In re B.C.I. Finances Pty Ltd.

583 B.R. 288

IN RE: B.C.I. FINANCES PTY LIMITED (In Liquidation), et al., Debtors in a Foreign Proceeding.

Case No. 17–11266 (SHL) (Jointly Administered)

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

Signed April 24, 2018

NIXON PEABODY LLP, Counsel for John Sheahan and Ian Russell Lock as Liquidators, 55 West 46^th Street, New York, New York 10036, By: Robert N. H. Christmas, Esq., Christopher J. Fong, Esq.

OLSHAN FROME WOLOSKY LLP, Counsel for Ligon 158 Pty Limited and Andrew Binetter, 1325 Avenue of the Americas, New York, New York 10019, By: Adam H. Friedman, Esq., Jonathan T. Koevary, Esq.

MEMORANDUM OF DECISION

SEAN H. LANE, UNITED STATES BANKRUPTCY JUDGE

Before the Court are the foreign representatives' petitions for recognition under Chapter 15 of the Bankruptcy Code of the Australian liquidation proceedings of debtors B.C.I. Finances Pty Limited, Binqld Finances Pty Limited, E.G.L. Development (Canberra) Pty Limited, and Ligon 268 Pty Limited (the "Debtors"). See Memorandum of Law in Support of Chapter 15 Petition (the "Recognition Motion") [ECF No. 9]. Recognition is objected to by Ligon 158 Pty Limited and Andrew Binetter (the "Objecting Parties"). See Objection to Verified Petitions for Recognition (the "Recognition Objection") [ECF No. 16]. For the reasons that follow, the Court grants recognition.

BACKGROUND

The Debtors were Australian companies that operated primarily as intercompany borrowing and lending entities within a group of companies controlled and operated by the Binetter family. See Decl. of Tobin P. Meagher ("Meagher Petition Decl.") ¶¶ 6, 7 [ECF No. 6]; see also Transcript of Hearing held on June 27, 2017 ("Hr'g Tr.") 62:17–22, 63:15–19 [ECF No. 25]. Andrew, Michael, Margaret, and Gary Binetter each held various director and management positions for the Debtors from as early as the mid–1990's. See App'x To Petition, Tab 1 (decision of Honourable Justice Gleeson of the Federal Court of Australia) ("Australian Decision") ¶¶ 19, 34–36, 46–47, 49, 59, 60 [ECF No. 2]. The Debtors were the subject of extended investigation by the Australian Taxation Office, and received significant tax assessments that they were unable to satisfy. See Hr'g Tr. 63:22–64:6; Australian Decision ¶ 2, 100. The audit also resulted in findings of "fraud or evasion" by the Commissioner of Taxation. Australian Decision ¶ 2. The Debtors are each in liquidation in Australia, are not operating, and have not traded for many years. See Decl. of Chris Ardagna in Support of Objection to Verified Petitions for Recognition ¶ 11 [ECF No. 16–2].

In August 2014, John Sheahan and Ian Russell Lock (together, the "Liquidators") were appointed as joint and several liquidators of the Debtors in the Australian liquidation proceedings. See Meagher Petition Decl. ¶¶ 1, 8. In January 2015, the Liquidators brought a proceeding in the Federal Court of Australia seeking compensation relating to the Debtors' tax assessments, claiming that the actions of the Debtors' directors that caused or contributed to those liabilities constituted a breach of various statutory and fiduciary duties (the "SAD5/2015 Action"). See Australian Decision at PDF 3, and ¶¶ 4–8. Respondents in the SAD5/2015 Action include Andrew Binetter, Michael Binetter, other members of the Binetter family, Milgerd Nominees Pty Limited, Erma Nominees Pty Limited, Ligon 159 Pty Limited, Ligon 158 Pty Limited, the Estate of Emil Binetter, and the Estate of Erwin Binetter. See Australian Decision at PDF 3, 216, and ¶¶ 62–77. A trial was held before her Honour Justice Gleeson who issued a judgment finding that (i) most of the respondents, including Andrew and Michael Binetter, breached their duties as directors of one or more of the Debtors and/or was knowingly involved in the breaches; (ii) the breaches caused significant losses; and (iii) each of the respondents was involved in certain breaches relating to the financial and taxation dealings of one or more of the Debtors and thereby caused different elements and amounts of losses suffered by the Debtors. See Hr'g Tr. 70:24–71:5; Australian Decision ¶¶ 870–1028. As of summer 2017, the amount of damages remained to be determined by Justice Gleeson. See Hr'g Tr. 72:3–11. However, Andrew Binetter has admitted that the liability is at least AU $20,000,000.00.¹ See id . 89:23–25 (reading a stipulation into the record).² At some point during the Australian proceedings, members of the Binetter family began to leave Australia.³ Hr'g Tr. 72:17–73:8. Andrew and Michael Binetter currently reside in New York City. Hr'g Tr. 19:22–23, 72:17–73:4; see also Supplemental Memorandum of Law in Further Support of Objection ("Objecting Parties' Suppl. Br.") ¶ 3 [ECF No. 28].

