In re Suntech Power Holdings Co.
| Citation | 520 B.R. 399 |
| Decision Date | 17 November 2014 |
| Docket Number | Case No.: 14-10383SMB |
| Parties | In re: Suntech Power Holdings Co., Ltd., Debtor in Foreign Proceeding. |
| Court | United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Southern District of New York |
O'Melveny & Myers LLP, Times Square Tower, 7 Times Square, New York, NY 10036, Peter Friedman, Esq., Daniel Shamah, Esq., Matthew Kremer, Esq., Suzanne Uhland, Esq., Jennifer Taylor, Esq., Of Counsel, Attorneys for Petitioner
Pachulski Stang Ziehl & Jones LLP, 780 Third Avenue, 34th Floor, New York, New York 10017, John A. Morris, Esq., Debra I. Grassgreen, Esq., Jason H. Rosell, Esq., Of Counsel, Winston & Strawn LLP, 333 S. Grand Avenue, Los Angeles, California 90071, W. Gordon Dobie, Esq., Eric E. Sagerman, Esq., Justin E. Rawlins, Esq., William C. O'Neil, Esq., Of Counsel, Attorneys for the Solyndra Residual Trust
FINDINGS OF FACT AND CONCLUSIONS OF LAW GRANTING PETITION FOR RECOGNITION AS FOREIGN MAIN PROCEEDING AND DENYING CROSS-MOTION TO CHANGE VENUE
Suntech Power Holdings Co. Ltd. (the “Debtor”) is a debtor in a provisional liquidation pending in the Cayman Islands (the “Foreign Proceeding”). David Walker and Ian Stokoe, the Joint Provisional Liquidators, or JPLs, filed a petition under chapter 15 of the Bankruptcy Code seeking recognition of the Foreign Proceeding as a foreign main proceeding. See 11 U.S.C. § 1502(4), or alternatively, as a foreign nonmain proceeding. See 11 U.S.C. § 1502(5). Solyndra Residual Trust (“Solyndra”) opposes recognition, and has filed a cross-motion to transfer the venue of the chapter 15 case to the Northern District of California. The dispute regarding recognition centers on three issues: (1) is the Debtor eligible to be a debtor under Bankruptcy Code § 109(a) ; (2) is venue proper in this district under 28 U.S.C. § 1410 ; and (3) is the Cayman Islands the Debtor's center of main interests (“COMI”)? Depending on the answers to these questions, Solyndra seeks to transfer venue in the interests of justice or for the convenience of the parties. See 28 U.S.C. § 1412.
Solyndra's opposition to recognition as well as the support for its cross-motion are based on a mistaken assumption and allegations involving bad faith manipulation of the case. It maintains that the Debtor did business in San Francisco at the time the JPLs filed the chapter 15 case and the JPLs should have filed it there. Solyndra charges that the JPLs manipulated the venue of the case by establishing a New York bank account in order to file the case in New York. It also charges that the JPLs manipulated the Debtor's COMI, implying that the Debtor should have sought reorganization in the People's Republic of China (“China”).
The Court conducted a trial of the disputed factual issues on July 17, 2014. Having heard Walker's testimony and reviewed the extensive documentary record, the Court is satisfied that (1) the Debtor does not conduct business in the Northern District of California and there was no basis to place venue in that jurisdiction, (2) while the JPLs established a bank account in New York, in part, to satisfy the eligibility requirements for being a Debtor, they did not intend and their actions did not wrest the venue of the case from California, and (3) they did not manipulate the Debtor's COMI; the activities they undertook that had the effect of establishing the Debtor's COMI in the Cayman Islands were consistent with their duties as provisional liquidators in the Foreign Proceeding.
Accordingly, the petition for recognition is granted and the cross-motion to change venue is denied.
The Debtor is a Cayman Islands exempted company formed on August 8, 2005. (PX 2.) Its registered office is P.O. Box 309 GT, Ugland House, South Church Street, George Town, Grand Cayman. (PX 3 at SPH000008542.) It is a holding company and ultimate parent for a group of direct and indirect subsidiaries (the “Suntech Group”) that are engaged in the business of developing, manufacturing and marketing photovoltaic (“PV”) modules and cells and providing PV integration services worldwide for residential, commercial and industrial use. (SX 1 at ¶¶ 10–11.) The Debtor's principal American indirect subsidiary is Suntech America, Inc. (“Suntech America”). Suntech America was incorporated in Delaware in 2006, has been registered to do business in California since its incorporation and is based in San Francisco. (PX 44; PX 16 at § 9.5.1.)
