Docket: Case No. 14-11605(KG) (Jointly Administered); Adv. Proc. No. 15-51115(KG)
Court: United States Bankruptcy Court, D. Delaware; December 16, 2015; Us Bankruptcy; United States Bankruptcy Court
The Court is evaluating the implications of the British Virgin Islands' Partnership Act, 1996, particularly regarding limited partnerships, within the context of a bankruptcy case. Under Federal Rule of Civil Procedure 44.1, the Court can consider various materials and testimonies to determine foreign law as a legal ruling. It has received insights from two experts on this matter.
Key stipulated facts include:
1. **MIG's Structure**: Debtor MIG is a Delaware limited liability company that wholly owns Debtor ITC Cellular, which in turn holds a 46% stake in non-debtor International Telcell Cellular, LLC. This entity ultimately owns all equity interests in non-debtor Magticom Ltd., a major mobile company in Georgia. The remaining 54% of International Telcell is held by Dr. George Jokhtaberidze and Gemstone Management Ltd.
2. **Previous Bankruptcy Case**: MIG was previously known as MIG, Inc., which underwent Chapter 11 bankruptcy in 2009. A Joint Plan of Reorganization was confirmed in 2010, leading to MIG's conversion to a limited liability company. The prior case closed in 2011.
3. **Debt Instruments**: Under the Joint Plan, MIG issued Senior Secured Cash/PIK Notes due in 2016 for certain noteholders, governed by an Indenture involving MIG, ITC Cellular, and The Bank of New York Mellon as trustee.
4. **Ownership Structure**: CaucusCom Ventures L.P. owns all membership interests in MIG and has no other assets. Caucus Carry Management LP serves as its general partner, with Caucus Telecom Management Ltd. as the general partner of Caucus Carry.
5. **Limited Partners**: The limited partners of CaucusCom include Yola (a Luxembourg investment group), Gtel (a BVI investment group), and Shenton Park (a BVI company linked to a trust created by the late Georgian billionaire Badri Patarkashvili).
6. **Governance of Rights**: The rights of the Debtors concerning their indirect interest in Magticom are governed by the Purchase and Sale Agreement with Dr. Jokhtaberidze and the Limited Liability Company Agreement of International Telcell Cellular, both dated January 15, 2009.
Supporting documents, including the organizational charts and agreements, are referenced as exhibits.
Both the Debtors and Dr. Jokhtaberidze are subject to non-alienation and change of control provisions concerning their interests in Magticom, outlined in the PSA and International Telcell LLC Agreement. An "ITC Cellular Change of Control" is triggered by specific events related to certain entities in MIG's and ITC Cellular's ownership chain. These events include CaucusCom losing its minimum ownership threshold, changes in general partnership roles, and any change of control involving Yola, Gtel, or related entities.
CaucusCom's partnership was originally set to expire on August 15, 2011, but was extended by its general partner, Caucus Carry, to August 15, 2013. After that date, the consent of all Limited Partners, including Yola, Gtel, and Shenton Park, was necessary for further extension. They unanimously chose to extend the partnership until April 15, 2014. However, on April 24, 2014, MIG discovered that Shenton Park did not agree to extend the partnership further, leading to its expiration on April 15, 2014.
Following this expiration, no liquidator was appointed by the general partner until Shenton Park filed for winding up in the British Virgin Islands on June 19, 2015. The central legal issue is whether CaucusCom dissolved upon its term expiration, which would constitute an "ITC Cellular Change of Control" and impact the bankruptcy proceedings. The remaining disputed issue before the Court is whether such a change of control occurred as a result of the partnership's expiration.
If the Court determines that an ITC Cellular Change of Control has not occurred, Shenton Park will suspend its Application for Winding Up and Appointment of Liquidator (BVI Application) until either an independent Change of Control occurs or until the earlier of a confirmed plan or dismissal of the pending Chapter 11 cases. Additionally, the Debtors and Indenture Trustee will not pursue claims for damages against Shenton Park related to the BVI Application, while reserving all other damage claims. Conversely, if the Court finds that a Change of Control has occurred, the Debtors and Indenture Trustee will refrain from interfering with the BVI Application or seeking damages, and Shenton Park will not pursue damages against them for attempting to enjoin the BVI Application, with all other claims reserved.
The issue at hand involves the Debtors' concerns regarding the ITC Cellular change of control, which they assert affects their governance over Magticom and is critical to their reorganization efforts. The CaucusCom partnership's fixed term expired on April 15, 2014, after extensions, leading to a potential change of control of ITC Cellular if the Court finds CaucusCom dissolved. This change is defined by the ITC Cellular LLC Agreement, which stipulates that a Change of Control occurs if any entity loses control or if another acquires control. The Debtors contend that Caucus Carry still maintains control over CaucusCom, while Shenton Park argues that the expiration of CaucusCom results in the loss of such control, thus triggering a Change of Control under the LLC Agreement.
