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In re Prospector Offshore Drilling S.a r.l.

United States District Court, D. Delaware

March 12, 2019

IN RE PROSPECTOR OFFSHORE DRILLING S.a r.l., et al, Debtor.
v.
PROSPECTOR OFFSHORE DRILLING S.a.r.l., et al., Appellees. MICHAEL R. HAMMERSLEY, Appellant,

         Chapter 11

          MEMORANDUM

          HON. LEONARD P. STARK, UNITED STATES DISTRICT JUDGE

         This dispute arises in the Chapter 11 cases[1] of Prospector Offshore Drilling S.a.r.l. ("Prospector Parent"), Prospector Rig 1 Contracting Company S.a r.l., Prospector Rig 5 Contracting Company S.a r.l., and Paragon Offshore plc (in administration)[2] (collectively "Appellees"). Presently before the Court is Appellees' motion to dismiss (Civ. No. 18-367-LPS, D.I. 62) ("Motion to Dismiss") three pro se appeals filed by equity holder Michael R. Hammersley ("Appellant"), including: (1) Notice of Appeal of the Order (I) Approving Form of Order Pursuant to Sections 105(a) 305(a) and 1112(b) of the Bankruptcy Code and Bankruptcy Rules 1017 and 6007 Authorizing Dismissal of the Debtors' Case and (II) Granting Related Relief (Prospector D.I. 376), Civ. No. 18-367 (LPS) (the "First Appeal"); (2) Notice of Appeal of the Order Pursuant to Sections 105(a) of the Bankruptcy Code and Bankruptcy Rule 9019 Approving the Settlement Agreement Between the Debtors, SinoEnergy, the Prospector Corporations, Paragon Offshore Limited, and the Administrators (Prospector D.I. 378), Civ. No. 18-368 (LPS) (the "Second Appeal"); and (3) Notice of Appeal of the Order Denying Motion to Vacate Order Authorizing Dismissal of the Debtors' Cases Pursuant to Rule 6O(b)(4)(5)(6) (Prospector D.I. 432), Civ. No. 18-734 (LPS) (the "Third Appeal," and together with the First Appeal and the Second Appeal, the "Consolidated Appeals"). For the reasons that follow, the Court will grant Appellees' Motion to Dismiss and will also deny Appellant's "Motion for Summary Judgment" (D.I. 58).

         I. BACKGROUND

         A. Paragon Cases and Related Appeals

         Prior to the commencement of the above-captioned cases (the "Prospector Cases"), on February 14, 2016, Paragon Offshore plc ("Paragon Parent") and certain of its affiliates (collectively, the "Paragon Debtors") filed for Chapter 11 protection and commenced the Paragon Cases.[3] Paragon Parent was the sole equity owner of Appellee Prospector Parent. Prospector Parent was the sole equity owner of Appellees Prospector Rig 1 Contracting Company S.a r.l. and Prospector Rig 5 Contracting Company S.a r.l., and it owned (either directly or indirectly) certain 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." (3/27/17 Hr'g Tr. at 68)

         After three rounds of confirmation spanning over a year, the Paragon Debtors' Plan was confirmed by the Bankruptcy Court pursuant to a Confirmation Order entered on June 7, 2017. At the confirmation hearing, the Bankruptcy Court overruled an objection of the Unofficial Equity Committee (of which Appellant was a member) concerning equity's treatment under the Plan, finding that "the evidence overwhelmingly indicate[s] 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." (6/7/17 Hr'g Tr. at 59)

         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" (see Paragon D.I. 1459, Plan at § 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) Specifically, section 1.1 of the Plan defines "Transferred Subsidiary" as "any of the Paragon Entities other than the Liquidating Subsidiaries," which would include the Prospector Entities. (Plan at § 1.1) "Corporate Restructuring" is defined as "the reorganization of the Paragon Entities' corporate structure in accordance with the Plan and the U.K. Implementation Agreement through which the Transferred Subsidiaries will be transferred to Reorganized Paragon." (Id.) "Paragon Entities" is defined as the "Paragon Parent together with its Debtor and non-Debtor direct and indirect subsidiaries." (Id.) "Reorganized Paragon" is defined as "a new company, which shall be classified as an association taxable as a corporation for U.S. federal income tax purposes, which shall become the holding company for the Transferred Subsidiaries." (Id.)

