In re ABC Learning Centres Limited

Summarized by Gaston Loomis , McElroy, Deutsch, Mulvaney & Carpenter LLP
12 years 6 months ago

Citation:

In re ABC Learning Ctrs. Ltd., No. 12-2808 (3rd Cir. 2013)

Tag(s):

Ruling:

The Third Circuit affirmed the Bankruptcy Court's recognition of ABC's Australian insolvency proceeding as a foreign main proceeding under Chapter 15 of the Bankruptcy Code and order that the automatic stay under Section 1520 extends to the debtor's fully-encumbered property in the United States. As to the first issue, the Third Circuit found that the Australian proceeding was collective in nature and was not "manifestly contrary" to public policy. As to the second issue, the Third Circuit disagreed with one of ABC's unsecured creditors, RCS Capital Development. Even though ABC's property was full encumbered, this did not mean that ABC only held bare legal title to the property. There were many aspects of Australian law that demonstrated that ABC held an equitable interest in the property and thus the stay covered the property.

Procedural context:

The Bankruptcy Court recognized ABC's liquidation proceeding as a foreign main proceeding. The Bankruptcy Court ordered recognition and an automatic stay against any actions against ABC. The District Court upheld the orders of the Bankruptcy Court. One of ABC's unsecured creditors, RCS Capital, appealed to the Third Circuit.

Facts:

ABC is an Australian company that also operated in the United States. After becoming insolvent, ABC's directors initiated an Australian liquidation proceeding. Under this scheme, the liquidator is charged with protecting all creditors. The company's secured creditors simultaneously commenced an Australian receivership pursuant to which the receiver is charged solely with protecting the company's secured creditors. All of ABC's assets were encumbered. Thus, as a practical matter, the receivership played a larger role in ABC's insolvency proceedings than the liquidation proceedings. In order to constitute a "foreign main proceeding", the Code requires that the proceeding be collective in nature. As the receivership dominated ABC's insolvency proceedings and looked out solely for the secured creditors to the exclusion of any other constituencies, RCS objected to the Bankruptcy Court's recognition of these as foreign main proceedings arguing it was not collective in nature. Furthermore, even if a proceeding technically complies with the requirements of Chapter 15 of the Code, Chapter 15 permits a court to still refuse to take action if that action would be "manifestly contrary" to public policy. Here, RCS also argued that recognition would be "manifestly contrary" to public policy which encourages a level playing field. The Australian proceeding, on the other hand, sseemed skewed in favor of secured creditors to the exclusion of unsecured creditors.

Judge(s):

Scirica, Jordan and Roth, Circuit Judges

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