interests in their assets, including the vessels. (Exhibit A-20 at pp. 10, 11, 104.)

Over the past several years the global shipping industry has been in a recession, with vessel values dropping to a five year low in the summer of 1999. Because of deteriorating charter rates and long periods of unemployment of some of its vessels, the Debtors suffered a net loss of $13.5 million in 1998. Concerned about their ability to meet interest payments due on the Notes, the Debtors met in May, 1999, with representatives of the owners of a vast majority of the Notes for purposes of restructuring the Notes. (Exhibit A-16.) An Ad Hoc Committee of Noteholders was formed and negotiations resulted in an agreement to a restructuring in the fall of 1999. Certain of the Committee members executed a Lock-up Agreement. (Disclosure Statement at Exhibit B.)

At the insistence of the Ad Hoc Committee of Noteholders, the Debtors filed voluntary petitions under chapter 11 of the Bankruptcy Code on February 14, 2000. On that same date, the Debtors filed their initial joint Plan of Reorganization and Disclosure Statement. That Plan provided for payment in cash to Noteholders of 50% of their claims on the Effective Date. All other creditors were to be paid in full in accordance with their normal terms and shareholders of Global Ocean would be eliminated. All of the stock in Global Ocean would be issued to Marmaron Company Limited ("Marmaron"), which is owned by Maria Tsakos, in exchange for new capital up to $10 million. Maria Tsakos is the daughter of Captain Panagiotis Tsakos and the sister of Nikolas P. Tsakos, together the largest existing shareholders. Global Ocean would retain ownership of the other Debtors.

At the request of the Debtors and the Ad Hoc Committee of Noteholders, the plan process was scheduled on a relatively fast track, to assure that the restructuring was concluded by June 30, 2000. The Disclosure Statement was approved, over objections by Arabella, on March 24, 2000, after certain amendments were made to it and the Plan. Voting packages were required to be mailed by March 31, 2000, ballots were due on April 28, 2000, and the confirmation hearing was originally scheduled for May 8, 2000.

After voting on the Plan, however, the only impaired class (the Noteholders) rejected the Plan under the numerosity test. That is, although owners of over $98 million in amount of the outstanding Notes voted to accept the Plan (almost $6 million voted to reject), 321 of the 497 Noteholders voting on the Plan rejected it. Thus, the Plan has been rejected by the vast majority of the small Noteholders, but accepted by the large institutional Noteholders which own the largest amount of Notes.

Opposition to the Plan has been spearheaded by Arabella, an investment company owned by Mr. and Mrs. Katsamas. Mr. Katsamas has been in the shipping industry for twenty years. In December of 1999, Arabella purchased a small number of shares in Global Ocean for $10,000 and purchased $150,000 in face amount of Notes for $55,000. Mr. Katsamas testified that he did so based on his knowledge of the industry and the upward swing in values of vessels since the Summer of 1999. The valuation experts who testified on behalf of the Debtors confirmed that the industry has recovered since last year and that vessel values (and charter hire rates) continue to rise. Mr. Katsamas said he invested in Global Ocean with the expectation that its value would increase as the industry recovered.

After the Plan was rejected by the Noteholders, the Debtors filed the Modified Plan which changed the treatment of Credit Lyonnais in a manner which the Debtors assert impairs it. A ballot was filed by Credit Lyonnais accepting the Modified Plan. The Debtors also filed a Motion for substantive consolidation of the Debtors' cases. In a telephone conference on scheduling and discovery issues, the Debtors asked for expedited consideration of their substantive consolidation motion so that it could be heard at the confirmation hearing, which was rescheduled for June 5, 2000. We granted that request.

The confirmation hearing commenced on June 5 and continued on June 7, 15 and 23. At the conclusion of the testimony, we heard oral argument and held the matter under advisement.

II. JURISDICTION

This Court has jurisdiction over these matters, which are core proceedings pursuant to 28 U.S.C. § 1334 and § 157(b)(1), (b)(2)(A), (L) and (O).

III. DISCUSSION

The Debtors, Credit Lyonnais, and the Ad Hoc Committee of Noteholders all support confirmation of the Modified Plan. To effectuate the Modified Plan, the Debtors ask us to grant their substantive consolidation motion and allow the ballot of Credit Lyonnais, though it was not filed within the original voting deadline.

Arabella objects to the Debtors' requested relief and also asks that we dismiss these chapter 11 cases asserting that the Debtors are not eligible to file under the Bankruptcy Code.

Because it bears on whether we can or should decide all the other issues, we address Arabella's motion to dismiss first.

A. Motion to Dismiss

Arabella asserts that none of the Debtors are eligible to file a case under the Bankruptcy Code. Section 109(a) of the Code articulates who is eligible to file a petition in bankruptcy:

Notwithstanding any other provision of this section, only a person that resides or has a domicile, a place of business or property in the United States, or a municipality, may be a debtor under this title.

11 U.S.C. § 109(a).

The test for eligibility is as of the date the bankruptcy petition is filed. See, e.g., In re Axona International Credit & Commerce, Ltd., 88 B.R. 597, 614-15 (Bankr.S.D.N.Y.1988). The test must be applied to each debtor. Bank of America v. World of English, 23 B.R. 1015, 1019-20 (N.D.Ga.1982)(even where parent is eligible to file, subsidiary must be tested separately to see if it is eligible). The burden of establishing eligibility is on the party filing the bankruptcy petition, in this case the Debtors. See, e.g., In re Secured Equipment Trust of Eastern Air Lines, Inc., 153 B.R. 409, 412 (Bankr.S.D.N.Y. 1993) and cases cited therein.

In this case, only one of the Debtors, Marine, is incorporated in the United States. Marine was incorporated in Delaware in 1991. The others are incorporated in Cyprus, Singapore or Liberia. Most of the Debtors have their headquarters in Athens, Greece. The Debtors admit...