In re Cinque Terre Fin. Grp. Ltd.

In re: CINQUE TERRE FINANCIAL GROUP LIMITED, Debtor.

Case No. 16-11086 (JLG)

UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK

October 24, 2017

NOT FOR PUBLICATION

Chapter 15

MEMORANDUM OF DECISION AND ORDER GRANTING MOTION OF FOREIGN LIQUIDATOR FOR APPROVAL OF SETTLEMENT AGREEMENT

APEARANCES:

SEQUOR LAW, PA

1001 Brickell Bay Drive

9th Floor

Miami, FL 33131

By: Gregory S. Grossman, Esq.

SULLIVAN & WORCESTER LLP

1633 Broadway, 32nd Floor

New York, New York 10019

By: Jeffrey R. Gleit, Esq.

SIMMS SHOWERS LLP

201 International Circle

Baltimore, Maryland 21030

By: J. Stephen Simms, Esq.

BOIES SCHILLER & FLEXNER LLP

575 Lexington Avenue

New York, NY 10022

By: Randall W. Jackson, Esq.

Donald L. Flexner, Esq.

Byron D.M. Pacheco, Esq.

HON. JAMES L. GARRITY, JR. U.S. BANKRUPTCY JUDGE

Cinque Terre Financial Group Limited (the "Debtor") is a company formed under the laws of the British Virgin Islands (the "BVI"). It is the subject of insolvency proceedings in the BVI and is the debtor in this chapter 15 case. Stuart MacKellar is the Debtor's BVI court-appointed liquidator (the "Liquidator") and is acting as its "foreign representative" herein. The Debtor's sole shareholder is Alessandro Bazzoni ("Bazzoni"). As of the commencement of the BVI Liquidation Proceedings (as defined below), the Debtor's affiliates included a BVI company known as "CT Energia Ltd." The evidence shows that at some point after the commencement of those proceedings, Bazzoni formed an entity under Malta law that he named "CT Energia Ltd.," but thereafter changed its name to "Elemento Ltd." [Hereinafter, the BVI and Malta "CT Energia Ltd." entities will be referred to as "CTEL BVI" and "CTEL Malta/Elemento," respectively.]

The matter before the Court is the Liquidator's motion pursuant to Rule 9019 of the Federal Rules of Bankruptcy Procedure, for an order approving a settlement agreement (the "Settlement Agreement") by and between the Debtor and CTEL Malta/Elemento.¹ The agreement resolves a dispute arising out of CTEL Malta/Elemento's acknowledged unauthorized use of the Debtor's license agreement (the "License") with Petroleos del Peru ("PetroPeru") to purchase fuel oil (the "Naphtha Fuel") which it thereafter sold, at modest profit, to an entity known as SK Energy Americas ("SKEA"). [Hereinafter, the transactions relating to CTEL Malta/Elemento's purchase and sale of the Naphtha Fuel collectively will be referred to as the"Naphtha Transaction"]. That dispute was crystalized in motions that the Liquidator filed in this Court against CTEL Malta/Elemento and others (defined below as the "Bankruptcy Motions"), and in a maritime attachment and garnishment action (defined below as the "Maritime Action") commenced by Chemoil Latin America ("Chemoil"), one of the Debtor's creditors, in the United States District Court for the Southern District of Texas (the "Texas Court"). CTEL Malta/Elemento has not received the proceeds generated from the Naptha Transaction because by order of the Texas Court, SKEA deposited those funds into the court's registry (the "Registry Funds"), pending resolution of the Maritime Action.

In the Maritime Action and the Bankruptcy Motions, the Liquidator contends that the Registry Funds should be paid to the Debtor, not CTEL Malta/Elemento. His theory is that CTEL Malta/Elemento is an alter ego of the Debtor and, in any event, that it used the Debtor's funds to acquire the Naphtha Fuel from PetroPeru, without the Debtor's knowledge or consent. Since the commencement of that litigation, the Liquidator has conducted informal discovery of CTEL Malta/Elemento. In response to the Liquidator's requests, CTEL Malta/Elemento has produced records from the bank account that is the source of the funds that it used to pay for the Naphtha Fuel (the "Fuel Acquisition Funds") and corporate records evidencing the ownership of CTEL Malta/Elemento. Also, it has provided sworn declarations to the Liquidator from individuals who purport to have knowledge of those matters. Based upon his review of those documents and the advice of his counsel, the Liquidator has determined that it is in the best interests of the Debtor and its creditors that he resolve the Debtor's claims against CTEL Malta/Elemento relating to the Naphtha Transaction on the terms set forth in the Settlement Agreement. Among other things, that agreement contemplates that the Registry Funds, which total approximately $12.6 million, will be distributed among the Debtor, Chemoil, and CTELMalta/Elemento, with the lions-share of those funds being paid to CTEL Malta/Elemento. It also calls for the Debtor to give CTEL Malta/Elemento and Richard Rothenberg ("Rothenberg") narrowly tailored releases limited to matters relating to the Naphtha Transaction. Rothenberg is an officer and director of CTEL Malta/Elemento who formerly served as the Debtor's chief financial officer. The agreement does not expressly address or purport to resolve whether CTEL Malta/Elemento is an alter ego of the Debtor.

