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In re Vantage Drilling International

United States District Court, D. Delaware

June 21, 2019




         This dispute arose in the Chapter 11 cases of debtor Offshore Group Investment Limited (“OGIL”), now known as Vantage Drilling International (“VDI”), and its affiliated debtors (together, the “Company”). Before the Court are the related appeals of Hsin Chi Su a/k/a Nobu Su (“Su”) and F3 Capital (“F3”) (collectively, “Appellants”) from (i) a January 14, 2016 oral ruling by the Bankruptcy Court that Appellants lacked standing (B.D.I. 214)[1] (“Standing Order”) to object to confirmation of the Company's joint prepackaged plan of reorganization (B.D.I. 166) (“Plan”); and (ii) the Bankruptcy Court's January 15, 2016 order confirming the Plan (B.D.I. 188) (“Confirmation Order”). For the reasons set forth herein, the Standing Order and the Confirmation Order are affirmed.

         I. BACKGROUND

         A. The Company and Prepetition Litigation with Appellants

         The Company is an international offshore drilling company that operates a fleet of drilling units around the world. (B.D.I. 17 (“First Day Decl.”) ¶ 18). The Company's principal business is to contract its fleet, related equipment, and work crews to drill underwater wells for companies that explore and produce oil and natural gas. (See id.). Prior to the Company's Chapter 11 filing, the Company's drilling fleet was owned and operated by OGIL, which was a direct, wholly owned subsidiary of non-debtor Vantage Drilling Corporation (“Vantage”). (Id. ¶ 28). Vantage was a Cayman Islands exempt company whose shares were publicly traded on NYSE MKT LLC. (Id. ¶ 30). Vantage acquired the Company in June 2008 from F3, an entity wholly owned by Su. (Id. ¶ 28). In connection with the acquisition, F3 became the largest shareholder of Vantage and controlled several seats on Vantage's board of directors. (B.D.I. 8 (“Disclosure Statement”) at § V(B)(2)(a)).

         The relationship between Su and Vantage deteriorated after the failure of a joint venture. Under the related joint venture agreement, Su had acquired additional equity interests in Vantage and committed to make payments to fund construction of a drilling rig. The Company contends that Su failed to honor his obligations. Thereafter, according to the Company, Vantage bought out Su's interest in the joint venture by issuing a promissory note to F3, and Su resigned from the Vantage board. (Id.). In August 2012, Vantage brought litigation against Su in Texas state court, seeking to recover the shares issued to F3 in connection with the joint venture, cancel the promissory note issued to F3, and recover actual and punitive damages on the alleged grounds that Su made material misrepresentations concerning the payment terms for the construction of the rig and his ability to satisfy the financial obligations under the agreement. See generally, Hsin-Chi- Su v. Vantage Drilling Co., 474 S.W.3d 284, 288-92 (Tex. App. 2015). In June 2014, Su filed a counterclaim against Vantage seeking monetary damages in excess of $2 billion. (Disclosure Statement, Ex. 2 ¶ 1).[2] At the time of the Company's bankruptcy filing, the Texas state litigation was still pending.[3]

         B. RSA and Prepackaged Joint Plan of Reorganization

         The Company's financial difficulties in 2014 were precipitated by a drop in oil prices, a corresponding decline in demand for the Company's services, and termination of a long-term contract by the Company's most significant customer. (See First Day Decl. ¶ 6; D.I. 16 at 2). The Company retained restructuring advisors and engaged key secured creditors in negotiations regarding a consensual restructuring. (First Day Decl. ¶¶ 7-13). Seeking to minimize any risk of disruption in the Company's business, on December 1, 2015, the Company entered into a Restructuring Support Agreement (“RSA”) with Vantage, holders of more than two-thirds of OGIL's revolving loans, and holders of 59% of OGIL's other secured indebtedness. (Id. ¶ 58).

         The RSA contemplated that the restructuring would occur through a prepackaged plan of reorganization - i.e., one for which votes would be solicited before the filing of the bankruptcy petition. (Id., Ex. 2 at 2). The RSA also provided that, while the Company would reorganize under Chapter 11 of the Bankruptcy Code, non-debtor parent Vantage would separately liquidate in a Cayman Islands proceeding. (Id.). Under the RSA, the Company further agreed to use commercially reasonable efforts to obtain court approval of the plan within 60 days of the bankruptcy filing. (Id.). The RSA further provided that, prior to the petition date, OGIL would purchase Vantage's equity interests in two subsidiaries. The Company asserts this was necessary to avoid minimize operational disruption and enhance efficiencies after the Company's emergence from bankruptcy, as these subsidiaries provided “significant management, personnel, payroll, and other services to the Company.” (First Day Decl. ¶¶ 65-66). OGIL issued a secured promissory note to Vantage as consideration for the service subsidiaries. (Id.).

         The Company filed Chapter 11 on December 3, 2015 (“Petition Date”) and entered bankruptcy with a proposed plan in place accepted by holders of 100% of claims arising from OGIL's revolving loans and holders of 98.8% of OGIL's other secured indebtedness. (B.D.I. 168 (“Plan Decl.”) ¶ 57). The proposed plan provided that Vantage would receive new equity in the reorganized Company on account of the promissory note. (Id.). The proposed plan also contained standard release and exculpation provisions covering the Company, Vantage, fiduciaries of the bankruptcy estate, and creditors who voted to accept the Plan. (Plan §§ 10.7, 10.8). The proposed plan made clear that Su and F3 were not covered by the release and exculpation provisions, as Vantage's claims against Su and F3 were still pending in Texas state court. (Id.). The proposed plan also provided, however, that it would have no effect on any party's rights or claims in connection with the Cayman Islands liquidation of Vantage. (See Plan at §§ 5.3, 10.7 & 10.12). Thus, while all of Vantage's rights against Su and F3 were preserved, so too were Su and F3's rights against Vantage.