         However, due to a commercial dispute between the Prospector Entities and their primary creditors in connection with certain sale-leaseback agreements, the Paragon Debtors were unable to obtain the requisite consents to transfer the Prospector Entities to New Paragon prior to the Effective Date of the Plan. Consequently, On July 11, 2017, the Paragon Debtors filed a motion seeking approval of modifications to the Plan. (Paragon D..1. 1760) Specifically, Paragon Parent agreed to, inter alia, transfer its shares in Prospector Parent, and thus the Prospector Entities, to New Paragon upon satisfaction of certain conditions, including that obligations under the terms of the sale-leaseback agreements were discharged in full and encumbrances - including those over Paragon Parent's shares in Prospector Parent - were released. On July 17, 2017, the Bankruptcy Court entered an order approving the Plan modifications. (Paragon D.I. 1775) On July 18, 2017, the Plan, as modified, went effective. (Paragon D.I. 1792)

         Appellant has filed three appeals in the Paragon Cases, two of which relate to the confirmed Plan. On June 21, 2017, Appellant and Marcel de Groot, another equity holder of Paragon Parent, together appealed the Confirmation Order ("Confirmation Order Appeal"). (Civ. No. 17-802-GMS D.I. 1) On June 27, 2017, Appellant and de Groot moved for stay pending appeal, which was denied by the Bankruptcy Court (Paragon D.I. 1736) and this Court (Civ. No. 17-802-GMS D.I. 9). Appellant and de Groot subsequently withdrew the Confirmation Order Appeal. (Id. at D.I. 10)

         On December 4, 2017, four months after the Paragon Debtors' Plan went effective, Appellant filed a motion to revoke the Plan Modification Order. (Paragon D.I. 2000) 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 the motion to revoke (Paragon D.I. 2047) ("Order Denying Revocation"). On January 25, 2018, Appellant timely appealed the Order Denying Revocation and sought a stay pending appeal. (Paragon D.I. 2055, 2058) Following a hearing, on February 21, 2018, the Bankruptcy Court denied Appellant's motion for stay pending appeal (Paragon D.I. 2089). Appeal of the Order Denying Revocation is pending at Civ. No. 18-157-LPS.

         B. Prospector 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' primary assets are two high specification jackup rigs located in the U.K. North Sea: Prospector 1 Rig and Prospector 5 Rig (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, Appellees commenced the Prospector Cases under Chapter 11 of the Bankruptcy Code 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 orders (i) approving the Settlement Agreement (Prospector D.I. 369) (the "Settlement Order") and (ii) authorizing the dismissal of the Prospector Cases upon satisfaction of certain conditions (Prospector D.I. 368) ("Order Authorizing Dismissal"). No Chapter 11 confirmation plan was ever proposed to or ordered by the Bankruptcy Court.

         On March 8, 2018, Appellant appealed the Settlement Order and the Order Authorizing Dismissal. Following the Bankruptcy Court's denial of Appellant's request to stay these orders pending appeal, [4] Appellant filed an emergency motion for stay in this Court. (Civ. No. 18-367-LPS D.I. 5; Civ. No. 18-368-LPS D.I. 5) After considering Appellant's motion for stay, the Prospector Debtors' objection, and Appellant's reply, the Court denied the motion (the "Stay Denial Order"), [5]finding that Appellant failed to establish: (i) a reasonable likelihood of success on the merits or (ii) that he would suffer irreparable harm absent a stay. On March 26, 2018, Appellant filed an emergency motion with the Third Circuit Court of Appeals with respect to the Stay Denial Order and, on March 28, 2018, the Third Circuit entered an order denying Appellant's emergency motion for stay pending appeal of the Settlement Order and Order Authorizing Dismissal.[6]

         C. Consummation of Settlement Agreement, Transfer of Prospector Entities, Dismissal of Prospector Cases, and Closing of the Borr Transaction

         On February 26, 2018, Borr Drilling Limited ("Borr Drilling") announced the commencement of a tender offer to purchase 100% of New Paragon's outstanding equity, in an all-cash transaction totaling $232.5 million (the "Borr Transaction"). In addition, Borr Drilling agreed to satisfy approximately $90 million in Take Back Debt (including interest) owed by New Paragon. As conditions precedent to closing the Borr Transaction, (i) New Paragon was required to complete all actions necessary to acquire ownership of the Prospector Entities (which required, inter alia, consummation of the Settlement Agreement) and (ii) the Bankruptcy Court had to have entered an order dismissing the Prospector Cases. On March 27, 2018, the parties consummated the Settlement Agreement, Paragon Parent's shares in Prospector Parent were transferred to New Paragon, and the Bankruptcy Court dismissed the Prospector Cases pursuant to the Order Authorizing Dismissal. On March 29, 2018, the Borr Transaction closed.

         The day before, on March 28, 2018, Appellant had filed a motion to vacate the Bankruptcy Court's Order Authorizing Dismissal ("Motion to Vacate"). (Prospector D.I. 407) On May 9, 2018, the Bankruptcy Court denied the Motion to Vacate (the "Order Denying the Motion to Vacate"). (Prospector D.I. 428) On May 15, 2018, Appellant filed the Third Appeal of the Bankruptcy Court's Order Denying the Motion to Vacate (hereinafter, together with the Settlement Order and the Order Authorizing Dismissal, the "Appealed Orders").

         D. ...


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