Gibraltar Court Recognises Chapter 11 Bankruptcy as Foreign Main Proceeding
Peabody Energy Corporation is one of the biggest energy companies in the world. Its main business is coal mining and it conducts extensive operations in the United States and in Australia. Peabody had been hit by declining coal prices both for thermal coal and also for metallurgical coal used for steel making, especially due to the declining demand from China.
On 13 April 2016, Peabody filed for Chapter 11 bankruptcy protection in the Bankruptcy Court of the Eastern district of Missouri. This had the effect of staying the enforcement of debts due by the Corporation and its subsidiaries (“the Group). One of its subsidiaries is Peabody Holding (Gibraltar) Limited (“Holdings”), a company incorporated in Gibraltar whose shares are held by two Delaware companies, also part of the Group and which also filed for Chapter 11.
The Group in Chapter 11 entered an agreement with a syndicate of lenders to provide the Group with working capital. The agreement is titled ‘Superpriority Secured Debtor-In-Possession Credit Agreement’. The agreement enables the lenders to obtain super priority over all other secured lenders to the Group. The agreement is vital for the ability of the Group to continue in business and Holdings was pivotal to the agreement by owning the assets over which security would be granted to the syndicate.
Holdings applied to the Supreme Court of Gibraltar for recognition of the United States bankruptcy proceedings as the main insolvency proceedings for the purposes of the Insolvencies (Cross Border Insolvencies) Regulations 2014, which is the Gibraltarian legislation giving effect to the UNCITRAL model law on cross border insolvency.
A “foreign main proceeding” is defined as “a foreign proceeding taking place in the country where the debtor has the centre of his main interests.” Regulation 21 provides that a foreign main proceeding will govern the execution against the debtor’s property within Gibraltar and any right to transfer, encumber or otherwise dispose of any property in the debtor within Gibraltar. Therefore, establishing the centre of main interest (“COMI”) of Holdings was the key issue.
The Court heard evidence that Holdings was incorporated in Gibraltar for fiscal purposes and is properly administered in Gibraltar as required by Gibraltar Law. Its head office functions are coordinated and driven strategically from St Louis, Missouri where Peabody Energy Corporation is headquartered and this is because it forms part of a much larger business headed by the Corporation.
In an interesting judgment, Judge Jack held that Holdings’ COMI was in St Louis, Missouri and he directed that the Chapter 11 proceedings be treated as foreign main proceedings.
This was the first time that the Supreme Court of Gibraltar had been asked to consider an application by a Gibraltarian company in Chapter 11. A similar case recently came before the English Court to consider who can be recognised as “foreign representatives” under the Cross-Border Insolvency Regulations 2006 in the case of Re 19 Entertainment Limited, about an English company in Chapter 11. See our earlier post: