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In re Paragon Offshore PLC

United States District Court, D. Delaware

March 12, 2019


         Chapter 11



         This dispute arises in the Chapter 11 cases[1] of Paragon Offshore pic ("Paragon Parent")[2] in connection with its plan (Paragon D.I. 1459) ("Plan"), as confirmed on July 7, 2017 (Paragon D.I. 1614) ("Confirmation Order") and as modified on July 17, 2017 (Paragon D.I. 1775) ("Plan Modification Order"). Presently before the Court is appellee Paragon Parent's motion to dismiss (D.I. 18) ("Motion to Dismiss") the pro se appeal filed by equity holder Michael R. Hammersley ("Appellant") from an Order entered by the Bankruptcy Court on January 10, 2018 (Paragon D.I. 2047) ("Order Denying Revocation"), which denied Hammersley's motion for revocation of the Plan Modification Order. For the reasons that follow, the Court will grant the Motion to Dismiss.

         I. BACKGROUND

         A. The Paragon Cases

         On February 14, 2016, Paragon Parent and certain of its affiliates (collectively, the "Debtors") filed their Chapter 11 cases (the "Paragon Cases"). Paragon Parent is the sole equity owner of Prospector Parent. Prospector Parent is the sole equity owner of Prospector Rig 1 Contracting Company S.a r.l. ("Prospector Rig 1") and Prospector Rig 5 Contracting Company S.a r.l. ("Prospector Rig 5"), and owns (either directly or indirectly) certain non-debtor subsidiaries (collectively, the "Prospector Entities"). The Prospector Entities were not debtors in the Paragon Cases. Appellant is a shareholder of Paragon Parent. Appellant does not own equity in any of the Prospector Entities.

         In March of 2017, a group of purported shareholders of Paragon Parent, including Appellant (together, the "Unofficial Equity Committee"), filed a motion to appoint an official equity committee in the Paragon Cases. Following an evidentiary hearing, the Bankruptcy Court denied the Unofficial Equity Committee's motion, finding, inter alia, that "equity [was] so . . . underwater that it would take, literally, a billion dollars or significantly more, maybe a billion three, a billion four, to put equity in the money." (D.I. 18 at Ex. C, 3/27/17 Hr'g Tr. at 68)

         After three rounds of confirmation spanning over a year, the Debtors' Plan was confirmed by the Bankruptcy Court pursuant to a Confirmation Order entered on June 7, 2017. The Plan provides, in relevant part, (i) that equity interests in Paragon Parent "shall be deemed valueless and shall not receive any distribution under the Plan" (Plan § 4.8); (ii) through a corporate restructuring, the Prospector Entities, among other assets, would be transferred to New Paragon; and (iii) creditors senior to equity holders of Paragon Parent would receive all of the equity in New Paragon (see Id. §§ 4.3, 4.4, 5.3, & 5.13). At the confirmation hearing, the Bankruptcy Court overruled an objection asserted by the Unofficial Equity Committee (of which Appellant was a member) with respect to equity's treatment under the Plan, finding that:

[T]he evidence overwhelmingly indicates there's at least [$]1.3 to $1.5 billion of shortfall before you get to a place where there would be any return to equity. That clearly supports cramming down equity. It indicates that unsecured creditors or any creditor senior to equity is not receiving more than they're entitled to. And since they're not getting everything they're entitled to, equity is not entitled to any recovery.

(See D.I. 18 at Ex. D, 6/7/17 Hr'g Tr. at 59)

         On June 21, 2017, Appellant and another equity holder of Paragon Parent appealed the Confirmation Order (Civ. No. 17-802-GMS D.I. 1) ("Confirmation Order Appeal") and, on June 27, 2017, moved for a stay pending appeal in the Bankruptcy Court (the "First Stay Motion"). (Paragon D.I. 1712) The Bankruptcy Court denied the First Stay Motion. (Paragon D.I. 1712) Following the Bankruptcy Court's denial of the First Stay Motion, Appellants filed a motion for stay pending appeal in this Court. (Civ. No. 17-802-GMS D.I. 6) On July 7, 2017, the Court denied Appellants' request for stay pending appeal. (Id. at D.I. 9) Appellants subsequently withdrew the Confirmation Order Appeal. (Id. at D.I. 10)

         On July 11, 2017, the Debtors filed a motion seeking approval of modifications to the Plan (the "Plan Modifications") including Paragon Parent's entry into a Management Agreement with New Paragon and the Joint Administrators, to (i) allow the Paragon Debtors to emerge from their Chapter 11 cases without delay, (ii) enable New Paragon to provide its future owners (the Debtors' secured and unsecured creditors) the economic benefits provided under the Plan with respect to the Prospector Entities without violating the terms of certain sale-leaseback agreements and related transactions that certain Prospector Entities were party to, and (iii) preserve Paragon Parent's ability to transfer the Prospector Entities to New Paragon after the Effective Date of the Plan upon the occurrence of certain events. (Paragon D.I. 1760) Pursuant to the Management Agreement, Paragon Parent agreed to, among other things, (i) transfer its shares in Prospector Offshore Drilling S.a r.l. ("Prospector Parent") and thus the Prospector Entities to New Paragon upon the satisfaction of the relevant conditions set forth in the Management Agreement, and (ii) for such time as Prospector Parent is a subsidiary of Paragon Parent, pay to New Paragon an amount equal to all amounts received by Paragon Parent in respect of its shares in Prospector Parent and exercise its rights as holder of the shares of Prospector Parent as directed by New Paragon, in each case to the extent permitted by Paragon Parent's pledge of the Prospector Parent shares in connection with the sale-leaseback agreements to which the Prospector Entities were party.

