Restructuring

Contributed by Katherine Doorley
Venue has long been a contentious topic highlighted by cases such as Enron and WorldCom to the more recent venue battle in Caesars.  Recently, the United States Bankruptcy Court for the District of Kansas addressed this issue, and declined to transfer a pending bankruptcy case to the District of Delaware where cases involving the debtor’s indirect parent company and other affiliates were pending. 
Background:
Abengoa Bioenergy Biomass of Kansas (“ABBK”) was the subject of an involuntary chapter 7 petition filed by a number of holders of mechanics’ liens involved in a state court foreclosure suit against the debtor in the bankruptcy court in Kansas.  Ten days later the debtor filed a motion to convert the case to chapter 11 and subsequently filed a motion to transfer the case to the District of Delaware so it could be jointly administered with the chapter 11 cases filed by the debtor’s affiliates.  The debtor also filed its own voluntary petition in the District of Delaware.  The petitioning creditors objected to the transfer.
ABBK is one of hundreds of affiliates and indirect subsidiaries under the umbrella of Abengoa, S.A., a Spanish multi-national engineering and clean technology conglomerate that operates in the energy and environmental sector.  ABBK is part of Abengoa’s U.S. bioenergy group of subsidiaries and affiliates and its principal asset is a biofuel/ethanol plan located in Hugoton, Kansas.  ABBK’s direct and indirect parents are Kansas and Missouri companies operating out of St. Louis, Missouri.
Analysis:
In determining whether a case should be transferred, courts analyze whether the transfer would serve the interests of justice and the convenience of the parties.  In analyzing the convenience of the parties factor, the court applied the factors developed in a seminal case from the First Circuit, CORCO, which include: (i) the proximity of creditors to the Court; (ii) the proximity of the debtor; (iii) the proximity of necessary witnesses; (iv) the location of the assets; (v) the economic administration of the estate; and (vi) the necessity for ancillary administration.
Proximity of Creditors:
The court first noted that the only known creditors were the mechanics’ lienholders, the debtor’s utility provider, and the Department of Energy.  All of the lien creditors were either from Kansas or had already consented to its territorial jurisdiction and were represented by attorneys based in Kansas or nearby in Missouri.  The court found that this factor weighed against transfer.
Proximity of the Debtor and Proximity of Witnesses:
The court also noted that the debtor had proximity to the court because it was a Kansas limited liability corporation owned by another Kansas entity and remotely owned by a Missouri entity.  Further, the debtor’s indirect parent’s offices and managing officers were in St. Louis, Missouri and Washington, D.C.  The court determined that it would not be difficult for the debtor to bring any necessary witnesses to Kansas, and that given the debtor’s place in Abengoa’s corporate scheme as one of many distinct entities, the need to bring witnesses to Kansas might end up being infrequent.  Further, some of the likely claimants on any lien claim issues were from Kansas or other locations easily accessible to Kansas and subject to the court’s subpoena power.  The court found that this factor weighed slightly against transfer.
Location of Assets:
The debtor’s assets were located in Kansas within the court’s territorial jurisdiction.  Oversight management occurred in St. Louis.  The court found that this factor weighed against transfer.
Economic Administration of the Case:
The court noted that while management was in St. Louis, and therefore not in immediate proximity to the court, it should not impede efficiently prosecuting the case in Kansas.  By way of example, the court pointed to the ability of the debtor to bring witnesses from St. Louis and Washington, D.C. to testify at the hearing on the motion to transfer on short notice.  The court further noted that the debtor’s operational assets were in Kansas and St. Louis was not too far away.  The court found that this factor was neutral.
The court concluded that the convenience of the parties factor weighed against transferring venue of the case.  In particular, the court noted that the debtor was purposefully organized as one of many separate entities making up a larger enterprise.  Further, the court noted that failing to transfer the case to Delaware would not prevent the debtor from benefitting from any financing approved in Delaware.
In examining whether a transfer would be in the interests of justice, the court also analyzed several venue decision of note including Enron and Caesars.  The court noted that the lien holder claimants that were objecting to transfer were not seeking to transfer a “mega-case” to their chosen venue.  Rather, they were seeking to keep a case initiated as an involuntary proceeding involving a legally and financially distinct entity in the district in which it was filed.  The court found that ABBK failed to show why its case could not operate separately, but in tandem, with the cases filed in Delaware.
The court further contrasted ABBK’s motion with the transfer determinations made in Caesars.  As a reminder, in Caesars, a group of creditors filed an involuntary petition in Delaware on the eve of the debtor filing its voluntary case in a different venue.  The creditors filing the involuntary cases wanted the entire case to be transferred to Delaware and filed their involuntary petitions knowing that the debtor would be imminently filing a voluntary case in a different jurisdiction.  The court noted that ABBK’s situation differed in several ways from Caesars.  First, the involuntary petition was filed more than ten days before the voluntary case was filed, rather than on the eve of a filing.  Further, ABBK presented no evidence that the petition creditors were aware of the pending filing in Delaware and thus, that the Kansas filing was not a “preemptory strike.”  Second, the ABBK case was not particularly complex as the debtor had few assets that were encumbered by liens.  The petitioning creditors were not seeking to transfer an entire complex web of related cases to Kansas, rather they were seeking to keep one case in Kansas.  Finally, the court noted that the validity of the mechanics lien claims, which would be a significant issue in the case turned on Kansas law and many of the lien claimants were present in Kansas or otherwise consented to its jurisdiction.  The court noted that it had the time and expertise to reach those and any other necessary issues with dispatch and was “reluctant to risk” ABBK’s creditors being lost in the “sea of complex matters” that were pending in the larger Abengoa cases in Delaware.  Accordingly, the court concluded that denying the motion to transfer was also in the interests of justice.
Conclusion:
While it was perhaps unusual that the court refused to transfer the ABBK case to debtor’s chosen forum, given the recent decision in Caesars, the decision in ABBK’s bankruptcy case was relatively narrow and limited.  It is entirely possible that if the debtor had been more integrated in the overall enterprise, or if the involuntary petition had been filed closer to the date of the voluntary petition that the debtor would have been successful in having its case transferred.  As with many issues in bankruptcy law, the existence (or absence) of a particular fact pattern can be the primary determining factor in a court’s decision.
Kate Doorley is an Associate at Weil Gotshal & Manges, LLP in New York.