In re Thornhill Global Deposit Fund, Ltd., Bankruptcy No. 99-12558-CJK.
| Decision Date | 01 February 2000 |
| Docket Number | Bankruptcy No. 99-12558-CJK. |
| Citation | 245 BR 1 |
| Parties | In the Matter of THORNHILL GLOBAL DEPOSIT FUND, LTD., Debtor. Wayne Aranha and Ishmael Lightbourne, Official Liquidators of Thornhill Global Deposit Fund, Ltd. v. Eagle Fund, Limited, Mercurius Investment Holding, Limited, Verdant Investors Group, Ltd., and Boland Enterprises, Ltd., Defendants. |
| Court | U.S. Bankruptcy Court — District of Massachusetts |
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Daniel M. Glosband, Goodwin, Proctor & Hoar, Boston, MA, for Debtors.
S. Gordon, J. Nabors, for Mercurius.
J. Gilmore, for Hill & Barlow.
J. Kobe, for Eagle.
J. Rudman, for Verdant and Boland.
This proceeding presents a dispute between a high risk international investment fund and several of its investors.1 It is an ancillary proceeding under section 304 of the Bankruptcy Code. Thornhill Global Deposit Funds, Ltd. ("Thornhill Global" or "Debtor") is a debtor in a compulsory winding-up proceeding in the Bahamas. Wayne Aranha and Ishmael Lightbourne are the Official Liquidators ("Official Liquidators") appointed by the Supreme Court of the Commonwealth of the Bahamas ("Bahamas Court"). On cross-motion for summary judgment, the Official Liquidators seek relief under section 304 of the Code2 for the purpose of repatriating $3 million (the "Funds") presently held in the United States by Debtor's former counsel, Hill & Barlow, a Professional Corporation ("Hill & Barlow"). The Official Liquidators also seek a permanent injunction of all pending and future lawsuits filed in state court against the Debtor. The issue presented is whether the Debtor's transfer of $3 million into its attorney's client-fund account after a state court order required the Debtor to create an escrow itself created the escrow, and if so, whether the escrowed funds are property of the Debtor's foreign bankruptcy estate.
For the reasons stated more fully below, I allow the Liquidators' cross-motion for summary judgment. I hold that no escrow account was created under the facts of this case. The Funds are therefore property of Thornhill Global's foreign bankruptcy estate and should be administered by the Bahamas Court in the foreign insolvency proceeding. A separate order granting a permanent injunction as modified by the defendants' limited objection, and requiring turnover of the $3 million account, shall enter accordingly.
The following facts are not in dispute. Thornhill Global is an international fund management firm organized under the laws of the Commonwealth of the Bahamas.3 Its principal assets are located in the Bahamas and in England. Thornhill Global was established in 1995 as an investment fund offering interest bearing-securities in emerging market economies. It sold its shares to a limited number of wealthy investors. In August and September of 1998, when Russia defaulted on its international debt obligations, Thornhill Global lost sixty-six percent of its value. Shortly thereafter, on February 24, 1999, Thornhill Global filed for voluntary liquidation in the Bahamas. The voluntary petition was subsequently converted to a court supervised compulsory winding-up proceeding on March 29, 1999.
Mercurius Investment Holding, Limited ("Mercurius") is one of Thornhill Global's investors. It is an investment vehicle for its sole shareholder, Frans Claessen, and was organized under the laws of the British Virgin Islands with a principal place of business in the Isle of Guernsey. Mercurius maintains a lending relationship with KBW Wesselius Effectanbank, N.V. ("KBW"), a Dutch financial institution, pursuant to which KBW holds shares in Thornhill Global as Mercurius' nominee.
Eagle Fund, Limited ("Eagle"), Verdant Investors Group, Limited ("Verdant"), and Boland Enterprises, Limited ("Boland"), the other defendants in this case, are also investors of Thornhill Global. Verdant and Boland are organized under the laws of the British Virgin Islands and maintain a principle place of business in Gibraltar. Eagle is a Cayman Islands company and has its principle place of business in the Island of Grand Cayman.
