In re Manley Toys Ltd.

• Decision Date: 13 February 2018
• Docket Number: Case No. 16–15374 (JNP)
• Citation: 580 B.R. 632
• Parties: IN RE: MANLEY TOYS LIMITED, Debtor in a Foreign Proceeding.
• Court: U.S. Bankruptcy Court — District of New Jersey

580 B.R. 632

IN RE: MANLEY TOYS LIMITED, Debtor in a Foreign Proceeding.

Case No. 16–15374 (JNP)

United States Bankruptcy Court, D. New Jersey.

Signed February 13, 2018

Stephen M. Packman, Douglas G. Leney, Daniel M. Glosband, Archer & Greiner, P.C., Haddonfield, NJ, for Debtor in a Foreign Proceeding.

OPINION GRANTING RECOGNITION OF FOREIGN PROCEEDING

JERROLD N. POSLUSNY, JR., U.S. Bankruptcy Judge

Before the Court is the motion of Mat Ng and John Robert Lees, the Appointed Liquidators and Foreign Representatives (the "Liquidators") of Manley Toys Limited (the "Debtor") for recognition of a foreign proceeding commenced by the Debtor in Hong Kong on March 22, 2016 (the "Motion"). ASI Inc., f/k/a Aviva Sports Inc. ("Aviva"), and Toys "R" Us, Inc. ("TRU"), oppose the Motion.

Recognition of a foreign insolvency proceeding requires that the proceeding: (a) meets the definition of a "foreign proceeding" under section 101(23) of the Bankruptcy Code ; (b) meets the requirements for recognition under section 1517(a); and (c) is not "manifestly contrary to the public policy of the United States." See 11 U.S.C. §§ 101(23), 1517(a) and 1506. The Liquidators argue that they have met all of the requirements for recognition and that recognition would not be manifestly contrary to United States public policy. Aviva and TRU argue that the foreign proceeding is not collective in nature; is not a foreign main proceeding; and is manifestly contrary to public policy. TRU further argues that the Court should deny the Motion because (according to TRU) the Debtor is solvent and there is no court oversight or administration of the Hong Kong liquidation. Aviva further argues that even if the Court recognizes the foreign proceeding, it should be dismissed or suspended under section 305 of the Bankruptcy Code.

Upon consideration of the evidence submitted, the arguments of counsel, and for the reasons discussed below, the Court will grant the Motion and recognize the Hong Kong liquidation as a foreign main proceeding.

Jurisdiction

This Court has jurisdiction under 28 U.S.C. §§ 157(b)(1) and 1334(b) and (d). Venue is proper in this Court under 28 U.S.C. § 1410. This is a core proceeding under 28 U.S.C. § 157(b)(2)(P). The following constitutes the Court's findings of fact and conclusions of law as required by Fed. R. Bankr. P. 7052.¹

Background

The Debtor at one time claimed to be the seventh largest toy company in the world and sold toys (including seasonal and water toys) primarily to retailers. The Debtor had as many as fifteen related entities all controlled by the same individuals. See Transcript of Hearing on May 12, 2016 at 160:19–162:17 (the "May 12 Transcript"); Ex. TRU–120. Aviva and TRU argue that these individuals changed the names of the corporate entities as needed to shelter themselves, the corporate entities, and their assets from third parties. See, e.g., Exs. TRU–78–80; Ex. TRU–83; Ex. TRU–87.

After several years of litigation in the United States District Court for the District of Minnesota (the "Minnesota Court"), Aviva obtained an $8.6 million judgment against the Debtor in August 2013. See Ex. Aviva–2. The Minnesota Court entered the judgment by default because the Debtor had not complied with many orders of the Minnesota Court. See Ex. Aviva–92 at 33–34. Thereafter Aviva began attempts to collect on its judgment and sought post-judgment discovery, which the Debtor did not provide. See Declaration of Mat Ng In Support of Appointed Liquidators' Verified Petition Pursuant to 11 U.S.C. §§ 105(a), 1504, 1507, 1509, 1515, 1517, 1519, 1521, and 1525 for Entry of an Order Recognizing Foreign Main Proceeding and Granting Further Relief and Additional Assistance ¶ 3 (the "Ng Declaration); Supplemental Declaration of Mat Ng In Support of Appointed Liquidators' Verified Petition Pursuant to 11 U.S.C. §§ 105(a), 1504, 1507, 1509, 1515, 1517, 1519, 1521, and 1525 for Entry of an Order Recognizing Foreign Main Proceeding and Granting Further Relief and Additional Assistance ¶¶ 13–14 (the "Ng Supplemental Declaration");² Ex. Aviva–3 at 3–4; Ex. Aviva–94 (order for post-judgment discovery to be produced). In February 2016, Aviva sought sanctions for the Debtor's failure to comply with the Minnesota Court's order. See Ex. Aviva–3. Aviva requested sanctions including: a bar on the sale, importation, distribution, or shipping of the Debtor's products in the United States.

TRU is a former customer of the Debtor. The Debtor was supposed to indemnify TRU in a personal injury case in Massachusetts. The case resulted in TRU being held liable for $24 million. When TRU threatened to sue the Debtor on account of that liability, the Debtor proposed providing credits for the Debtor's products for which TRU would otherwise pay. Nevertheless, the Debtor eventually sued TRU in the United States District Court for the District of New Jersey (the "New Jersey Court") and TRU counterclaimed.

