Petition of Brierley

• Decision Date: 04 August 1992
• Docket Number: Bankruptcy No. 92-B41453(TLB).
• Citation: 145 BR 151
• Parties: In re Petition of Anthony William BRIERLEY as one of the Joint Administrators of Headington Investments Limited In a Foreign Proceeding.
• Court: U.S. Bankruptcy Court — Southern District of New York

145 B.R. 151 (1992)

In re Petition of Anthony William BRIERLEY as one of the Joint Administrators of Headington Investments Limited In a Foreign Proceeding.

Bankruptcy No. 92-B41453(TLB).

United States Bankruptcy Court, S.D. New York.

August 4, 1992.

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Kaye, Scholer, Fierman, Hays & Handler, New York City by Michael Crames, Jane W. Parver, and Robert B. Bernstein, for petitioner.

Wolf Haldenstein Adler Freeman & Herz, New York City by Eric B. Levine, for Sheldon J. Aboff, PH (U.S.), Inc., Sphere, Inc. and pro se.

Goldman & Hafetz, New York City, for Sheldon J. Aboff and PH (U.S.), Inc.

Rudes, Lax, Berkowitz & Mittman, P.C. by Saul Rudes; and Arnold J. Ross, New York City, for Wertheim Schroder & Co.

OPINION

TINA L. BROZMAN, Bankruptcy Judge.

Perhaps it is an understatement to label the business holdings of the late Robert Maxwell an international labyrinth. The Maxwell empire embraced two components, what have come to be called in the vernacular the private side companies, that is, those owned by the Maxwell family, and the public side companies headed by Maxwell Communication Corporation plc (MCC), those owned publicly and in minority part by the parent company in the private side chain, Headington Investments, Ltd. (Headington). It is Headington which is the subject of this ancillary bankruptcy proceeding. The precipitous decline of the Maxwell group of companies followed by the patriarch's sudden death late last year spawned insolvency proceedings on two continents — numerous administration and liquidation petitions in England, three chapter 11 cases in this court, one of which has a parallel administration proceeding ongoing in England, and this ancillary bankruptcy proceeding.

The first case filed in this court was the chapter 11 case of Maxwell Newspapers, Inc. (the Daily News) which publishes The Daily News in New York City. Its chapter 11 petition was signed by Sheldon J. Aboff, identifying himself as its vice president and treasurer. It is this same Sheldon Aboff who is spearheading a motion to dismiss this ancillary petition under section 304 of the Bankruptcy Code. He contends that Headington is a stranger to United States and that its administrators thus ought not be permitted to undertake discovery in search of property and in aid of its English administration or to obtain injunctive relief to stop a pending state court suit. Mr. Aboff concedes that subsidiaries of Headington, direct or indirect, have very substantial property here; nonetheless, he says, Headington's administrators must file a separate 304 petition for each of those entities in order to take discovery. The joint administrators, apoplectic at this suggestion, urge that they cannot know, absent discovery, if Headington itself has property here in addition to the interests they allege, if there are more U.S. subsidiaries than those they've already identified and if there is any need to seek relief under section 304 for any subsidiaries, direct or indirect.

I.

Anthony William Brierley, one of Headington's joint administrators, filed this ancillary petition on March 11, 1992. His authority derives from his appointment on December 5, 1991 by the High Court of Justice in England as an administrator under the Insolvency Act 1986. By virtue of his appointment as an administrator, Brierley is a "foreign representative" under section 101(24) of the Bankruptcy Code. Section 304 authorizes a foreign representative to seek (i) to enjoin the commencement or continuation of any legal action against the debtor or the debtor's property, including the enforcement of any lien or judgment, (ii) the turnover of property of the debtor to such foreign representative, or (iii) other appropriate relief. Section 304 had no predecessor under pre-Code law and stands in sharp contrast to section 303(b)(4), for the latter is a full scale bankruptcy case with an automatic stay, an estate, avoidance powers and the like, while the former is a somewhat amorphous vehicle whose shape can be ascertained only in reference to the specific type of relief sought in each case. Brierley's petition asks that in aid of the English administration I (i) enjoin continuation of a state court suit by Wertheim Shroeder & Co. (Wertheim), a New York investment brokerage firm, seeking $650,000 from Headington in conjunction with the sale of the assets of Headington's wholly owned subsidiary, London and Bishopsgate Holdings (North America) Limited (LBH), including assets of its U.S. subsidiary, London & Bishopsgate International, Inc. (LBI); (ii) enjoin the enforcement of any judgment or the prosecution of any suit to create, perfect or enforce any lien or claim against Headington, its administrators and Headington's property in the United States; (iii) require any persons with possession of Headington's property, none of whom have yet to have been identified, to turn over any such property to Brierley and (iv) grant him discovery of Aboff, Barbara Tilly (Aboff's assistant), and other people with knowledge of Headington's operations and property.