Shenton Park asserts that the authority previously held by Caucus Carry should now reside with a liquidator. The determination of CaucusCom's status is guided by the Partnership Act, which lacks substantial case law. Expert testimonies provided by Paul Girolami QC for the Debtors and Arabella Luisa Di Iorio for Shenton Park were instrumental in the Court's understanding. The core issue revolves around the interpretation of Section 40(1) in relation to Sections 102 and 105 of the Partnership Act.
Section 40(1) allows for the continuation of a partner's authority to bind the firm post-dissolution as necessary for winding up, except in cases of a partner's bankruptcy. Sections 102 and 105 outline the powers of general partners in appointing a liquidator and the procedural steps for winding up a limited partnership, respectively. The dispute hinges on whether Section 40 applies to limited partnerships in this context, and whether Caucus Carry is managing CaucusCom's winding up or if a liquidator is needed.
The Court references the case of Hamilton Lane Private Equity Partners LP, the only known case discussing Section 40(1). In that matter, a liquidator's failure to properly complete the winding up process led to an unintended dissolution of the partnership, which the court ultimately rescinded to facilitate asset management. The outcome illustrates the complexities involved in partnership dissolution and the critical interpretation of statutory provisions.
The court analyzed the Partnership Act, focusing particularly on section 105, which outlines the procedure for winding up and dissolving a partnership. It specified that a liquidator, rather than the partners, oversees this process unless there is a conflict, in which case a receiver may be appointed by the Court. The court determined that section 40(1) does not pertain to limited partnerships. It clarified that the term "dissolution" in subsection 105(3) is distinct from its usage in Part V, where it signifies the termination of the partnership relationship, albeit with ongoing obligations for winding up under section 40. The court also noted that sections 1 to 46 of the Act codify existing partnership laws, while sections 47 to 109 introduce limited partnerships, with the latter provisions taking precedence in case of conflict. The Debtors contended that the court's remarks were dicta, which the court rejected, asserting that the language was crucial to its decision regarding the applicable provisions of the Partnership Act for the limited partnership's dissolution. Thus, the court concluded that section 40(1) does not apply to limited partnerships, necessitating a thorough review of the relevant statutory framework.
The BVI court's preceding analysis is deemed relevant and persuasive, even if the quoted language from Hamilton Lane is classified as dicta. The structure of the Partnership Act is crucial, particularly Section 40(1), which is situated in Part V, while Sections 102 and 105 are found in Part VI, concerning "Limited Partnerships." Section 47(3) indicates that Sections 1 to 46 are applicable to limited partnerships, making Section 40(1) subordinate to Sections 47 to 108, including those that address the appointment of a liquidator after the partnership term ends on April 15, 2014.
Mr. Girolami argues that Section 40(1) allows partners to continue operations post-expiration, suggesting that the general partner retains powers thereafter. He contends that Hamilton Lane does not assert that Section 40(1) is inapplicable to limited partnerships. Conversely, Ms. Di Iorio asserts that Hamilton Lane's language is not dicta, claiming that CaucusCom dissolved on April 15, 2014, necessitating a review of Sections 102 and 105. In her Expert Report, she states that upon termination, the general partner loses control and the liquidator takes charge of the partnership for winding up and dissolution, limiting the general partner to administrative functions.
Should the Court concur that Hamilton Lane establishes Section 40(1) does not pertain to limited partnerships, and affirm Sections 102 and 105's applicability, it follows that CaucusCom's expiration alters ITC Cellular's control. Consequently, Caucus Carry, as the general partner, must comply with Section 102's requirements, appointing a liquidator per Section 105. The CaucusCom Articles of Limited Partnership dictate termination on June 21, 2013, with a possible extension to April 15, 2014, further affecting the timeline and control dynamics.
Article 10.2 of the Partnership Articles mandates that upon termination, the partnership must wind up its affairs and distribute assets. Caucus Carry, the general partner, has been aware of the termination for 20 months but has not initiated winding-up, leading to Shenton Park's insistence on appointing a liquidator. The Court finds that the Partnership Act and relevant sections of Hamilton Lane indicate that Caucus Carry lost its authority upon the dissolution of CaucusCom, leaving it with the responsibility to appoint a liquidator to manage the partnership's affairs. The Court also identifies a "Change of Control" under the ITC Cellular LLC Agreement due to Caucus Carry ceasing to direct CaucusCom's management. Consequently, the Court concludes that a Change of Control has occurred and directs Shenton Park to submit an order on notice to the Debtors. The only remaining issue is whether this change of control arose from the expiration of the CaucusCom Ventures L.P. partnership, with discussions treated as expert testimony despite the experts not being sworn.
