Sunday, July 29, 2012

Fletcher International Ltd. obtains preliminary injunction against Cayman Islands court-appointed liquidators

Fletcher Wins Injunction Against Cayman Liquidators

By Lisa Uhlman

Law360, New York (July 27, 2012, 8:04 PM ET) -- A New York bankruptcy judge on Friday granted Fletcher International Ltd. a 60-day preliminary injunction barring Cayman Islands court-appointed liquidators from taking action against the hedge fund and dismantling its assets, declining to grant the motion on a longer basis.

U.S. Bankruptcy Judge Robert E. Gerber ruled for the debtor in the dispute, in which Louisiana pension fund investors are seeking to have liquidators appointed against related Fletcher entities in the Cayman Islands proceeding that the debtor argued would, against bankruptcy law, be able to affect the new debtor's Chapter 11 proceeding in the U.S.

“I believe that the entitlement to a preliminary injunction has been established to only a very modest extent, and thus I'll be granting a PI for only the duration of 60 days,” Judge Gerber said.

“But as I believe that I won't then be able to find the requisite reasonable possibility of a successful reorganization unless there's a significant change in control, any further extension will be unlikely unless in the next 60 days I have the estate under the control of a fiduciary in whom I have confidence … to investigate any potential claims” on behalf of the estate, he said. “I'm going to need comfort that I have a fiduciary at the helm in whom I have confidence not just to run the company well, but to investigate and to bring litigation if and when warranted.”

After Fletcher filed for Chapter 11 protection June 29, Judge Gerber on July 6 granted its request for a temporary restraining order barring individuals from Ernst & Young LLP as liquidators in the Cayman Islands case.

The ruling confirmed the applicability of the automatic bankruptcy stay to the proceedings, giving the debtor more time to make its case that only the New York Chapter 11 proceedings should govern its future.

The defendants in the case are barred from “taking any action in furtherance of securing the appointment of a liquidator, including a joint provisional liquidator, in connection with the winding-up petition filed” in a court in Bermuda, where Fletcher is based, according to Judge Gerber's July 6 order.

Fletcher filed the adversary proceeding July 2 in New York bankruptcy court in a bid to prevent the liquidators, which were appointed in the Cayman Islands winding-up proceedings of its feeder funds, from dismantling the company's assets.

Fletcher, owned by Cayman Islands-based Fletcher Income Arbitrage Fund and Fletcher International Inc., says liquidity demands by the three Louisiana pension fund investors in early 2012 resulted in the funds filing a winding-up petition in the Grand Court of the Cayman Islands against feeder fund FIA Leveraged Fund, which the company vigorously opposed.

The Cayman Islands court wound up FIAL on April 18 and appointed Ernst & Young as its official liquidator. That decision is on appeal.

The debtor filed the adversary proceeding arguing that any actions Ernst & Young takes while that appeal is pending are subject to a finding that the winding-up was ordered in error and that the liquidators lack any authority to act on FIAL's behalf, but that meanwhile the liquidators' actions are causing irreparable harm to Fletcher.

It argues that due to the complex nature of its investments, it will take time and “very specific knowledge and experience” to ensure that the debtor's assets are managed so as to provide the most recovery to stakeholders and that the liquidators are not equipped to liquidate its assets in a manner that will maximize value.

“The debtor and its affiliates in the Fletcher funds have been the target of a relentless legal assault as part of a coordinated scheme that has left two of its related funds in liquidation in the Cayman Islands and now threatens to drag the debtor itself into liquidation,” President Floyd Saunders said in a declaration filed in the Chapter 11 case.

“After certain disgruntled investors successfully petitioned the Cayman Islands court for the appointment of joint provisional liquidators at one of the debtor's feeder funds, the joint liquidators rushed aggressively to pursue the liquidation in rapid succession of other members of the Fletcher Fund family,” Saunders said.

In its Chapter 11 filing, Fletcher listed up to 49 creditors and between $10 million and $50 million each in assets and liabilities. . . .

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