Maxwell Communication Corp. plc by Homan, In re

Decision Date21 August 1996
Docket NumberNos. 1527,s. 1527
Citation93 F.3d 1036
PartiesIn re MAXWELL COMMUNICATION CORPORATION plc, by Andrew Mark HOMAN, Colin Graham Bird, Jonathan Guy Anthony Phillips and Alan Rae Dalziel Jamieson, its Joint Administrators, Debtor. MAXWELL COMMUNICATION CORPORATION plc, by Andrew Mark HOMAN, Colin Graham Bird, Jonathan Guy Anthony Phillips and Alan Rae Dalziel Jamieson, its Joint Administrators, Plaintiff-Appellant, Richard A. Gitlin, Examiner, Intervenor-Plaintiff-Appellant, v. SOCIETE GENERALE, Barclays Bank plc, National Westminster Bank plc, Defendants-Appellees. to 1531, Dockets 95-5076, 95-5078, 95-5082, 95-5084 and 95-5086.
CourtU.S. Court of Appeals — Second Circuit

Kenneth N. Klee, Cambridge, Massachusetts (John J. Jerome, John G. Gellene, Milbank, Tweed, Hadley & McCloy, New York City, of counsel), for Appellant Maxwell Communication Corp.

G. Eric Brunstad, Jr., Hartford, Connecticut (Evan D. Flaschen, Scott H. Rothstein, Hebb & Gitlin, Hartford, Connecticut, of counsel), for Appellant Richard A. Gitlin.

Allan L. Gropper, New York City (Jennifer L. Sheppard, White & Case, New York City, of counsel), for Appellee Societe Generale.

Thomas C. Rice, New York City (Steven Fuhrman, Dennis C. O'Donnell, Ian Yankwitt, Simpson Thacher & Bartlett, New York City, of counsel), for Appellee Barclays Bank.

John Dickey, New York City (James H. Carter, Tamar Feder, Sullivan & Cromwell, New York City; Henry L. King, Karen E. Wagner, Robert R. Strang, Davis Polk & Wardwell, New York City, of counsel), for Appellee National Westminster Bank.

Before: CARDAMONE, ALTIMARI, and PARKER, Circuit Judges.

CARDAMONE, Circuit Judge:

The demise of the late British media magnate Robert Maxwell and that of the corporation bearing his name, the Maxwell Communication Corporation plc, followed a similar and scandalous path, spawning civil and criminal litigation in England and around the world. This case illustrates that some positive consequences have resulted from these parallel demises. From Maxwell's mysterious death, which forced his international corporation into bankruptcy, was born a unique judicial administration of the debtor corporation by parallel and cooperative proceedings in the courts of the United States and England aimed at harmonizing the laws of both countries and also aimed at maximizing the benefits to creditors and the prospects of rehabilitation.

We have before us a small but significant piece of the swirling legal controversy that followed the collapse of Robert Maxwell's media empire. The question to be addressed is whether Maxwell Communication, as a debtor estate in Chapter 11, may recover under American law millions of dollars it transferred to three foreign banks shortly before declaring bankruptcy. It has sought such relief in adversary proceedings in the bankruptcy court under those sections of the United States Bankruptcy Code, 11 U.S.C. §§ 101-1330 (1994) (Bankruptcy Code or Code), providing for what is known as "avoidance" of pre-petition transactions. Because, in our view, the doctrine of international comity supports deferring to the courts and laws of England, we affirm the dismissal of the Chapter 11 debtor's complaints.

BACKGROUND

The facts underlying this appeal have been described in the opinions of the bankruptcy court, see Maxwell Communication Corp. v. Barclays Bank plc (In re Maxwell Communication Corp.), 170 B.R. 800, 801-07 (Bankr.S.D.N.Y.1994) (Brozman, B.J.) (Maxwell I ), and the district court, see Maxwell Communication Corp. v. Societe Generale plc (In re Maxwell Communication Corp.), 186 B.R. 807, 812-15 (S.D.N.Y.1995) (Scheindlin, J.) (Maxwell II ), and we assume the readers' familiarity with them. For purposes of clarity, we highlight those background aspects most helpful to understanding this appeal.

A. Events Preceding the Dual Filings

The debtor was originally incorporated in England over 60 years ago as a limited company. Robert Maxwell acquired control of this limited company 15 years ago. The following year, the company was re-registered under English law as a public limited company and, in 1987, it became Maxwell Communication Corporation plc (hereafter Maxwell or the debtor). Before filing for bankruptcy protection, Maxwell functioned as a holding company for Robert Maxwell's "public side" holdings--as distinguished from Maxwell's private holdings, which at one time included the New York Daily News--and controlled a variety of media-related companies. Although Maxwell was headquartered and managed in England and incurred most of its debt there, approximately 80 percent of its assets were located in the United States, most notably its subsidiaries Macmillan, Inc. and Official Airlines Guide, Inc.