After Thornhill Global lost sixty-six percent of its value in the wake of Russia's international default, Mercurius, Eagle, Boland and Verdant each filed suit in the trial court of Massachusetts. The investors sought damages for, inter alia, fraud, misrepresentation, breach of fiduciary duty and breach of contract based on allegedly false representations regarding the status of Thornhill Global's investment position in Russia.4 Each investor successfully obtained a preliminary injunction against Thornhill Global from the state court.5 However, in compliance with an order by the Bahamas Court, Eagle, Boland and Verdant are not seeking to continue their state court actions at this time. The only suit at issue, therefore, is the one filed by Mercurius. Any further action in all of the suits was preliminarily enjoined by this Court's order entered April 22, 1999.
Mercurius commenced an action against Thornhill Global in Massachusetts state court on December 30, 1998. Superior Court Judge Hiller B. Zobel approved, as jointly submitted by the parties, the following order on January 11, 1999:
Following entry of this order, counsel for Mercurius and Thornhill Global began negotiating the terms of the escrow agreement. On February 2, 1999, Thornhill Global deposited U.S. $3 million into its attorney's client-fund account at State Street Bank in Boston.6 During the rest of January and into March, the parties exchanged a series of telephonic and written communications regarding the details of an escrow agreement including the selection of a mutually acceptable escrow agent. At one point, both Chase Bank of Texas and State Street Bank and Trust Company were considered for this function. It is undisputed, however, that the parties never executed a formal escrow agreement. The parties never agreed on the terms of an escrow agreement; they never selected a mutually acceptable escrow agent; and they never funded an escrow account.
On February 24, 1999, Thornhill Global filed for liquidation in the Bahamas by filing Articles of Dissolution in accordance with Section 92 of the International Business Companies Act ("IBC"). Thornhill Global's former director, Jeffrey Beneby, was named as voluntary liquidator to wind up the affairs of the debtor.
On March 31, 1999, acting on petition of several of Thornhill Global's creditors, the Bahamas Court removed Mr. Beneby as the Debtor's liquidator, and appointed Wayne J. Aranha and Ishmael Lightbourne as Provisional Liquidators. Shortly thereafter, on April 8, 1999, the Bahamas Court ordered the compulsory winding-up of Thornhill Global pursuant to the Bahamas Companies Act of 1992 ("Companies Act") and Winding-Up Rules, and appointed Mssrs. Aranha and Lightbourne as Official Liquidators. The Court directed the Official Liquidators to continue the compulsory liquidation of Thornhill Global under on-going supervision of the Bahamas Court.
On March 25, 1999, prior to the compulsory winding-up of the Debtor, Mr. Beneby, as voluntary liquidator, filed a section 304 petition in this Court. The Official Liquidators subsequently filed a motion to be substituted for Mr. Beneby which this Court allowed on April 22, 1999. On April 20, 1999, the Court held a hearing on the petition. On April 22, 1999, the Court entered an order (the "section 304 Order")7 which preliminarily enjoined continuation of the state court litigation against Thornhill Global, including Mercurius' suit.8
On June 25, 1999, Mercurius filed a motion seeking relief from the preliminary injunction. In response, the Official Liquidators filed a motion and cross motion for summary judgment seeking a permanent injunction and turnover order. Because Mercurius' pleading was inappropriately characterized as a motion for relief from stay, the Court denied the motion on July 14, 1999, but only to the extent that Mercurius demanded relief under § 362(d).9 The Court reserved judgment on Mercurius' demand for relief from the preliminary injunction pending full briefing of the pleadings. Both parties have submitted briefs in support of their motions, statements of undisputed facts pursuant to Fed. R.Bankr.P. 7056, supplemental pleadings, supporting documentation and affidavits.
Mercurius opposes the Liquidators' motion based on both the merits of the section 304 petition and on the allegation that summary judgment is premature because there remains outstanding a genuine issue of material fact as to the Debtor's ownership interest in the disputed Funds. Mercurius argues that the $3 million are in escrow which renders the Funds immune from turnover because they are no longer property of the Debtor's foreign bankruptcy estate. Furthermore, Mercurius argues that the issue of whether the $3 million are in escrow presents a question of fact not amenable to resolution on a motion for summary judgment. Finally, Mercurius submits that this Court should not enter a permanent injunction against...
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