         The Plan Modification Motion and the Notice of Hearing with Respect to the Debtors' Plan Modification Motion were served on counsel of record to Appellant via electronic mail and overnight mail. (Paragon D.I. 1763, 1773, 1784) On July 17, 2017, the Bankruptcy Court held a hearing to consider the Plan Modifications. None of the shareholders of Paragon Parent, including Appellant, filed an objection or appeared at the hearing. The Bankruptcy Court entered the Plan Modification Order on the same day. On July 18, 2017, the Plan went effective. (Paragon D.I. 1792)

         On or shortly after the Effective Date, (i) over $500 million in cash was distributed to certain holders of secured and unsecured claims; (ii) equity interests in Paragon Offshore Limited ("New Paragon") were issued to holders of secured and unsecured claims (the "New Equity Interests"); (iii) new debt in the aggregate principal amount of $85 million (the "Take Back Debt") was issued to holders of certain secured claims; (iv) litigation trust interests (the "Litigation Trust Interests") were issued to holders of secured and unsecured claims; and (v) Paragon Parent entered into the Management Agreement with New Paragon and the Joint Administrators.

         On December 4, 2017, four months after the Plan went effective, Appellant filed a motion to revoke the Plan Modification Order (Paragon D.I. 2000) and, on December 20, 2017, Appellant filed a related supplement (together, "Motion to Revoke"). Appellant's primary contention was that the assets of the Prospector Entities were not involved in the Paragon Cases. On January 3, 2018, the Debtors filed an objection to the Motion to Revoke (Paragon D.I. 2032) to which Appellant filed a reply (Paragon D.I. 2039). The Bankruptcy Court denied Appellant's Motion to Revoke at a January 10, 2018 hearing (the "Revocation Hearing") and subsequently issued the Order Denying Revocation. (Paragon D.I. 2047)

         At the Revocation Hearing, the Bankruptcy Court made several findings, including:

• the standard to revoke the Plan Modification Order under section 1144[3] of the Bankruptcy Code requires a showing of actual fraud;
• there was nothing presented in Appellant's papers or at the hearing that comes "remotely close" to any fraud being perpetrated against the Bankruptcy Court, the creditors, or shareholders in these cases;
• the Bankruptcy Court was adequately informed by Debtors' counsel of all the pertinent facts with respect to the Plan Modification Motion, and there was no deception in seeking a motion to shorten the notice requirements under the local rules:
• Appellant received proper notice of the Plan Modification motion and hearing through his attorney of record; and
• with respect to his arguments as to valuation and jurisdiction, Appellant's proper redress was to have filed an appeal of such rulings (before the relevant deadlines expired), not to file a motion invoking a statute that requires a showing of fraud and then provide no evidence of fraud.

(1/10/18 Hr'g Tr. at 28-29; D.I. 18 at Ex. F) On January 25, 2018, Appellant timely appealed the Order Denying Revocation. (D.I. 1) Appellant also sought a stay of the Order Denying Revocation. (Paragon D.I. 2058) (the "Second Stay Motion") Following a hearing, the Bankruptcy Court on February 21, 2018 denied Appellant's Second Stay Motion. (Paragon D.I. 2089)

         B. Prospector Cases[4] and Related Appeals

         Paragon Parent is the sole equity owner of Prospector Parent. Prospector Parent is the sole equity owner of Prospector Rig 1 and Prospector Rig 5, two high specification jackup rigs located in the U.K. North Sea (collectively, the "Rigs"). Each rig is subject to an agreement whereby the Rigs were purportedly (i) sold to Prospector One Corporation and Prospector Five Corporation (the "Prospector Corporations"), respectively, subsidiaries of SinoEnergy Capital Management, Ltd. ("SinoEnergy"), by Prospector Parent's non-Debtor subsidiaries, and (ii) contemporaneously leased back by Prospector Rig 1 and Prospector Rig 5 (collectively, the "Contracting Debtors").

         To secure the obligations arising under the Lease Agreements dated June 3, 2015 (the "Sale-Leaseback Agreements"), the Contracting Debtors granted, among other things, security interests in their rights, title, and interest in the monies credited, paid, or caused to be credited to certain pledged accounts and all proceeds to Industrial and Commercial Bank of China, New York Branch ("ICBC"). As additional security, Paragon Parent pledged its shares in Prospector Parent in favor of ICBC, and Prospector Parent issued guarantees and pledged its shares in the Contracting Debtors to ICBC.

         On July 20, 2017, Prospector Parent, the Contracting Debtors, and Paragon Parent (collectively, the "Prospector Debtors") commenced cases under Chapter 11 of the Bankruptcy Code (the "Prospector Cases") to protect the Prospector Debtors' interest in the Rigs and to maximize the value of their assets by working towards resolving the dispute arising under the Sale-Leaseback Agreements with SinoEnergy. On February 14, 2018, the Prospector Debtors entered into a settlement agreement (the "Settlement Agreement") with SinoEnergy, the Prospector Corporations, New Paragon, and the Joint Administrators. The Prospector Debtors subsequently filed motions seeking approval of the Settlement Agreement and dismissal of the Prospector Cases. Following a hearing held on March 5, 2018, the Bankruptcy Court entered (i) the Settlement Order (Prospector D.I. 368) authorizing the Prospector Debtors to enter ...

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