In re Santino
| Docket Number | 22-10756 (JLG) |
| Decision Date | 24 July 2023 |
| Parties | In re: Agro Santino, OOD, Debtor in a foreign proceeding. [1] |
| Court | U.S. Bankruptcy Court — Southern District of New York |
SCOOLIDGE PETERS RUSSOTTI & FOX LLP Attorneys for the Foreign Representative of Agro Santino OOD.
DLA PIPER LLP (US) Attorneys for Creditor StoneX Jeffrey D Rotenberg Marc A. Silverman.
HON JAMES L. GARRITY, JR. U.S. BANKRUPTCY JUDGE.
Introduction[2]
Agro Santino OOD ("Agro" or the "Debtor") is a limited liability company formed under the laws of the Republic of Bulgaria. It is the subject of a bankruptcy proceeding (the "Bulgarian Bankruptcy Proceeding") pending under relevant sections of the Bulgarian Commercial Act (the "BCA") relating to insolvency, bankruptcy and restructuring (the "Bulgarian Bankruptcy Law") in the Stara Zagora District Court (the "Bulgarian District Court"), acting in its capacity as a bankruptcy court, in Stara Zagora, Bulgaria. That court appointed Ms. Elka Nedelcheva Petrova (the "Trustee") to serve as Agro's trustee in the Bulgarian Bankruptcy Proceeding. Ms. Yordanka Ivanova Panchovska is an attorney licensed, and in good standing, to practice law in Bulgaria. Agro maintains that, subsequent to the commencement of the Bulgarian Bankruptcy Proceeding and pursuant to a Power of Attorney issued to Ms. Panchovska by Agro's sole Manager, it appointed Ms. Panchovska to serve as its "foreign representative," as that term is defined in section 101(24) of title 11 of the United States Code (the "Bankruptcy Code") in this Chapter 15 Case.
The matter before the Court is Agro's Verified Petition for Recognition of the Bulgarian Bankruptcy Proceeding and Motion for Order Granting Final Relief Pursuant to 11 U.S.C. §§ 105(a), 1509(b), 1515, 1517 and 1520(a), ECF No. 2 (the "Verified Petition," and, together with the Official Form 401 Chapter 15 Petition for Recognition of a Foreign Proceeding, ECF No. 1, filed on behalf of the Debtor contemporaneously therewith, the "Chapter 15 Petition").[3]Ms. Panchovska filed the Chapter 15 Petition in this Court, as Agro's putative "foreign representative." Pursuant to the petition, Agro seeks an order of the Court (i) granting recognition of the Bulgarian Bankruptcy Proceeding pursuant to section 1517 of the Bankruptcy Code as a "foreign main proceeding," and all relief included therewith as provided in section 1520 of the Bankruptcy Code; (ii) recognizing Ms. Panchovska as Agro's "foreign representative"; and (iii) granting such other and further relief as the Court deems just and proper. Verified Petition at 2; see id., Ex. A. (the "Proposed Order").[4]
StoneX Markets LLC ("StoneX") is Agro's largest creditor. It intervened as a petitioner in the involuntary petition that commenced the Bulgarian Bankruptcy Proceeding. It is also the plaintiff in an action pending against Agro in the United States District Court for the Southern District of New York (the "New York Litigation").[5] In that action, StoneX is seeking damages from Agro totaling approximately $1.3 million plus interest and attorney's fees and costs. In its counterclaim against StoneX in that action, Agro seeks in excess of $1.5 million in damages.
StoneX opposes the Verified Petition (the "Opposition" or "Opp.")[6] and contends that the Court should deny recognition of the Bulgarian Bankruptcy Proceeding because Agro has failed to carry its burden of demonstrating that Ms. Panchovska qualifies under Bulgarian law to serve as its "foreign representative" in this Chapter 15 Case.
In its Reply [7] to the Opposition, Agro maintains that it properly appointed Ms. Panchovska to serve as its "foreign representative" in this case. Agro contends that the Court should overrule the Opposition, recognize Ms. Panchovska as its "foreign representative" and the Bulgarian Bankruptcy Proceeding as a "foreign main proceeding," and grant the Chapter 15 Petition and the relief sought therein.
For the reasons set forth herein, the Court overrules the Opposition, and grants the Chapter 15 Petition and recognition of the Bulgarian Bankruptcy Proceeding.
The Court has jurisdiction to consider this matter pursuant to 28 U.S.C. §§ 157 and 1334 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 pursuant to 28 U.S.C. § 157(b)(2)(P).
