IN RE INTERN. ADMINISTRATIVE SERVICES, INC.

• Decision Date: 06 June 1997
• Docket Number: Bankruptcy No. 96-03950-6J1.
• Citation: 211 BR 88
• Parties: In re INTERNATIONAL ADMINISTRATIVE SERVICES, INC., Debtor.
• Court: U.S. Bankruptcy Court — Middle District of Florida

211 B.R. 88 (1997)

In re INTERNATIONAL ADMINISTRATIVE SERVICES, INC., Debtor.

Bankruptcy No. 96-03950-6J1.

United States Bankruptcy Court, M.D. Florida, Orlando Division.

June 6, 1997.

COPYRIGHT MATERIAL OMITTED

ORDER DENYING EMERGENCY MOTION TO VACATE OR MODIFY ORDER AUTHORIZING GUERNSEY LITIGATION AND FOR A PRELIMINARY INJUNCTION AGAINST THE UNSECURED CREDITORS COMMITTEE

KAREN S. JENNEMANN, Bankruptcy Judge.

This case came on for hearing on April 1, 1997, on the emergency motion filed by Charles J. Givens, Jr. ("Givens"), first, to vacate or modify this Court's prior order authorizing the creditors' committee (the "Committee") to pursue claims against Givens and other defendants before the Royal Court of Guernsey (the "Guernsey Court") and, second, to enjoin the Committee from pursuing avoidance claims against Givens in any forum other than before this Court (the "Motion") (Doc. No. 262). The Motion raises numerous legal issues all questioning the validity of the Committee's action in pursuing claims against Givens and other third parties to avoid transfers of property of the debtor, International Administrative Services, Inc. (the "Debtor"), to various accounts located in the Bailiwick of Guernsey, a small island located in the English Channel which is a British crown dependency ("Guernsey"). After reviewing the pleadings, the arguments of the parties, and the case law, the Motion is denied.

Background. The Debtor is in the business of providing financial products and services to consumers which are designed to help consumers manage their finances and to assist them in making future financial decisions. In exchange for monthly dues, each of the Debtor's several thousand members receives a monthly magazine entitled "Success Insight" and each has access to IAS's financial hotline which is staffed by financial advisors trained to answer member questions.

Givens is the sole shareholder of the Debtor. He formed the Debtor, formerly known as the Charles J. Givens Organization, Inc., in 1986 and served as an officer and director of the Debtor until some time in 1992. He is a dynamic speaker and, during the early years of the Debtor's operations, travelled the country presenting seminars and proclaiming the Debtor's message of financial planning to consumers. After he resigned his management role in 1992, a series of officers and directors managed IAS' operations. The Debtor ultimately filed a voluntary petition seeking to reorganize its financial affairs under chapter 11 of the Bankruptcy Code on June 21, 1996 (Doc. No. 1). The Debtor has acted as a debtor-in-possession managing its operations during the Chapter 11 case.

Committee Appointment and Investigation. On July 29, 1996, the United States Trustee appointed the Committee to represent the interests of creditors (Doc. No. 42).

Shortly thereafter, the Debtor and the Committee agreed that, due to the complex relationship between the Debtor and Givens, the Debtor would relinquish to the Committee its right and duty to pursue any fraudulent transfer or other avoidance claim against Givens or any other third party. On September 20, 1996, an order was entered approving this agreement (Doc. No. 95). As such, the Committee essentially is acting as a trustee on behalf of the estate in pursuing the Debtor's avoidance claims. 11 U.S.C. § 1107 (1997).

In accordance with their legal duty to recover all available assets, the Committee conducted a comprehensive investigation into the extremely complex web of financial transactions between the Debtor and insiders of the Debtor including Givens, numerous corporate affiliates of the Debtor, and various other third parties. As a result of this investigation, the Committee identified substantial funds transferred from the Debtor's accounts into various financial accounts located in Guernsey (the "Guernsey Funds"). Givens may claim some interest in these funds. The Committee claims, but certainly has not proven, that the Guernsey Funds belong to the Debtor and were fraudulently transferred by Givens and other third parties. The Committee concluded that a legal action in Guernsey was necessary to freeze assets located in Guernsey and to attempt to recover such assets for the benefit of the estate.

