In re Avanti Commc'ns Grp. PLC

582 B.R. 603

IN RE: AVANTI COMMUNICATIONS GROUP PLC,¹ Debtor in a Foreign Proceeding.

Case No. 18–10458 (MG)

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

Signed April 9, 2018

MILBANK, TWEED, HADLEY AND MCCLOY LLP, Attorneys for Avanti Communications Group plc and the Foreign Representative Patrick Willcocks, 1 Chase Manhattan Plaza, New York, New York 10005, By: Peter Newman, Esq.

MEMORANDUM OPINION GRANTING RECOGNITION OF FOREIGN MAIN PROCEEDING AND ENFORCEMENT OF SCHEME OF ARRANGEMENT

MARTIN GLENN, United States Bankruptcy Judge

Recognition and enforcement of schemes of arrangement sanctioned by UK courts has become commonplace in chapter 15 cases in the United States (the "US"). Schemes of arrangement are used to restructure balance sheets of foreign companies that often include US dollar-denominated debt. The debt may be issued by one company in a large corporate group, with guarantees of the debt issued by the affiliates. When the debt is restructured, the scheme of arrangement often provides that the affiliate-guarantees are released, even though the affiliates are not parties to the scheme proceeding. Without releasing those guarantees, it would be difficult to restructure the debt because the collective assets and earnings of the group are needed to support the restructured debt without the risk of some creditors that hold the guarantees separately reaching the assets of the affiliates, endangering the ability of the group to meet its restructured debt obligations. This is exactly the situation presented in this Chapter 15 Case of Avanti Communications Group plc (the "Debtor," or "Avanti").

Third-party releases are often problematic in chapter 11 cases—seemingly prohibited entirely in some Circuits but permitted under limited circumstances in other Circuits. Courts must confront the issue whether bankruptcy courts have the power to grant such releases, and under what circumstances. Circuit courts in the Fifth, Ninth, Tenth and the District of Columbia Circuits have held that the Bankruptcy Code only permits a bankruptcy court to grant releases against a debtor, and prohibits third-party releases absent consent. See, e.g. , Maxtile, Inc. v. Jiming Sun (In re Maxtile, Inc.) , 237 Fed. Appx. 274, 276 (9th Cir. 2007) ; Bank of N.Y. Trust Co. v. Official Unsecured Creditors' Comm. (In re Pac. Lumber Co.) , 584 F.3d 229, 251–52 (5th Cir. 2009) ; Landsing Diversified Props.–II v. First Nat'l Bank and Trust Co. of Tulsa (In re W. Real Estate Fund, Inc.) , 922 F.2d 592, 600–02 (10th Cir. 1990) (per curiam ); In re AOV Indus., Inc. , 792 F.2d 1140, 1152 (D.C. Cir. 1986). Circuit courts in the Second, Fourth, Sixth, Seventh and Eleventh Circuits have held that third-party releases may be given consensually and, in limited circumstances, may be approved without consent. See, e.g. , SEProperty Holdings, LLC v. Seaside Engineering & Surveying, Inc. (In re Seaside Eng'g & Surveying, Inc.) , 780 F.3d 1070, 1077–78 (11th Cir. 2015) ; Nat'l Heritage Found., Inc. v. Highbourne Found. , 760 F.3d 344, 347–50 (4th Cir. 2014) ; In re Metromedia Fiber Network, Inc. , 416 F.3d 136, 141–43 (2d Cir. 2005) ; Airadigm Commc'ns., Inc. v. FCC (In re Airadigm Commc'ns., Inc.) , 519 F.3d 640, 655–57 (7th Cir. 2008) ; Class Five Nev. Claimants v. Dow Corning Corp. (In re Dow Corning Corp.) , 280 F.3d 648, 657–58 (6th Cir. 2002). Issues with consent arise when less than 100% of the impaired creditors vote to confirm the plan. In the present case, the Scheme was overwhelmingly approved by 98% of the only creditor class whose rights were modified by the Scheme, including the Releases of non-debtor affiliate-guarantees. This leaves open the issue whether the Court should recognize and enforce the Scheme in this case that would bind the small number of non-voting impaired creditors to the Releases.

The issues presented by third-party releases in chapter 15 cases have received a different analysis than in chapter 11 cases, focusing primarily on the foreign court's authority to grant such relief. The issue in chapter 15 cases then is whether to recognize and enforce the foreign court order based on comity. Well-settled case law in the UK expressly authorizes third-party releases in scheme proceedings, particularly the release of affiliate-guarantees. The UK Court sanctioned the Avanti Scheme, and the Court concludes that the Avanti Scheme should be recognized and enforced in the US.

Although no objections to the motions seeking to recognize and enforce the Avanti Scheme were filed in this Court—and the Court has already entered an order enforcing the Avanti Scheme—the Court believes that an explanation of the reasons for its ruling is appropriate.

This Chapter 15 Case was filed by Patrick Willcocks, the foreign representative (the "Foreign Representative") of Avanti, a limited liability company incorporated under the laws of England and Wales, in connection with a proceeding (the "UK Proceeding") commenced under Part 26 of the Companies Act 2006 (the "Companies Act") pending before the High Court of Justice of England and Wales (the "UK Court") concerning a scheme of arrangement (the "Scheme").

The Foreign Representative filed a Verified Petition for Recognition of Foreign Main Proceeding and Certain Related Relief [ECF Doc. # 2] (the "Verified Petition" and, together with the Voluntary Chapter 15 Petition [ECF Doc. # 1], the "Petition"), seeking (i) recognition of the UK Proceeding as a "foreign main proceeding" under chapter 15 of the Bankruptcy Code, (ii) granting relief afforded to foreign main proceedings under section 1520 of the Bankruptcy Code, (iii) recognizing, granting comity to, and giving full force and effect in the United States, to the UK Proceeding, the Scheme, the Convening Order and the Sanction Order (as defined below), and (iv) enjoining parties from taking any action inconsistent with the Scheme in the US, including giving effect to the releases set out in the Scheme (the "Releases"), including certain releases given in favor of certain of the Debtor's direct and indirect subsidiaries (the "Subsidiary Guarantors") that guaranteed the 2023 Notes (the "Guarantor Releases").

The Petition is supported by the: (i) Declaration of Patrick Willcocks in Support of Verified Petition for Recognition of Foreign Main Proceeding and Certain Related Relief (the "Willcocks Declaration," ECF Doc. # 3); and (ii) Declaration of Nicholas Angel as English Counsel to Debtor in Support of Verified Petition for Recognition of Foreign Main Proceeding and Certain Related Relief (ECF Doc. # 4). The Foreign Representative also filed the Second Declaration of Patrick Willcocks in Support of the Verified Petition (the "Second Declaration," ECF Doc. # 13), indicating that the UK Court sanctioned the Scheme on March 26, 2018. A copy of the UK Court's order sanctioning the Scheme (the "Sanction Order") was attached to the Second Declaration as Exhibit C.

The Avanti Scheme only adjusts the debt of the 2023 Noteholders (as explained below), who overwhelmingly approved the Scheme by a vote of over 98% of that class of creditors. For the reasons set forth below, the Court grants the relief sought in the Petition.

I. BACKGROUND

The following facts are taken from the Petition and the Willcocks Declaration.

A. The Debtor

The Debtor is a public limited company incorporated under the laws of England and Wales, with subsidiaries incorporated in England, Isle of Man, Germany, Sweden, Turkey, Cyprus, Kenya, Nigeria, Tanzania and South Africa. The Debtor's headquarters and primary place of business is in London, England. Avanti is a satellite operator providing fixed satellite services in Europe, the Middle East and Africa through its fleet of Ka-band satellites. The Debtor's satellites are positioned in orbital slots that are recorded in the International Telecoms Union Master International Frequency Register. Avanti sells satellite data communications services on a wholesale basis to a range of service providers who supply four key end markets: broadband, government, enterprise and backhaul.

Avanti's current fleet consists of two Ka-band satellites, HYLAS 1 and HYLAS 2, which have been commercially operational since April 2011 and November 2012. A further satellite, Artemis, a multiband satellite acquired from the European Space Agency (ESA) on December 31, 2013, was successfully re-orbited in November 2017. Avanti also has leased a steerable Ka-band beam, HYLAS 2–B, under an indefeasible right of use agreement entered into in June 2015 with another satellite operator, and also has a payload, HYLAS 3, under construction which will be deployed on the ESA's EDRS–C satellite. HYLAS 3 is currently under construction and continues to experience delays, but is expected to launch in the first three months of 2019 (although this date is subject to further change).

Avanti's HYLAS 4 satellite, which will complete its coverage of Europe, the Middle East and Africa, has now been constructed after experiencing some delays in the factory and, in February 2017, was successfully delivered to its launch site in Kourou, French Guyana. HYLAS 4 is expected to launch soon, aiming to be in orbital position ready for service in July 2018 with sufficient fuel to support the satellite for up to 19 years in orbit. HYLAS 4 is expected to generate revenue from July 2018, largely within Avanti's existing fixed cost base, and to have a strong positive effect on Avanti's business as it completes EMEA coverage and greatly increases the amount of capacity available in mature markets in Western Europe and new markets in Africa.

B. Capital Structure

As of December 31, 2017, Avanti's capital structure was composed of the following material financing agreements. As of December 31, 2017, Avanti had approximately $68.0 million of cash and cash equivalents.

1. Avanti is a borrower under a super-senior term loan facility agreement (the "Super Senior Facility Agreement"), maturing in 2020 (the "Super Senior Facility"

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