Maxwell alleges that in the fall of 1991, less than 90 days before its Chapter 11 filing, it made several transfers--transfers it now seeks to avoid--to three European banks (collectively, the banks) with whom it had credit arrangements. Two of these banks are Barclays Bank plc (Barclays) and National Westminster Bank plc (National Westminster), both of which have their headquarters in London and maintain an international presence, with branches in New York and elsewhere. The other bank is Societe Generale, a French Bank headquartered in Paris with offices, among other places, in London and New York.

From 1985 until 1991 Maxwell obtained credit from Barclays under the terms of a credit arrangement known in England as an "overdraft facility." This written agreement, negotiated in London, stated that any disputes arising under it would be governed by English law. Maxwell drew $30 million under the overdraft facility, none of which had been repaid on November 24, 1991, the agreed-upon maturity date. Two days later, under pressure from Barclays' banking director in London, Maxwell repaid the $30 million from the proceeds of the sale of Que Computer Books, Inc. (Que), a subsidiary of Macmillan in New York. The Que proceeds had originally been deposited in a Maxwell account at the New York branch of National Westminster and subsequently credited to Maxwell's U.S. dollar account with National Westminster in London. On November 26, 1991 repayment was effected by transferring $30 million from Maxwell's dollar account in London to Barclays' New York branch, which was then credited the following day against the balance in the appropriate Maxwell overdraft account at Barclays in London. In addition to this transfer from the Que proceeds, Maxwell alleged in its amended complaint that 11 other transfers of funds were made to Barclays during the 90 days preceding Maxwell's bankruptcy filing, amounting to a total of pounds sterling2,110,970 (net of various payments by Barclays to or on behalf of Maxwell during the same period). No connection between these other transfers and the United States was alleged in the complaint.

National Westminster's relationship with the debtor began in the 1930s and continued through the bankruptcy filing. As of late 1991 Maxwell maintained several accounts with National Westminster, with overdraft facilities to help it meet its cash needs. These arrangements were similar to those it had with Barclays in that they were negotiated in England and provided for the governance of English law. In October 1991 Maxwell received $145 million from the sale of Macmillan Directories, Inc. (another Macmillan subsidiary in the United States) and used the proceeds--which had been paid into a Maxwell account at Citibank in New York and thereafter credited to an account at Citibank in London--to purchase British pounds. Maxwell then paid pounds sterling>>>15 million from these proceeds to an account it maintained at National Westminster's London branch. Maxwell then applied the pounds sterling>>>15 million to satisfy an overdraft balance with National Westminster.

In November 1991 Maxwell converted a portion of the $157.5 million of Que proceeds (originally deposited in National Westminster's New York branch but then transferred to its London branch) into pounds sterling27.5 million. It used this sum to cover its overdraft balances in National Westminster's London branch. The purchase of pounds sterling and subsequent credits to the National Westminster overdraft accounts occurred in London. Maxwell also alleges it made eight other transfers to National Westminster from accounts at Midland Bank in London shortly before Maxwell's bankruptcy filing, payments which amounted to pounds sterling29,046,738 (net of payments by National Westminster to Maxwell during the same period).

Societe Generale also extended credit to Maxwell under an agreement negotiated and administered in England. On October 7, 1991, in satisfaction of principal and interest on a $10 million loan extended under that credit arrangement, Maxwell made a payment of roughly pounds sterling5.765 million to Societe Generale. The funds were transferred from an account Maxwell maintained at Marine Midland Bank in London to Societe Generale's London branch. Although the debtor did not allege that the transfer was connected to the United States, the district court assumed for purposes of its decision that the funds came from the sale of Macmillan Directories because that sale also occurred on October 7, 1991. See Maxwell II, 186 B.R. at 814.

B. The Dual Insolvency Proceedings

On December 16, 1991 Maxwell filed a petition for reorganization under Chapter 11 of the United States Bankruptcy Code in the Bankruptcy Court for the Southern District of New York. The next day, it petitioned the High Court of Justice in London for an administration order. Administration, introduced by the Insolvency Act 1986, is the closest equivalent in British law to Chapter 11 relief. Acting under the terms of the Insolvency Act, Justice Hoffman, then of the High Court (now a member of the House of Lords), appointed members of the London office of the accounting firm of...

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