The Liquidators seek recognition of the Debtors' Australian liquidation proceedings as foreign main proceedings under Chapter 15 of the Bankruptcy Code in order to facilitate the administration of the Debtors' estates in Australia. Specifically, the Liquidators seek the assistance of this Court in gaining access to and/or conducting discovery of Andrew and Michael Binetter, and any Debtor assets, documents, or records they may have with them in the United States. See Hr'g Tr. 122:16–123:15; see also In re Platinum Partners Value Arbitrage Fund L.P. (In Official Liquidation), et al. , 2018 WL 1864931, *5–6, 2018 Bankr. LEXIS 1156, *14–*19 (Bankr. S.D.N.Y. Apr. 17, 2018) (discussing discovery generally as a form of relief available to foreign representatives in Chapter 15 cases pursuant to several different provisions of the Bankruptcy Code). Mr. Sheahan believes that Andrew Binetter will not return to Australia voluntarily, and that Michael Binetter is unable to return due to ill-health. See Hr'g Tr. 122:16–123:15.

The Objecting Parties argue that the Debtors are not eligible for relief under Chapter 15 because they have not satisfied Section 109(a) of the Bankruptcy Code, which dictates that "only a person that resides or has a domicile, a place of business, or property in the United States, or a municipality, may be a debtor under this title." 11 U.S.C. § 109 ; see Recognition Objection ¶¶ 2, 16–17. Before commencing this case, the Debtors each placed retainers of $1,250 in the trust account of the Liquidators' counsel in this case, Nixon Peabody LLP, which they contend satisfies the property requirement under Section 109(a). See Hr'g Tr. 91:24–92:2; 104:18–105:8, 110:22–23; Reply ¶ 11. The Liquidators also contend that the Debtors' fiduciary duty claims in the SAD5/2015 Action against Andrew and Michael Binetter (the "Fiduciary Duty Claims") constitute property in the United States. Reply ¶¶ 4, 9. In contrast, the Objecting Parties argue that the attorney retainer account does not satisfy Section 109(a) because the Liquidators improperly manipulated the Debtors' assets by placing funds in the New York account just to comply with the statute. See Recognition Objection ¶¶ 2, 16–17. The Objecting Parties further argue that the situs of the Debtors' other claimed property—the Fiduciary Duty Claims—is in Australia. See Objecting Parties' Suppl. Br. ¶¶ 7–8, 15–16, 28.

A hearing on the Recognition Motion was held on June 27, 2017 (the "Recognition Hearing"). See Hr'g Tr 1:16, 4:2–5. Subsequent to the Recognition Hearing and at the Court's request, the parties submitted additional briefing on the issue of the situs of the Fiduciary Duty Claims, including what law should resolve that question. See Debtors' Suppl. Br.; Objecting Parties' Suppl. Br. Extensive additional briefing was provided by the parties. See Declaration of Tobin P. Meagher ("Meagher Decl.") [ECF No. 27] (supporting Australian legal analysis in Debtors' Suppl. Br.); Limited Response to Supplemental Memorandum by Petitioners and Request to Re–Open Recognition Hearing at 6 ("Objecting Parties' Limited Response") [ECF No. 33] (challenging Debtors' Australian legal analysis and the sufficiency of the record on Australian law); Declaration of Chris Ardagna in Support of Objection to Verified Petitions for Recognition ("Ardagna Decl.") ¶¶ 7, 12–13 [ECF No. 33–1] (supporting the Objecting Parties' Australian legal analysis); Reply of Petitioners to Limited Response [ECF No. 35]; Declaration of Tobin P. Meagher in Support of Reply ("Meagher Reply Decl.") [ECF No. 36].

DISCUSSION

"Chapter 15 and the Model Law are designed to optimize disposition of international insolvencies by facilitating appropriate access to the court system of a host country (the United States, in the case of Chapter 15) by a representative of an insolvency proceeding pending in a foreign country." In re Bear Stearns High–Grade Structured Credit Strategies Master Fund, Ltd. , 389 B.R. 325, 333 (S.D.N.Y. 2008) (citing 11 U.S.C. § 1521 ); see In re Oi Brasil Holdings Cooperatief U.A. , 578 B.R. 169, 193 (Bankr. S.D.N.Y. 2017) (stated purpose of Chapter 15 includes efficient administration of cross-border insolvencies that protects the interests of all creditors and other interested parties and maximizes a debtor's assets) (citing 11 U.S.C. § 1501(a) ). Section 1517(a) of the Bankruptcy Code provides that the court shall, after notice and a hearing, enter an order recognizing a foreign main proceeding if: "(1) such foreign proceeding for which recognition is sought is a foreign main proceeding ... within the meaning of section 1502; (2) the foreign representative applying for recognition is a person or body; and (3) the petition meets the requirements of section 1515." 11 U.S.C. § 1517(a) ;⁴ see In re Oi Brasil , 578 B.R. at 194. A foreign proceeding is defined as a "collective judicial or administrative proceeding in a foreign country, including an interim proceeding, under a law relating to insolvency or adjustment of debt in which proceeding the assets and affairs of the debtor are subject to control or supervision by a foreign court, for the purpose of reorganization or liquidation." 11 U.S.C. § 101(23).

A foreign main proceeding "shall be recognized ... if it is...