Need to know
In a first for the US and Australian markets, the Buccaneer Energy group of companies successfully had bankruptcy plans approved by the US Bankruptcy Court for both US and Australian incorporated debtor companies.
After a bankruptcy proceeding that spanned approximately 12 months, the Court has approved a US Chapter 11 bankruptcy plan for Australian incorporated and ASX-listed Buccaneer Energy Limited and its US subsidiaries (subject to certain conditions that are being worked on). The plan facilitates a realisation of a part of the group's assets and distributions amongst its creditors, with certain assets retained by the restructured group.
The first important conclusion flowing from this bankruptcy was that the US Bankruptcy Court found that it had jurisdiction to implement the plan for both the local operating companies and the Australian listed parent.
The second, and perhaps more important, conclusion is that the US bankruptcy proceeding for the Australian incorporated parent company was recognised in Australia as a "foreign main proceeding" for purposes of the Model Law on Cross-Border Insolvency of the United Nations Commission on International Trade Law. Effectively, that recognition made the US bankruptcy proceeding the venue for dealing with claims on the entire group, including the Australian parent.
The decision lays sturdy groundwork for Australian listed companies with similar business models - Australian listing, but operations predominantly in the US - to explore Chapter 11 bankruptcy as a mechanism for successful restructuring.
A little more detail
The group was headquartered in Australia, with the parent Buccaneer Energy Limited ("Parent") incorporated in Australia and listed on the ASX. Its operations, however, were largely conducted in the US by various US incorporated subsidiaries active in the oil and gas sector, including by Buccaneer Energy LLC ("LLC"). As such, the group's creditors (including secured creditors) were largely situated in the US.
In mid-2014, LLC as lead applicant and a number of other group companies opened Chapter 11 bankruptcy proceedings in the US Bankruptcy Court for the Southern District of Texas. Parent was one of the other applicants.
The bankruptcy proceeded in the US, with an amended plan eventually being put to creditors in November 2014. That plan received the necessary creditor approvals and was subsequently considered by the Court in early-January 2015. By orders made on 13 January 2015, the Court approved the plan. Importantly for Australian practitioners, the Court expressly determined that it had jurisdiction to implement the plan in relation to the Australian incorporated Parent.
In summary, the plan as approved by the Court involved contribution of some of the group's assets to a liquidating trust to be distributed to creditors, with the balance of the group's assets (being oil and gas leases) retained by the restructured group. For Australian practitioners, an interesting aspect of the plan (and its evolution) is the effective usage of the bankruptcy proceeding as a forum for resolving various disputes that were pending amongst the group and its creditors - US Chapter 11 bankruptcy, in this sense, appears to be a more effective resolution mechanism than Australian voluntary administration under Part 5.3A of the Corporations Act 2001 (Cth).
There remain some conditions subsequent to the Court's approval, which are being resolved prior to the plan becoming effective. Those conditions do not go to the "principle" behind the Court's decision to approve the plan.
As mentioned above, a significant aspect of the US bankruptcy proceeding was that it was coupled with a successful application by Parent in July 2014 for recognition of the US bankruptcy proceeding in Australia as a "foreign main proceeding" for purposes of the Cross-Border Insolvency Act 2008 (Cth) (giving effect to the Model Law on Cross-Border Insolvency of the United Nations Commission on International Trade Law). The Australian Court's finding of a jurisdiction other than the place of Parent's incorporation as being Parent's "centre of main interests" (the threshold to recognition as a "foreign main proceeding") is significant - it demonstrates the preparedness of Australian Courts to look to the reality of a debtor company's operations, rather than simply its legal status.
This recognition in Australia of the US bankruptcy proceeding enabled Parent to take the full benefit of the various moratoria on creditor action provided for in the Model Law - effectively, it made the US bankruptcy proceeding the venue for dealing with claims on the entire group, including the Australian Parent.