Aside from the Debtor, none of the Suntech Group is incorporated in the Cayman Islands, (see PX 11), and none of the Suntech Group conducts business in the Cayman Islands. Moreover, it is undisputed that prior to the commencement of the Foreign Proceeding on November 5, 2013, the Debtor did not conduct business in the Cayman Islands and regularly listed the location of its principal executive offices as R & D Mansion, 9 Xinhua Road, New District, Wuxi, Jiangsu Province, 214028 in China. (E.g., SX 83–97.)2
The Debtor's principal debt arises from a United States debt offering evidenced by notes in the amount of $575 million issued in 2008 and due on March 15, 2013 (the “Notes”). (PX 31 at SPH00008884; Tr. at 44:2–10.) Its other debts include approximately $50 million owed to the International Finance Corporation (“IFC”) on account of a convertible loan, (PX 15 at SPH00007102), and a substantial amount owed to affiliates. (See PX 43 at 1, 2.) Finally, the Debtor is a defendant in several pending litigations. In particular, Solyndra has brought antitrust litigation against the Debtor and others seeking to recover at least $1.5 billion in damages. (SX 76 at ¶ 7.) The lawsuit is pending in the Northern District of California.
The Debtor's assets as of November 30, 2013 (roughly three weeks after the commencement of the Foreign Proceeding) consisted of $2.6 million in cash, (PX 15 at § 9.1.1), and $1.46 billion in receivables, the majority of which were due from four subsidiaries. (Id. § 9.1.2 at SPH00007100.) Their collectability was questionable as a result of the financial position of the subsidiaries. (Id. ) The Debtor had another $40 million in a bank account, but the cash was collateral and had been seized. (Id. § 9.1.2 at SPH00007101). Finally, the Debtor held investments in certain subsidiaries and a non-affiliate. (Id. )
The Debtor defaulted when the Notes matured on March 15, 2013. (Tr. at 44:2–6.) On September 23, 2013, the Debtor and funds managed by Clearwater Capital Partners, LLC (“Clearwater”) and Spinnaker Capital LLC (“Spinnaker”), collectively holding approximately 50% of the Notes, (Transcript of Deposition of Edward Cairns held July 3, 2014 (“Cairns Tr.”), at 10:25–11:11), executed a Restructuring Framework Agreement (the “RFA”). (PX 32.) The RFA contemplated that the Notes and the IFC loan would be restructured through a scheme of arrangement implemented in the Cayman Islands, and if necessary, a chapter 15 filing. (Id. at § 2.5(c).)
Clearwater's representative, Edward Cairns, testified at his deposition that the Cayman Islands was specified because it was the most logical and appropriate jurisdiction in which to restructure the Debtor's financial affairs. The Debtor was a Cayman Islands corporation, and the scheme of arrangement was a “flexible” and “cost effective” method for dealing with the Debtor's financial problems. (Cairns Tr. at 23:9–24.)3 The chapter 11 alternative was rejected due to concerns about costs and the ability of management to maintain control of the Debtor. (Cairns Tr. at 24:8–25:10.)4 Finally, Clearwater flatly rejected the possibility of a restructuring in China. The Chinese court's jurisdiction was in doubt, and China has different concepts of the rules of law and creditors' rights compared to those found in the Cayman Islands and the United States; it is the last place that one would go. (Cairns Tr. at 27:18–28:17.)5
On November 5, 2013, Christopher Michael Nacson, a director of the Debtor owed $16,666 in board fees, filed a winding up petition in the Grand Court of the Cayman Islands (the “Cayman Court”). The petition asked the Cayman Court to place the Debtor into a provisional liquidation proceeding and appoint Walker and Stokoe, both of PwC Corporate Finance and Recovery (Cayman) in the Cayman Islands, as JPLs. (PX 24 at 2.) Two days later, the Cayman Court entered an order commencing the Foreign Proceeding and appointing Walker and Stokoe as JPLs pursuant to section 86 of the Cayman Islands Companies Law. (PX 1 (the “Appointment Order”).)
The Appointment Order authorized the JPLs to propose a compromise or arrangement with the Debtor's creditors, (PX 1 at ¶ 2), and seek relief under chapter 15 of the United States Bankruptcy Code. (Id. at ¶ 3.) Their authority included numerous specifically delineated powers, (id. at ¶ 4), detailed later in this opinion. Among other things, the JPLs could take possession of the Debtor's assets, borrow money, open and close bank accounts, employ attorneys and staff, and exercise the Debtor's rights as a shareholder of its subsidiaries. The Board retained control to manage the day-to-day affairs of the Debtor subject, however, to the JPLs' monitoring, oversight and supervision. (Id. at ¶¶ 4(a), 8.) The management of matters outside of the ordinary course of business required the JPLs' approval. (Id. at ¶ 8.)
Although the Appointment Order retained some authority for the Board, its role following the JPLs' appointment substantially decreased.6 Walker assumed primary control, and managed the Debtor's affairs from the Cayman Islands. The JPLs published notices of their appointment in several newspapers, including two newspapers in China, a newspaper in the Cayman Islands, and the international edition of the Wall Street Journal (which is also published in the United States), (PX 36, 37, 38, 39; Tr. at 56:14–57:5), directing interested parties to contact a Cayman Islands-based...
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