Recognition of Foreign Restructuring Plan: Bermuda Pushing the Common Law Envelope in Seadrill

17 April 2018

In Re Seadrill Drilling [2018] SC (Bda) 30 Com (5 April 2018), the Bermuda court recognised and enforced a US Chapter 11 reorganisation plan in relation to Bermuda-incorporated companies. The court’s reasoning appears to sit somewhat  uncomfortably with the UK Supreme Court decision in Rubin v Eurofinance [2012] UKSC 46; [2013] 1 AC 236 and the Privy Council decision in Singularis Holdings v PricewaterhouseCoopers [2014] UKPC 36; [2015] AC 1675.  It is doubtful if the Hong Kong court would follow the Bermuda court’s approach.

The facts and decision

On 12 September 2017, Seadrill Limited, North Atlantic Drilling Ltd, and Sevan Drilling Limited (“Companies”), together with other affiliates, commenced US Chapter 11 proceedings to pursue the group’s debt restructuring.

On 13 September 2017, the Companies applied for provisional liquidation in Bermuda in order to coordinate with the Chapter 11 proceedings. On the same day, the Bermuda court appointed provisional liquidators (“PLs”) to the Companies. 

In anticipation of the US Bankruptcy Court’s order (“Confirmation Order”) confirming the Chapter 11 reorganisation plan, the PLs applied for an order from the Bermuda court recognising the Chapter 11 plan and permanently staying all creditors and shareholders’ claims against the Companies. 

The minority shareholders of Sevan Drilling Limited(“Sevan”) opposed the PLs’ application for a permanent stay in order to preserve their right to bring derivative proceedings in relation to Sevan in Bermuda.

The court ruled against the minority shareholders, and granted an order conditionally:

(a) recognising the Confirmation Order which the US Bankruptcy Court was expected to make later in the month; and

(b) permanently restrained creditors and shareholders from pursuing claims against the Companies in breach of their obligations under the proposed Chapter 11 plan.

As regards the court’s competence to conditionally recognise the Confirmation Order, the court relied on Re Energy XXI [2016] SC (Bda) 79 Com (18 August 2016)and reasoned as follows.

First, the minority shareholders (along with Sevan itself),having submitted to the jurisdiction of the US Bankruptcy Court, would be bound by the Confirmation Order. 

Second, the minority shareholders could not argue that the Confirmation Order was an in rem order which had no effect under Bermudian law on their shares which were located in Bermuda. This is because the US Bankruptcy Court had jurisdiction over the minority shareholders’ shares in Sevan. This was the consequence of the minority shareholders having submitted personally to the US jurisdiction in connection with the Chapter 11 proceedings, the function of which was to determine (among other things) the extent of the shareholders’ rights.

Comments

The  Bermuda court’s reasoning seems  to be somewhat out of line with the common law as applied elsewhere. If the Confirmation Order was a judgment in rem in relation to the minority shareholders’ shares (being assets situated in Bermuda), it is hard to see why the minority shareholders could not argue that the Confirmation Order could not be recognised in Bermuda in relation to the shares.

It is well established that a foreign judgment in rem is enforceable at common law only if the asset in question was situate within the jurisdiction of the foreign court at the time of the foreign proceedings (United States of America v Abacha [2014] EWCA Civ 1291; [2015] 1 WLR 1917). The fact that the minority shareholders were subject to the US Bankruptcy Court’s in personam jurisdiction does not seem relevant to the question of recognition of a US judgment in rem (see Pattni v Ali [2006] UKPC 51; [2007] 2 AC 85). Nor is it relevant that the judgment in rem arose out of a US bankruptcy proceeding (see Rubin and Singularis). Therefore, it seems that Bermuda has developed its foreign judgment recognition regime.

It is doubtful whether the Hong Kong court would follow Bermuda’s approach. The position in Hong Kong is that “[f]or judgments in rem, a foreign court’s judgment will only be recognised where the subject matter of the said judgment is situated in that foreign country” (Re Performance Investment Products Corp [2014] HKEC 465 at [28]). It is thus improbable that the Hong Kong court could recognise a foreign restructuring order in respect of assets situated in Hong Kong. 

 

Jose Maurellet SC and Look Chan Ho co-authored this Case Report. 

    

 

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