Committee's Motion. On January 16, 1997, the Committee filed the Emergency Motion for Authorization to Institute Proceedings in Guernsey, to File Affidavit, to Give Undertakings and to File Under Seal (the "Committee's Motion") (Doc. No. 207A). Because Givens or his associates previously had refused to cooperate with the Committee and deliberately had interfered with the Committee's investigation by destroying documents, the Committee was concerned that, if Givens were given notice of the Committee's Motion, Givens or his associates would transfer the Guernsey Funds from Guernsey. Accordingly, the Committee requested that the hearing on the Committee's Motion be held without notice to Givens or other third parties.

In light of the representations made by Committee's counsel, the Court granted the Committee's request. The pleadings were sealed, and a hearing on the Committee's Motion was held on January 17, 1997. Representatives of the Debtor, the Committee, and the United States Trustee were present. No notice of the hearing was provided to Givens or the other defendants. The proceeding was transcribed and is part of the official record of this case.

At the hearing, the Committee requested permission to file an action before the Guernsey Court to pursue certain legal remedies uniquely available under Guernsey law. Specifically, the laws of Guernsey permit the Guernsey Court to freeze assets located in its jurisdiction pending resolution of the competing claims, to permit discovery from third parties, and to provide for the seizure of records. The Committee also estimated that the Guernsey Court would require a bond of approximately $35,000 to cover the costs of the defendants and the reasonable expenses incurred by third parties. The Committee requested that the Debtor directly pay this cost. The Debtor consented to the payment of this amount and, indeed, supported the relief requested in the Committee's Motion. Lastly, the Committee anticipated the need to file an affidavit with the Guernsey Court reciting the conclusions reached during the Committee's financial investigation. A proposed, but unsigned, version of such an affidavit was attached to the Committee's Motion.

After the hearing, the Court granted the Committee's Motion and entered an Order Granting Motion for Authorization to Institute Proceedings in Guernsey ("Order Authorizing Guernsey Action") (Doc. No. 208A). The Court further specifically found that, based upon the allegations in the Committee's Motion, a substantial risk existed that the records and funds sought to be obtained by the Committee would "disappear if notice of the Emergency Motion or this Order were known to the prospective defendants in Guernsey."

The Order Authorizing the Guernsey Action permitted the Committee to file an action in Guernsey to attempt to freeze and locate assets of this Chapter 11 estate utilizing the laws of Guernsey and to take whatever actions were necessary or appropriate under Guernsey law to pursue those claims, including the payment of necessary fees and the filing of a supporting affidavit. The Order Authorizing the Guernsey Action did not seize the assets of Givens or any other party and did not direct the Guernsey Court to take any such action but merely authorized the Committee to proceed in a foreign jurisdiction to obtain relief over property which is located in that foreign jurisdiction and which allegedly belongs to this Debtor.¹

Guernsey Order. On January 22, 1997, the Guernsey Court issued an order against Givens and seven other defendants: 1) Montrain Services Limited; 2) Eurokredit Finance BV; 3) Paul Mason; 4) Fort Group Holdings Limited; 5) Island Management Finance Limited; 6) Regent Nominees Limited; and 7) Sloane Nominees Limited (collectively, including Givens, the "Guernsey Defendants"). Besides Givens, only one of the seven defendants, Island Management Finance Limited ("IMF"), has any contact with the United States, or has participated in this chapter 11 case.

The order of the Guernsey Court (the "Guernsey Order") prohibits Givens as well as some of the other Guernsey Defendants from removing or transferring any assets from Guernsey (Paragraph 1.1). The Guernsey Order does not purport to restrict the Guernsey Defendants' use of property located anywhere outside of Guernsey. The Guernsey Order further permits the release of any restricted funds for the payment of reasonable attorneys' fees and other business expenses provided reasonable attorneys' fees and other business expenses provided that the defendant discloses the source of the funds (Paragraph 6.2). Lastly, the Guernsey Order is subject to variance or discharge upon the request of any party and upon 24 hours written-notice to the Committee's advocates in Guernsey (Paragraph 9). In sum, the Guernsey Order freezes assets of Givens located in Guernsey until the issues are judicially resolved or an emergency request for a variance is made.²

Givens' Motion. On April 1, 1997, Givens filed the instant Motion requesting this Court to vacate or modify the Order Authorizing Guernsey Action and to enjoin the Committee from continuing with the action pending in Guernsey against Givens and from instituting any new proceedings against Givens before any court other than this Court. In support of his Motion, Givens raises numerous legal arguments. However, succinctly stated, Given's primary contention is that this Court is the only appropriate forum to resolve the Committee's claims. He also argues that the Order Authorizing the Guernsey Action is analogous to an order seizing his property. As such, Givens argues that his constitutional due process rights were violated because the order was entered...