Cambridge Gas Transport Corp v. Official Committee of Unsecured Creditors (of Navigator Holdings PLC and others), Court of Appeal - Privy Council, May 16, 2006,  UKPC 26
|Resolution Date:||May 16, 2006|
|Issuing Organization:||Privy Council|
|Actores:||Cambridge Gas Transport Corp v. Official Committee of Unsecured Creditors (of Navigator Holdings PLC and others)|
Cambridge Gas Transport Corp v. Official Committee of Unsecured Creditors (of Navigator Holdings PLC and others) (Isle of Man)  UKPC 26 (16 May 2006)
Privy Council Appeal No 46 of 2005
Cambridge Gas Transport Corporation Appellant
The Official Committee of Unsecured Creditors
(of Navigator Holdings PLC and others) Respondent
THE HIGH COURT OF JUSTICE OF THE
ISLE OF MAN
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JUDGMENT OF THE LORDS OF THE JUDICIAL
COMMITTEE OF THE PRIVY COUNCIL
Delivered the 16th May 2006
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Present at the hearing:-
Lord Bingham of Cornhill
Lord Rodger of Earlsferry
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[Delivered by Lord Hoffmann]
In 1997 four European businessmen decided to invest in a shipping business. The lead appears to have been taken by a Mr Giovanni Mahler, a Swiss resident who had about 10% of the equity. The investors borrowed some US$300m on the New York bond market and ordered five gas transport vessels with which they commenced trading at the beginning of 2001. Unfortunately the venture was a failure. Freight rates were lower than expected and the ships never earned enough to cover even the interest on the loans. At the end of 2003 the investors ran out of credit. The business was heavily insolvent. They petitioned for relief in New York under Chapter 11 of the US Bankruptcy Code, which allows insolvent companies, under supervision of the court and cover of a moratorium, to negotiate a plan of reorganisation with their creditors. In March 2004 the Federal Bankruptcy Court for the Southern District of New York confirmed a plan approved by virtually all the outside creditors and ordered that it be carried into effect. Essentially, the plan was for the assets to be taken over by the creditors.
This is a simple enough story, though unhappy, and the only complications arise out of the corporate structure adopted by the investors. The business was, as is frequently the case, held through offshore companies incorporated in various jurisdictions. The ships, registered in Liberia, were owned and managed by a group of Isle of Man companies, each ship owned by a separate subsidiary of a management company and all the shares in the management company held by a holding company, Navigator Holdings plc. It will be convenient to refer to the group as ``Navigator'' and the shares in the holding company as the shares in Navigator.
Navigator was in turn held through a web of companies incorporated in other off-shore jurisdictions, of which it is for present purposes necessary to mention only two: Cambridge Gas Transport Corporation (``Cambridge''), a Cayman company which owns, directly or indirectly, at least 70% of the issued share capital of Navigator, and Vela Energy Holdings Ltd (``Vela''), a Bahamian company which (through an intermediate wholly owned Bahamian subsidiary) owns all the issued share capital in Cambridge. Mr Mahler is a director of Vela, Cambridge, the Navigator companies and various other associated off-shore companies.
The use of a scheme of arrangement agreed by a statutory majority of creditors to replace what would otherwise be the liquidation of an insolvent company has existed in England (in somewhat rudimentary form) since the Joint Stock Companies Arrangement Act 1870. The 1870 Act is reproduced in the Isle of Man as section 152 of the Companies Act 1931 and remains the only form of arrangement between a company and its creditors available in that jurisdiction. Chapter 11 is considerably more sophisticated and will ordinarily allow the management of the insolvent company to remain in control (as ``debtor in possession'') until a plan of reorganisation has been approved by the court. The debtor has a priority right to propose a plan; if this is rejected or the priority period expires, other parties in interest may put forward a different plan. In this case, the debtor put forward a plan under which the assets of the business, that is to say the ships, would be sold, nominally by auction but in fact to Mr Mahler and his associates, who were referred to as ``the Vela interests''. This plan did not appeal to the bond holders, who put forward their own plan under which the assets of Navigator would be vested in the creditors and the equity interests of the previous investors extinguished. The judge rejected the Vela plan and approved the creditors' plan.
The mechanism which the plan used to vest the assets in the creditors was to vest the shares in Navigator in their representatives. That would enable the creditors to control the shipping companies and implement the plan. So clause 22 provided:
``Immediately upon entry of this confirmation order, title to the old common stock [of Navigator] shall automatically vest in the interim shareholders [the creditors' committee] without any further act by any person or under any applicable law, regulation, order or rule. The Interim shareholders shall then, in their capacities as shareholders of [Navigator], take all necessary steps under the laws of the Isle of Man or otherwise to implement [the plan]''
The New York court was of course aware that such a provision could not automatically have effect under the law of the Isle of Man. The order confirming...
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