In light of the pending sanctions motion in the Minnesota Court and trial in the New Jersey Court; ongoing litigation with other parties; and alleged declining sales, the Debtor determined to enter into voluntary liquidation in Hong Kong. See Ng Declaration ¶¶ 6, 11; Ng Supplemental Declaration ¶¶ 13–17. The Debtor initiated the liquidation prior to the sanctions motion being heard in the Minnesota Court and trial starting in the New Jersey Court.

On March 11, 2016, a notice of a "Creditors' Meeting" under Hong Kong law was sent by regular mail to all of the Debtor's known creditors, and notice was published in three Hong Kong newspapers. See May 12 Transcript at 62:2–11; Ng Supplemental Declaration ¶ 21. The notice informed parties that the Creditors' Meeting would be held on March 22. The notice was not sent by email or fax. Mr. Ng attempted to get email or fax information from the Debtor but the information was not provided. See May 12 Transcript at 62:12–23. Despite not being sent by email or fax, the Liquidators' expert Kingsley Tze–Ong and TRU's expert, Stephen Briscoe confirmed the notice provided complied with Hong Kong law. See Declaration of Kingsley Tze–Wei Ong in Support of Appointed Liquidators' Verified Petition Pursuant to 11 U.S.C. §§ 105(a), 1504, 1507, 1509, 1515, 1517, 1519, 1521 and 1525 for Entry of an Order Recognizing Foreign Proceeding and Granting Further Relief and Additional Assistance ¶¶ 13–14 (the "Ong Declaration" Dkt. No. 55); Affidavit of Stephen Briscoe in Support of Toys "R" Us, Inc.'s Objection to Verified Petition Pursuant to 11 U.S.C. §§ 105(a), 1504, 1507, 1509, 1515, 1517, 1521, and 1525 for Entry of an Order Recognizing Foreign Main Proceeding and Granting Further Relief and Additional Assistance ¶ 3 (the "Briscoe Affidavit", Ex. TRU–1).³

On March 22, 2016, the Debtor held an Extraordinary General Meeting of the Company at which the Debtor's shareholders passed a special resolution for the voluntary winding up of the Debtor under Hong Kong law. See Ng Declaration ¶¶ 11–12; Supplemental Ng Declaration ¶ 19. On March 22, the Debtor also convened the Creditors' Meeting for which it had given notice on March 11. See May 13 Transcript at 16:12–19; Ng Declaration ¶ 14. At the Creditors' Meeting a Committee of Inspection ("COI") was appointed and the COI appointed the Liquidators and authorized the Liquidators to take actions under Hong Kong law and to commence this Chapter 15 case. See Ng Declaration ¶ 15; Supplemental Ng Declaration ¶¶ 28, 32. On the same day the Liquidators filed this Chapter 15 case and the Motion.

On March 24, 2016, the Court held a hearing to determine whether to grant provisional recognition pending a full hearing on the Motion. At the conclusion of the hearing, the Court granted provisional recognition of the Hong Kong proceeding, and an order related to provisional relief was entered on April 1, 2016.

An evidentiary hearing on the Motion was held on May 12, 13 and August 11, 2016. Mr. Ng testified on May 12 and 13 and Mr. Ong testified on May 13. Aviva's general counsel, senior vice-president, and corporate secretary, George Koeck, testified on August 11. All witnesses testified credibly. After the hearing concluded, the parties conferred related to admission of certain documents and submitted written arguments to the Court related to exhibits on which the parties could not agree. The Court ruled upon admission of documents on January 23, 2017 (Dkt. No. 179). Thereafter the parties submitted closing briefs and reply briefs.

At the outset of the hearing, the parties agreed that there are three issues related to recognition: (a) whether the Hong Kong liquidation is collective in nature; (b) whether the Debtor's center of main interest ("COMI") is in Hong Kong; and (c) whether the case is manifestly contrary to public policy. See May 12 Transcript at 9:4–12 (Court's inquiry and Liquidators' response); 9:25–10:19 (Aviva's response); 11:10–12 (TRU's response). Aviva also argued that the Court could refuse to recognize the Hong Kong liquidation under section 305 of the Bankruptcy Code. See id. at 10:14–19. As part of its closing briefs, and after the record was closed, TRU argued that the Liquidators did not satisfy other elements required for recognition. Although the parties agreed to specific contested issues, this Opinion addresses all of the arguments raised in the briefs, and determines that the Liquidators have satisfied their burden of proof for recognition.

Discussion

The Motion seeks recognition of the Hong Kong liquidation as a foreign main proceeding, or in the alternative, as a foreign non-main proceeding. Under section 1517(a) of the Bankruptcy Code, "an order recognizing a foreign proceeding shall be entered if" the proceeding is a foreign main proceeding or a foreign nonmain proceeding; the foreign representative is a person or body; and the petition meets the requirements of section 1515 of the Bankruptcy Code. 11 U.S.C. § 1517(a). See also In re ABC Learning Ctrs. Ltd., 728 F.3d 301, 307 (3d Cir. 2013), ...