Agro is a Bulgarian limited liability company formed under the Bulgarian Commercial Act. Panchovska Decl. ¶ 9. Agro has twelve registered shareholders and is currently managed by a single Manager who is appointed and can be removed by the general assembly of shareholders. Id. ¶¶ 7, 9. Under the Bulgarian Commercial Act, the Manager is the sole person holding executive or managerial authority over Agro, and all executive and managerial power held by other parties derives from a specific grant of such authority from the Manager. Id. ¶ 7. Agro is no longer an operating business. For approximately 13 years, it operated as an agricultural producer, producing various agricultural products including wheat, sunflowers, corn and other crops. Id. ¶¶ 8, 10. Agro sold its product in Bulgaria for eventual distribution in European agricultural markets. Id. ¶ 10.
In the autumn of 2017, Agro opened a commodities futures and options contract trading account with StoneX in order to hedge its exposure to price declines in the crops that it grew and held as inventory. Id. ¶ 12. In opening the account, Agro agreed to and executed StoneX's "Swap and Over-the-Counter Derivatives Account Application" and its accompanying Terms of Business (together, the "Agreement"). First Neycheva Decl. ¶ 6.[8] From late 2017 through August 2018, Agro traded agricultural-commodities futures and options contracts on margin. At the end of August 2018, Agro suffered substantial losses on its open positions. Panchovska Decl. ¶ 13. At that time, StoneX presented Agro with a margin call of $2.2 million. Id. Agro made two margin payments to StoneX aggregating approximately $825,000. Thereafter, it determined that it was not responsible for the losses on its trading account and refused to make any further payments. Id. In response, StoneX liquidated Agro's open positions, setoff the proceeds from the liquidation against the outstanding margin call, leaving a Net Settlement Amount, as defined under the Agreement, of approximately $1.3 million plus interest, attorney's fees, and costs. Id. ¶ 14. Agro refused StoneX's demand of payment of that amount.
On March 2, 2020, based upon its right to payment under the Agreement, StoneX obtained a preliminary injunction in the Sofia City Court, Civil Division, Bulgaria, freezing all of Agro's accounts in Bulgaria up to $1.3 million (i.e., the Net Settlement Amount), plus interest and costs. First Neycheva Decl. ¶ 6. Agro appealed the decision. The Court of Appeal in Bulgaria upheld the decision and confirmed the preliminary injunction. Id.[9]
Section 8.6 of the Agreement provides that New York law governs the Agreement, and that any judicial action arising under the Agreement must be brought in a New York state or federal court. On March 30, 2020, StoneX filed a complaint initiating the New York Action to recover the Net Settlement Amount from Agro, plus interest, attorney's fees, and costs. First Rotenberg Decl., Ex. 7, ¶ 2. Agro's answer to the complaint included a counterclaim against StoneX, subsequently amended, seeking to recover the proceeds from the liquidated positions and the entirety of its net trading losses with StoneX (which exceed $1.5 million), plus interest, attorney's fees and costs. Panchovska Decl. ¶ 16.
On July 13, 2021, Malina EOOD ("Malina"), a Bulgarian limited liability company, filed a petition in the Bulgarian Court, alleging that Agro was insolvent or otherwise unable to pay its debts as they come due in relation to an obligation arising under a contract with Agro dated April 18, 2019. Panchovska Decl. ¶ 34. On September 21, 2021, StoneX petitioned the Bulgarian Court to join Malina as an alleged creditor in that proceeding based on the same claim that it is pursuing in the New York Litigation. First Neycheva Decl.¶ 17. The Bulgarian court approved the joinder at that hearing. Id.
On March 11, 2022, the Bulgarian District Court issued a judgment (the "March 11 Judgment")[10] making an affirmative Initial Determination under Article 630 of the BCA that Agro was unable to pay its debts as they came due as of March 20, 2020 (the "Insolvency Date"), and thereby opening the Bulgarian Bankruptcy Proceeding. See March 11 Judgment at 18. Article 635 of the BCA provides that, upon the opening of a bankruptcy proceeding, the debtor continues to operate its business under the supervision of a trustee in bankruptcy. First Neycheva Decl. ¶ 21. The March 11 Judgment appointed Ms. Petrova as Agro's temporary trustee. See March 11 Judgment at 17. On April 15, 2022, the Bulgarian District Court designated Ms. Petrova as the permanent Trustee. First Neycheva Decl. ¶ 22.
On March 22, 2022, Agro appealed the March 11 Judgment to the Plovdiv Appeals Court in Plovdiv, Bulgaria, on the grounds that the Bulgarian District Court set the Insolvency Date earlier than that provided for by law. That appeal remains pending with the Plovdiv Appeals Court. Panchovska Decl. ¶ 39; First Neycheva Decl. ¶ 24.
On May 31, 2022, Elena Sivova Chaparova-Dikova, "acting in capacity of [Agro's] Manager, and thus the exclusive repository of executive or managerial authority, of...
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