JPLs play an unheralded but crucial mediating role in Bermuda
In the recent Bermuda case of Up Energy Development Group Limited, the debtor Company sought to resist a creditor request to appoint Joint Provisional Liquidators (JPLs) to monitor the Company's proposed restructuring. Kawaley CJ stated that he could not recall a single insolvent scheme of arrangement approved by the Supreme Court of Bermuda which had not been promoted by provisional liquidators emphasising their importance. It was held that: "It is the involvement of JPLs, embedded with the restructuring troops, which relieves this Court of the burden shouldered by US Bankruptcy Court judges of resolving a myriad of disputes between the restructuring protagonists...All conflicts are typically resolved before the scheme document is finalised, out of court, with the JPLs playing a generally unheralded but crucial mediating role. They bring a high degree of efficiency and economy to Bermudian restructuring proceedings which would likely be lost in a proceeding without the usual appointment."
Up Energy Development Group Limited is incorporated in Bermuda and listed on the Hong Kong Stock Exchange. Earlier in 2016, the company announced it had defaulted and was negotiating robustly with creditors, underwriters and financiers to explore different options to restructure the company by the end of March. By 29 March 2016, a creditor's petition was presented against the company on the grounds of non-payment of debt. The Petitioner sought to appoint JPLs to monitor the continuation of the business and determine the feasibility of the restructuring proposal if successfully implemented. Up Energy opposed the appointment of JPLs as it had retained independent restructuring advisors RSM Corporate Advisory and hoped to avoid the stigma of provisional liquidation, especially considering there was no evidence of misconduct of the management to result in insolvency.
Current statutory position
Section 170 of the Companies Act 1981 (Companies Act) gives discretion to the Court to appoint provisional liquidators for the purpose of restructuring the debts of a company.
The `light touch' restructuring method is well enunciated in the 2013 case of Re Titan Petrochemicals Ltd,1 where JPLs monitor the restructuring process and assess whether or not the process is in fact being carried out in the best interest of the creditors. The most significant benefit of this case is the advantage of a court appointed liquidator having the ability to act as an agent of the company and maintain requisite authority to access relevant information, while still reporting to the Court.2 This case saw similar circumstances to Up Energy, whereby a creditor sought to appoint JPLs to supervise the company restructuring, but had its application opposed by the Company. In Re Titan Petrochemicals Ltd, the Court took the most prudent course of action and granted JPLs to monitor the restructuring process.3
Kawaley CJ held that the crucial use of JPLs to facilitate restructuring not only alleviates the Court of the load endured by the US bankruptcy Court, but also gives confidence to both the Court and to creditors that the restructuring process will be credible.4 Provisional liquidators are a central and efficient asset to Bermudian restructuring and are deeply entrenched within the insolvency law practice. Although the Court established it does not have any obligation to blindly follow the wishes of the majority of the creditors, they do have a legitimate expectation that JPLs will be appointed to monitor restructuring, especially when a petition has been presented before the Court.
For these reasons, the Supreme Court of Bermuda ruled that the Petitioner's application to appoint JPLs be granted on a `light touch' basis to assist with the restructuring of the Company and preserve value in the business.