44CanalCenterPlaza,Suite400•Alexandria,VA22314•(703)739-0800•Fax(703)739-1060•www.abiworld.org Proskauer;NewYork RichardCorbiisanassociateinthe Proskauer’sNewYorkoffjce. rcorbi@proskauer.com BankruptcyandRestructuringGroupin RichardJ.Corbi J OURNAL A M E R I C A N B A N K R U P T C Y I N S T I T U T E The Essential Resource for Today’s Busy Insolvency Professional Chapter 15 Applies to Australian Liquidation Contributing Editor: The Chapter 15 Filing About the Author On May 26, 2010, ABC Learning Centres and its wholly owned subsid- iary A.B.C. USA Holdings Pty. Ltd. I (“ABC Holdings” and collectively, n re ABC Learning Centres Ltd. 1 the “debtors”) filed petitions in the recently held that the debtors’ a result, the lenders commenced receiv- Delaware bankruptcy court seeking Australian liquidation proceedings ership proceedings under the loans and recognition as foreign main proceed- are foreign main proceedings pursuant Corporations Act. 10 Such receivership ings pursuant to §§ 1515 and 1517 of to §§ 1502(4), 1515 and 1517(b)(1) of proceedings are proceeding concurrently the Bankruptcy Code of the volun- the Bankruptcy Code and not manifestly with the liquidation proceedings. tary administration proceedings (later contrary to U.S. public policy. 2 converted to liquidation proceedings) The RCS Litigation Proceedings in Australia pending in Australia. 15 In June 2008, an affiliate of ABC On Nov. 6, 2008, the boards of direc- RCS objected to the chapter 15 peti- Learning, ABC Delaware, entered tors of ABC Learning Centres Ltd. and tion on the grounds that the liquidation into a contract with RCS Capital its subsidiaries resolved that the compa- proceedings are not “foreign proceed- Development LLC to develop child- nies were becoming insolvent and entered ings” recognizable pursuant to chapter care centers in the U.S. 11 RCS eventu- the voluntary administration proceedings 15 because they do not meet the thresh- ally brought suit against ABC Learning pursuant to the Australia’s Corporations old requirements laid out in § 101(23) of and ABC Delaware in Arizona state Act of 2001 (Cth) (the “Corporations the Code. 16 RCS argued that the liquida- court for breach of contract, among Act”), 3 which requires that companies in tion proceedings were not collective in other claims, and was awarded a $47 the voluntary proceedings conduct two nature and not supervised by a foreign million judgment by a jury. 12 In March creditors’ meetings. 4 The first meeting is court. 17 RCS also argued that the bank- 2009, debtor ABC Learning Centres to determine whether a creditors’ com- ruptcy court should deny recognition on mittee should be formed, and whether to remove the administrators appointed The International Scene by the board of directors and appoint alternate administrators. 5 The first meet- ing was held on Nov. 18, 2008, where a Ltd., n/k/a ZYX Learning Centres Ltd. creditors’ committee was formed and the the grounds that the liquidation proceed- (“ABC Learning”) and nondebtor ABC administrators remained in place. 6 ings violated U.S. public policy provi- Delaware filed a lawsuit against RCS The second meeting was held sions set forth in § 1506 of the Code. 18 in Nevada state court asserting several on June 2, 2010, where the creditors Court Analysis causes of action, including breach of resolved to wind up the company. 7 At contract, breach of constructive trust, of “Foreign Proceedings” the second meeting, the creditors cre- fraudulent transfer and unjust enrich- ated a “committee of inspection” made The U.S. Bankruptcy Court for the ment. 13 In connection with its defense up of nine members representing the District of Delaware first addressed the of this new lawsuit, RCS sought, and cross-section of creditors, including gen- issue of whether the liquidation pro- was granted, relief from the automatic eral unsecured creditors, bondholders, ceedings were “foreign proceedings” stay to assert its $47 million favorable employees and the banks. 8 Because the as defined by § 101(23) 19 as seven sub- verdict as a setoff in the Nevada litiga- debtors commenced voluntary adminis- parts: “a collective judicial or adminis- tion. 14 This article does not focus on the tration proceedings, they breached the trative proceeding in a foreign country, relief from stay that RCS was granted terms of the loans with their lenders. 9 As including an interim proceeding, under in the case, but rather the public policy a law relating to insolvency or adjust- 1 --B.R.--, 2010 WL 5439808 (Bankr. D. Del. Dec. 16, 2010). exception to chapter 15 recognition. ment of debt in which proceeding the 2 ABC , 2010 WL 5439808 at *2. 3 ABC , 2010 WL 5439808 at *3. assets and affairs of the debtor are sub- 4 ABC , 2010 WL 5439808 at *3. 10 ABC , 2010 WL 5439808 at *3. 5 ABC , 2010 WL 5439808 at *3. 11 ABC , 2010 WL 5439808 at *4. 15 ABC , 2010 WL 5439808 at *1. 6 ABC , 2010 WL 5439808 at *3. 12 ABC , 2010 WL 5439808 at *4. 16 ABC , 2010 WL 5439808 at *1. 7 ABC , 2010 WL 5439808 at *3. 13 ABC , 2010 WL 5439808 at *4. 17 ABC , 2010 WL 5439808 at *1. 8 ABC , 2010 WL 5439808 at *3. 14 ABC , 2010 WL 5439808 at *4. 18 ABC , 2010 WL 5439808 at *1. 9 ABC , 2010 WL 5439808 at *3. 19 ABC , 2010 WL 5439808 at *4.
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