Chemoil initially objected to the Motion.² However, the Liquidator resolved that objection and Chemoil now supports the Motion. See Liquidator Chemoil Reply at ¶ 2. Centauro Liquid Opportunities Master Fund L.P. ("Centauro") objects to the Motion. It is not a party to the Bankruptcy Motions or the Maritime Action, but it is suing the Debtor, CTEL BVI and others (the "Centauro Litigation") in the United States District Court for the Southern District of New York (the "District Court") to recover damages of at least $21 million caused by the Debtor's and CTEL BVI's alleged default under a promissory note payable by them to Centauro (the "Centauro Note").³ That action is stayed as to the Debtor, but not as to CTEL BVI and the other defendants. Recently, the District Court authorized Centauro to file and serve an amended complaint in that action, after having granted, in part, the defendants' motion to dismiss the initial complaint. See Centauro Liquid Opportunities Master Fund, L.P. v. Alessandro Bazzoni, et al. ("Centauro I"), No. 15 CV 9003, 2016 WL 5719793 (S.D.N.Y. Sept. 30, 2016) (memorandum decision and order granting, in part, motion to dismiss complaint); Centauro Liquid Opportunities Master Fund, L.P. v. Bazzoni ("Centaruo II"), No. 15 CV 9003,2017 WL 3726754 at *5 (S.D.N.Y. Aug. 28, 2017) (memorandum decision and order granting, in part, Centauro leave to file amended complaint). Among other things, Centauro's amended complaint names CTEL Malta/Elemento as a defendant, and alleges that it is an alter ego of CTEL BVI, and is thereby liable to Centauro for all amounts due and owing under the Centauro Note.

Centauro objects to the Settlement Agreement⁴ on the grounds that it is not "fair and equitable," since if approved, the agreement may adversely impact the resolution of its claims against CTEL Malta/Elemento in the Centauro Litigation. Centauro Obj. at 6. The Court held hearings (each a "Hearing," and collectively, the "Hearings") on the Motion on August 3, 2017, August 24, 2017, and September 21, 2017. For the reasons stated below, Centauro's objections are OVERRULED, and the Motion is GRANTED.

Jurisdiction

This Court has jurisdiction to finally adjudicate the Motion pursuant to 28 U.S.C. §§ 1334 and 157(a) and (b)(1) and the Amended Standing Order of Referral of Cases to Bankruptcy Judges of the United States District Court for the Southern District of New York, dated January 31, 2012 (Preska, C.J.). This is a core proceeding. See 28 U.S.C. § 157(b)(2)(P). This memorandum of decision and order constitutes the Court's findings of fact and conclusions of law pursuant to Rule 52(a) of the Federal Rules of Civil Procedure, applicable here pursuant to Rules 7052 and 9014(c) of the Federal Rules of Bankruptcy Procedure.

Facts⁵

Appointment of the Liquidator and Commencement of the Chapter 15 Case

The Debtor was placed in liquidation in the BVI (the "BVI Liquidation Proceedings"), as of April 11, 2016, by the Eastern Caribbean Supreme Court, High Court of Justice, Virgin Islands, Commercial Division, in the BVI (the "BVI Court"). See Declaration of Stuart MacKellar in Support of Chapter 15 Petition of Cinque Terre Financial Group Limited for Recognition of Foreign Insolvency Proceeding at ¶¶ 1, 8 [ECF No. 3] (the "MacKellar Declaration"). That day, the BVI Court appointed Stuart MacKellar as Liquidator. Id. at ¶ 8. On April 27, 2016, he petitioned this Court on behalf of the Debtor for recognition of the BVI Liquidation Proceedings as "foreign proceedings" under chapter 15 of the Bankruptcy Code. See Chapter 15 Petition for Recognition of Foreign Proceedings [ECF No. 1]; Verified Petition For Recognition of Foreign Insolvency Proceedings and Application For Relief Pursuant to Sections 1504, 1507, 1509, 1515, 1517, 1519 and 1521 of the Bankruptcy Code [ECF No. 2] (the "Verified Petition"). On June 21, 2016, the Court entered an order recognizing the BVI Liquidation Proceedings as a foreign main proceeding, and the Liquidator as the foreign representative of the Debtor under sections 1517(b)(1) and 1509 of the Bankruptcy Code, respectively. See Order Granting Recognition and Relief in Aid of Foreign Main Proceeding [ECF No. 104].

When he took office, the Liquidator had limited access to the Debtor's books and records, and little insight into the Debtor's business operations. Indeed, the Liquidator commenced this case to obtain this Court's assistance with his investigation of the activities of the Debtor'sformer managers and directors in various jurisdictions including, but not limited to, Switzerland, the United States, and Central America. See Verified Petition at ¶ 3 [ECF No. 2]; MacKellar Dec. at ¶ 13. Since his appointment, the Liquidator has determined that Bazzoni was the Debtor's sole shareholder and Rothenberg served as its chief financial officer. See MacKellar Dec. at ¶¶ 15-16. He also maintains that Bazzoni, Rothenberg and Ruben Alejandro Goldstein ("Goldstein," and collectively with Bazzoni and...