Opinion ID: 724999
Heading Depth: 2
Heading Rank: 2

Heading: The Dual Insolvency Proceedings

Text: 10 On December 16, 1991 Maxwell filed a petition for reorganization under Chapter 11 of the United States Bankruptcy Code in the Bankruptcy Court for the Southern District of New York. The next day, it petitioned the High Court of Justice in London for an administration order. Administration, introduced by the Insolvency Act 1986, is the closest equivalent in British law to Chapter 11 relief. Acting under the terms of the Insolvency Act, Justice Hoffman, then of the High Court (now a member of the House of Lords), appointed members of the London office of the accounting firm of Price Waterhouse as administrators to manage the affairs and property of the corporation. 11 Simultaneous proceedings in different countries, especially in multi-party cases like bankruptcies, can naturally lead to inconsistencies and conflicts. To minimize such problems, Judge Brozman appointed Richard A. Gitlin, Esq. as examiner, pursuant to 11 U.S.C. § 1104(c), in the Chapter 11 proceedings. The order of appointment required the examiner, inter alia, to investigate the debtor's financial condition, to function as a mediator among the various parties, and to act to harmonize, for the benefit of all of [Maxwell's] creditors and stockholders and other parties in interest, [Maxwell's] United States chapter 11 case and [Maxwell's] United Kingdom administration case so as to maximize [the] prospects for rehabilitation and reorganization. 12 Judge Brozman and Justice Hoffman subsequently authorized the examiner and the administrators to coordinate their efforts pursuant to a so-called Protocol, an agreement between the examiner and the administrators. In approving the Protocol, Judge Brozman recognized the English administrators as the corporate governance of the debtor-in-possession. As the bankruptcy judge later explained, this recognition was motivated not only by the need for coordination but also because Maxwell was incorporated in England and run ... by [Maxwell] executives out of Maxwell House in London subject to the direction of an English board of directors. Maxwell I, 170 B.R. at 817. Justice Hoffman reciprocated, granting the examiner leave to appear before the High Court in England. 13 These joint efforts resulted in what has been described as a remarkable sequence of events leading to perhaps the first world-wide plan of orderly liquidation ever achieved. Jay Lawrence Westbrook, The Lessons of Maxwell Communication, 64 Fordham L.Rev. 2531, 2535 (1996). The administrators, the examiner, and other interested parties worked together to produce a common system for reorganizing Maxwell by disposing of assets as going concerns and distributing the proceeds to creditors. Maxwell I, 170 B.R. at 802. The mechanism for accomplishing this is embodied in a plan of reorganization and a scheme of arrangement, which are interdependent documents and were filed by the administrators in the United States and English courts respectively. 14 The reorganization plan incorporates the scheme and makes it binding on Maxwell and its creditors. The plan and scheme thus constitute a single and integrated system for realizing the value of Maxwell's assets and paying its creditors. As was set forth in a letter from the administrators to Maxwell's creditors, the proposal was to pay in full all holders of secured claims and of claims enjoying preferential status under United States or English law. The plan and scheme treat all of Maxwell's assets as a single pool and leave them under Maxwell's control for distribution to claimants. They allow any creditor to submit a claim in either jurisdiction. And, in addition to overcoming many of the substantive differences in the insolvency laws of the two jurisdictions, the plan and scheme resolve many procedural differences, such as the time limits for submitting claims. 15 Following the requisite creditor voting in the United States and England, the plan was approved in the United States and the scheme was approved in England. Judge Brozman entered an order confirming the plan--and, by implication, the scheme incorporated therein--on July 14, 1993. Justice Hoffman thereafter entered an order sanctioning the scheme under § 425 of the Companies Act 1985 on July 21, 1993. Barclays, National Westminster, and Societe Generale each filed a notice of claim with the administrators, seeking pro rata distributions on various unsecured claims against Maxwell. 16 Despite the unusual degree of cooperation and reconciliation of the laws of the two forums, the plan and scheme predictably did not resolve all the problems that might arise from the concurrent proceedings. For example, these documents did not specify which substantive law would govern the resolution of disputed claims by creditors. More importantly, they did not address the instant dispute regarding the debtor's ability to set aside pre-petition transfers to certain creditors.