Mystic dispute intensifies in court
Unsecured creditors recognition and voting rights to be determined
Creditors of Mystic Mountain Limited, MML, are to know on January 18 whether a creditors’ meeting held in August regarding settlement of the attraction company’s debt to holders of its secured bonds, which it has stated as $1.2 billion, will be...
Creditors of Mystic Mountain Limited, MML, are to know on January 18 whether a creditors’ meeting held in August regarding settlement of the attraction company’s debt to holders of its secured bonds, which it has stated as $1.2 billion, will be voided and a new meeting held.
A ruling on the matter is to be handed down by the Supreme Court, which has also been asked to order that the company’s unsecured creditors be invited to a new meeting to discuss an offer to pay out the bondholders. What voting rights various classes of creditors should have at any meeting of creditors is also before the court.
MML owns and operates the popular Mystic Mountain adventure park in Ocho Rios, St Ann.
The hearing of an application by sole bondholder Sky-High Holdings Limited, SHH, for the lifting of the stay on the enforcement of their right over the assets of MML, which too was originally scheduled for January 18, has been postponed for a date to be determined, to allow the court to conclude the matter pertaining to the meeting. The directors of SHH include businessmen Adam Stewart and Ian Haynes.
The insolvency matter has been running for nearly a year after bondholders, in January, called the payment of principal and interest on their security following missed interest payments by MML, and the company, through a trustee appointed under the Insolvency Act, filed a notice with the Office of the Supervisor of Insolvency and government trustee signalling its intention to make a proposal for payment.
A proposal directed only to secured creditors was filed with the Supervisor of Insolvency’s office on July 19 and notified to the Companies Office of Jamaica, following an extension granted by the insolvency supervisor. SHH is said to have secured a proxy from other bondholders.
However, things came to a head at the prescribed creditors’ meeting held on August 9, when, following a vote by SHH, the sole secured creditor, to reject the filed proposal and a verbal amended proposal put forward at the meeting by MML, Supervisor of Insolvency Ferdinand Smith called into question the validity of the meeting for which unsecured creditors had received no notice, contrary, he said, to the provisions of the Insolvency Act. Smith proposed that the court be asked to clarify the matter.
The act, while allowing a proposal to be made to all or any one class of creditors, prescribes a creditors’ meeting without specifying whether it should be a meeting of all creditors or only the creditors to whom the proposal is being made.
An application was made to the court on October 6 by trustee Caydion Campbell of Phoenix Restructuring Advisory & Insolvency Services Enterprise. This followed a September 23 filing in the Supreme Court by application SHH for a lifting of a stay imposed on its exercise of its right to take control of the MML’s assets to cover its debt. The hold was statutorily imposed under a provision of the Insolvency Act that prescribes an automatic stay on the actions of all debtors over the assets of the company, once it gives notice of its intention to make an offer to all or certain classes of creditors.
In legal submissions to Justice David Batts in the Insolvency Division of the Supreme Court on December 2 and December 3, lawyers representing the MML trustee and the Supervisor of Insolvency were pitted against attorneys for SHH, which is seeking to exercise its right to take control of the assets of MML, having rejected the company’s payout proposal for the bonds on which MML has defaulted.
SHH’s attorney, Allan Wood, QC, of the law firm Patterson Mair Hamilton, argued that the stay was automatically lifted when the affected creditor to whom the proposal was addressed voted to reject the proposal.
Wood contended that the court does not have the power to override the vote of the secured creditor to reject the proposal. He also asserted that there is no basis in law for the trustee to offer a new verbal offer at the meeting and that the secured creditor, having refused the proposal, has the right to enforce his security. As such, there is no need for a new meeting to determine the matter of the acceptance or rejection of the proposal, and argues against the inclusion of unsecured creditors at the meeting to determine acceptance or rejection of a proposal that is not addressed to them, he argued.
It is SHH’s position that the onus had been on the Supervisor of Insolvency to review the proposal filed by MML and remedy the situation if it detected a procedural error in the document. As such, Wood submitted, any procedural error should not now be addressed to the detriment of SHH.
The secured creditor is also taking issue with the active role of the Supervisor of Insolvency in the creditors meeting, with its lead lawyer describing that role as being improper, given the judicial function it exercises as a government agency established to supervise bankruptcies.
In submissions by the trustee’s attorney, Maurice Manning, QC, of the law firm Nunes, Scholefield, DeLeon & Company, it was acknowledged that a procedural error was made by the failure to notify all creditors of the August 9 meeting.
The trustee argued in his claim that the Insolvency Act sets out a role for unsecured creditors in determining acceptance or rejection of the proposal, even though the proposal was made only to secured creditors. This position, Manning said, is supported by the definition of a creditor as a person having a claim on the company. The lawyer further contended that the insolvency law prescribes that a copy of the proposal be served on all creditors known to the trustee, thereby ensuring equity and fairness to all stakeholders in the potential resolution of the company.
Deputy Supervisor of Insolvency Fayola Evans-Roberts, who appeared for the Supervisor of Insolvency, submitted that the supervisor has an administrative role to play in insolvency and bankruptcy proceedings including attending all meetings of creditors and trustees. This, she contended is part of the exercise of the responsibility to give guidance to ensure compliance with the Insolvency Act.
The Supervisor of Insolvency, she added, would welcome the court’s clarification of points within the Insolvency Act that have remained unclear to that office. Evans-Roberts also argued that the scheme of arrangements under the act emphasises rescue and rehabilitation of insolvent persons and companies where possible.
The insolvency supervisor’s position is that a meeting called without notice to all creditors is not properly constituted and that time should be allowed by the court for a new meeting involving all creditors.
Lawyers from the law firm Myers, Fletcher & Gordon, who represent MML, did not actively participate in the December hearings, although they were present in court.
Justice Batts noted that among the issues that are central to the determination of the validity of the August 9 meeting is the intention of Parliament when it crafted and passed the insolvency law, which does not specify which category or categories of creditors are to be present at a prescribed creditors’ meeting.
Hansard, the parliamentary record of the debate on the insolvency legislation in the Senate on October 16, 2014, quotes then government Senator Mark Golding as saying: “A proposal is approved by a vote of the unsecured creditors at a meeting of creditors called by the trustee to consider the proposal. Unsecured creditors must approve the proposal by a double majority representing at least 50 per cent in number and two-thirds in value of the total creditors present at the meeting in person or by proxy.”
Hansard’s record of the debate on the Insolvency Bill in the House of Representatives on October 7, 2014, quotes then Minister of Industry, Investment and Commerce Anthony Hylton, who piloted the bill, as noting that one of its objectives was “to make provisions for the rehabilitation of the insolvent debtor where possible, maximising benefits to creditors; distributing assets fairly and equitably …”.
Hylton added, with reference to another aspect of the legislation addressing the stay of proceedings, that: “When an insolvent person files a Notice of Intention to make a proposal, an automatic stay prevents all creditors, even secure creditors, from taking steps to enforce their claims against the insolvent person or his property. This stay terminates when one of two things happen: a proposal is filed, or the reorganisation fails.”