         Also on the Petition Date, Wells Fargo Bank, N.A. (“Wells Fargo”), as a creditor of Vantage, filed a petition in the Cayman Islands Grand Court (“Cayman Court”) seeking an order that Vantage be placed into compulsory liquidation. (B.D.I. 174 (“Eldridge Decl.”) ¶¶ 9-15). Consistent with Cayman law, Wells Fargo nominated independent professional liquidators to manage the winding up of Vantage, subject to the supervision of the Cayman Court. (Id. ¶ 15).

         C. Plan Objection and Confirmation Order

         On January 12, 2016, Appellants filed their objection to confirmation of the plan, arguing, inter alia, that Vantage was not properly authorized by its board to enter into the RSA and participate in the Company's reorganization (B.D.I. 173) (“Objection”). Theirs was the only objection that was not withdrawn prior to the confirmation hearing. The Company filed a reply to the Objection (B.D.I. 175) challenging the standing of Su and F3 to be heard in the Chapter 11 proceeding. The same day they filed their Objection, Appellants also filed a “notice” on the Bankruptcy Court docket which stated that F3 had “filed an Ex Parte Application seeking an injunction in the Cayman Islands against Vantage Drilling Company.” (B.D.I. 183). According to Appellants, the purpose of the requested injunction was to prevent Vantage from participating in “acts that are required by the plan, ” such that the process of consummating the plan “could not continue.” (B.D.I. 214 at 7:9-14).

         On January 14, 2016, the Bankruptcy Court held a hearing to consider plan confirmation and Appellants' standing to object. Regarding the Objection, the Bankruptcy Court concluded that “Mr. Su and F3 do not have standing to appear and be heard in this proceeding.” (Id. at 73:18-20). In reaching this determination, the Bankruptcy Court started from the “axiomatic proposition” that F3 is a “shareholder of a shareholder of a debtor. That shareholder of the debtor [Vantage] is not a debtor before this court.” (Id. at 73:22-74:1). Thus, “[a]ny connection between Mr. Su and F3 and its debtors [is] to[o] attenuated to apply the predicate for standing to appear and be heard and object in this court.” (Id. at 75:8-11).

         The Bankruptcy Court emphasized, however, that its ruling would not preclude Su and F3 from seeking relief in the appropriate forum. The Bankruptcy Court observed that “substantially all of the concerns and issues that have been raised by and argued by [Appellants' counsel] today are properly addressed to the Caymans court.” (Id. at 75:12-16). Specifically, the Bankruptcy Court observed that any allegations that Vantage was not authorized to consent to the restructuring transactions were “properly addressed to the Caymans court” overseeing Vantage's liquidation (id. at 75:12-16), thus leaving open the possibility that Su and F3 could obtain a decree in the Cayman court that might “affect the Debtor's ability to move forward with a plan” (id. at 18:8-21).

         Regarding Appellants' request for adjournment of the confirmation hearing pending ex parte application filed in the Cayman Islands proceeding, the Bankruptcy Court considered and denied that request. (Id. at 16:1-3). The Bankruptcy Court noted that “[t]here are other proceedings elsewhere that may impact or may not impact whether or not th[e] plan goes effective or how that process plays out, but that is not currently a consideration before me.” (Id. at 16:21-17:1). In light of the concern that an immediate closing might moot any challenge Su and F3 had to Vantage's participation in the restructuring transaction, the Bankruptcy Court asked the Company's counsel whether the Company intended to consummate the plan immediately after entry of a confirmation order. (Id. at 9:22-24). The Company represented that the parties were not in a position to close immediately, which the Bankruptcy Court considered and accepted. (Id. at 10:1-4 (counsel's representation); 78:13-23 (“I have asked and been advised, as my instincts would indicate, that the Debtor is not going to go effective on this large and complex restructuring this afternoon or tomorrow.”); 17:13-18:1 (same). The Bankruptcy Court considered the fact that “there will be proceedings perhaps as soon as this afternoon in the Cayman Islands regarding the parent [Vantage's] proceedings” (id. at 74:5-9) and noted “it is my expectation that if there are proceedings in the Cayman Islands that would affect how the Debtor may move forward with the reorganization that is subject to my review today, then we may have further proceedings in this court. And we would be so advised, and I would be guided by the parties.” (Id. at 78:17-23). Based on a measure of business urgency of moving forward with plan confirmation, and the conclusion that adjournment would not serve any meaningful purpose (see id. at 17:4-12), however, the Bankruptcy Court denied the request for adjournment and proceeded to determine whether the plan was confirmable. (See Id. at 79:5-97:9).

         Regarding confirmation, the Bankruptcy Court ruled that “the Debtors have carried their burden with respect to the relief requested, and I will be prepared to enter an order confirming the plan.” (Id. at 92:21-93:1). The Bankruptcy Court addressed the concerns expressed by Appellants regarding “the pace of this proceeding, ” and noted that “the business realities require[d] prompt consideration in order to stabilize the business, that, by all accounts, is well managed, well run, and well operated and just trying to deal with . . . a starkly challenging business environment.” (Id. at 96:18-24). On January 15, 2016, the Bankruptcy Court entered the Confirmation Order. The findings and conclusions contained in the Confirmation Order addressed each of the requirements of § 1129 of the Bankruptcy Code and also contained findings that the release and exculpation provisions in the Plan were “fair, equitable, reasonable, and in the best interests of the Debtors and the Reorganized Debtors and their estates, creditors and equity holders.” (B.D.I. 188 ...

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