Bermuda: Supreme Court Of Bermuda Clarifies Basis For Appointment Of Provisional Liquidators İn Furtherance Of A Restructuring

Last Updated: 30 September 2016
Article by Kevin Taylor and Nicole Tovey

 It is established practice in Bermuda that in the face of corporate insolvency where there are prospects for a successful restructuring, the Bermuda Supreme Court will appoint 'soft-touch' provisional liquidators ("PLs") (typically on the presentation of the company's own petition, but usually unopposed on a creditor petition), with limited powers to supervise the restructuring process and without displacing management.

However in the matter of Up Energy Development Group Limited Supreme Court (Comm) Bda 2016: No. 183; a company incorporated in Bermuda and listed on the Hong Kong Stock Exchange with underlying coal mining assets in the PRC and Canada, the appointment of 'soft touch' PLs on a creditor's petition was opposed by the company with the support of a majority of its unsecured creditors.

The unprecedented question for Chief Justice Kawaley of the Bermuda Supreme Court ("Court") was in the circumstances; subject to what conditions the discretion to appoint PLs should be exercised, where it was common ground that the petition ought to be adjourned to explore a restructuring. Further the Court grappled with whether it ought to place the same weight on the views of unsecured creditors when deciding whether to appoint PLs, as it would when deciding to adjourn a petition for restructuring purposes rather than immediately winding up; it being well settled that the views of the majority of unsecured creditors on the latter will often hold sway.

Until now, there has been no clear local guidance on these discreet points.

Following Up Energy Development Group Limited (the "Company") defaulting on convertible notes in January 2016, a petition to wind up the Company was filed in Hong Kong on 29 March 2016. Subsequently, Credit Suisse, the holder of HK$150 million of the convertible notes, served a statutory demand on the Company for payment of the debt at its Bermuda registered office. The Company failed to satisfy the demand and a winding up petition was filed on 6 May 2016. A summons for the appointment of PLs was issued by the petitioner on 30 June 2016. On 4 July 2016 at the adjourned first hearing of the petition and summons, the Company opposed the appointment of PLs principally on grounds that it had engaged RSM Corporate Advisory (Hong Kong) Limited as independent restructuring advisors to assist with an unsupervised restructuring, and deference should be given to the views of the majority of unsecured creditors. The petition and summons were adjourned to 9 September 2016.

On the adjourned hearing, the Court was guided by in Re Titan Petrochemicals Ltd [2013] Bda LR 761 in which the company, admittedly insolvent but proposing a restructuring, opposed a PL appointment and was able to fend off a winding up petition for a year while pursuing an unsupervised restructuring, before PLs were finally appointed. Ultimately after three years, a successful scheme was approved under the supervision of PLs, but the case demonstrated the perils of allowing an insolvent restructuring to limp along independently, and the likelihood that the appointment of PLs will encourage a more efficient and successful process.

The Court in Up Energy recognised that despite Titan, it is established practice in Bermuda not to permit a company to develop a restructuring scheme without PL supervision where a winding up petition has been presented. The historic application of PL appointments in circumstances where there is an urgent need to preserve assets pending winding up proceedings, has matured with substantial flexibility to enable a form of administration-like procedure, not otherwise available under Bermuda law, with a view to resolving financial difficulty.

This established Bermuda practice, coupled with a consideration of all the relevant circumstances of the case, (not merely danger to assets or misconduct of company management) comprise the test ultimately applied by the Bermuda Court in determining that PLs ought to be appointed to the Company. Relevant facts taken into account were the existence of conflicting creditor groups, questions over the source and amount of funding required for the restructuring, the recent resignation of attesting directors, and lack of unanimity of unsecured creditors.

The Court further noted the practical functions a PL appointment can serve such as effecting a stay of proceedings against the company, the utility of officers answerable to the Court rather than to the company, PL approval and sanction of expenses, and relieving at least some of the burden on the Court of resolving disputes between various stakeholders in an unsupervised restructuring.

The Chief Justice set the bar for future cases by stating this: "...there is a strong starting assumption in favour of the appointment of PLs, and the burden of displacing that assumption will be a heavy one. The Court has no obligation to blindly follow the wishes of the majority of the creditors."

The ruling did leave the door open for insolvent restructurings which may not warrant PLs in the future, for example where the scheme is substantially advanced and already approved, but Up Energy was not that occasion.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.