Aboff, PH (U.S.), Inc. (Phusi), Sphere, Inc. (Sphere) and the law firm of Wolf Haldenstein Adler Freeman & Herz (Wolf Haldenstein), joined by Wertheim (collectively, the movants), have moved pursuant to Fed.R.Bankr.P. 1011 and Fed.R.Civ.P. 12(b) for an order dismissing the ancillary petition. Because of the need for expedition in determining whether Brierley is entitled to relief, and at the request or acquiescence of the parties when the motion to dismiss was scheduled, I adjourned the original hearing on the petition to coincide with the motion to dismiss. At the argument on both matters, it first became apparent that there were a few factual questions. When the movants asked to conduct certain limited discovery relevant to the propriety of granting the petition, I granted that request, adjourning the hearing on both matters until the conclusion of discovery. Since matters beyond the petition had been submitted to me, with prior notice to the parties I also converted the motion to dismiss to a motion for summary judgment and invited the parties to submit any additional material in support of their respective positions.¹ At the adjourned hearing, I conducted an evidentiary hearing on only those areas which were in question. What emerged from that hearing was that the material facts are not truly disputed; what is disputed are the legal conclusions which flow from those facts.

The summary judgment motion seeking dismissal of Brierley's ancillary petition is predicated on three separate arguments: (i) that Headington does not reside, is not domiciled and does not have a place of business or property in the United States, as a result of which it is not an eligible debtor under 11 U.S.C. § 109(a) whose foreign representative may seek relief under section 304, (ii) since Headington does not have a principal U.S. place of business in this district nor principal assets here, venue does not lie and (iii) the petition is patently deficient and thus fails to state a claim because it does not provide adequate notice of the scope of the relief sought, the grounds for seeking relief or the application of the factors of section 304(c) to the movants. The movants do not challenge that there is a valid foreign proceeding to which an ancillary case might attach or that Brierley is a valid foreign representative of the foreign estate. Neither do they question the fairness of British administration proceedings.

This decision will address both the motion and the merits of Brierley's petition. To the extent necessary, it will constitute the findings required by Rule 7052 of the Federal Rules of Bankruptcy Procedure.

II.

Headington, an English corporation, is at the apex of the private side companies, owning not only those companies, but, through subsidiaries, an interest in the public side companies by virtue of its minority interest in MCC, the chapter 11 debtor which has a parallel administration ongoing in London. Brierley and the other joint administrators have replaced management of Headington. Brierley is also the sole liquidator of LBH, which has an indirect controlling interest in LBI. Brierley acceded to this role when LBH was placed into voluntary liquidation in England immediately after the sale of substantially all of the assets of LBH and LBI on February 7, 1992. It is this sale which is the genesis of the state court suit with Wertheim.

A. The Wertheim Dispute

Although Wertheim's entitlement to the $650,000 which it seeks as a brokerage fee from Headington is in contest, the material facts relevant to the injunctive relief requested by Brierley are undisputed.² Through the vehicle of a letter agreement, Headington prior to its insolvency proceedings gave Wertheim an exclusive right to sell its interest in LBH and LBI for a fee of $650,000 payable upon consummation of a sale. Wertheim claims that it was instrumental in drumming up interest among certain officers of LBI (the management group) in acquiring Headington's interest. This resulted, says Wertheim, in the management group's formal offer to purchase Headington's interest in LBH and LBI during the first week in December 1991. Within a day or two, Wertheim was advised by John Dubel, a partner of Arthur Anderson & Co. (Arthur Anderson), that John Talbot, one of his partners, had been appointed as one of Headington's joint administrators. Thereafter, Dubel acted on behalf of Talbot with regard to the sale. (Brierley, too, is a partner of Arthur Anderson.)

Wertheim's contention, unrefuted in this record, is that two weeks later, members of the management group, Andrew Smith and Robert Chender, informed Wertheim that the management group and Talbot had agreed to the purchase of Headington's interests for approximately $14.5 million and that they hoped to close in under two weeks, before the new year. As the old joke runs,...