Videology Ltd, Re Cross-Border Insolvency Regulations 2006, Court of Appeal - Chancery Division, August 16, 2018,  EWHC 2186 (Ch)
|Resolution Date:||August 16, 2018|
|Issuing Organization:||Chancery Division|
|Actores:||Videology Ltd, Re Cross-Border Insolvency Regulations 2006|
Case No: CR-2018-003870
Neutral Citation Number:  EWHC 2186 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
INSOLVENCY & COMPANIES LIST (ChD)
IN THE MATTER OF VIDEOLOGY LIMITED
AND IN THE MATTER OF THE CROSS-BORDER INSOLVENCY REGULATIONS 2006
The Rolls Building
7 Rolls Buildings
Date: 16 August 2018
MR. JUSTICE SNOWDEN
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Robert Amey (instructed by DWF LLP) for the Applicant
Hearing dates: 11 May, 7 June and 13 June 2018
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MR JUSTICE SNOWDEN:
1. On 13 June 2018 I refused to recognise proceedings under Chapter 11 of the US Bankruptcy Code (``Chapter 11'') in relation to Videology Ltd (``the Company'') as a foreign main proceeding under Article 17 of the UNCITRAL Model Law on Cross-Border Insolvency (``the Model Law'') as incorporated into English law in Schedule 1 to the Cross-Border Insolvency Regulations 2006 (the ``CBIR''). I did so because I was not satisfied that the centre of main interests (``COMI'') of the Company was in the US where the Chapter 11 proceedings are taking place. I did, however, grant recognition of the Chapter 11 proceedings as a foreign non-main proceeding.
2. In addition, I granted discretionary relief under Article 21(1)(g) of the Model Law equivalent to the moratorium against actions by individual creditors that would be provided to a company in administration under paragraph 43 of Schedule B1 to the Insolvency Act 1986 (``the Insolvency Act''). I also imposed a moratorium on applications for the commencement of collective insolvency proceedings in the UK without leave of the court.
3. I indicated on 13 June 2018 that I would give reasons for my decisions in writing, which I now do.
The Videology Group
4. The Company is incorporated and has its registered office in England and Wales. It is a wholly-owned subsidiary of Videology Inc. (``Inc.''), a corporation incorporated in Delaware, United States. The Company forms part of a larger corporate group (``the Group'') of which Inc. is the parent company. The sole director of the Company is Mr. Scott Ferber (``Mr. Ferber''), who is also the co-founder and CEO of Inc..
5. The Group provides video advertising software which connects television and video viewing to media behaviour information and thus provides insight to clients on how to improve the effectiveness of video advertising campaigns (the ``Video Advertising Software''). The evidence suggested that this technology is unique to the Group and was developed by Inc. to fill a gap in the advertising and media market. The intellectual property rights in the Video Advertising Software are owned by Inc. and licensed to the Company. The Group as a whole has an extensive client base, with over 4,000 active users, including some of the biggest names on both the supply and demand side of the market.
6. The Company was formed to establish and increase the Group's business in the UK and in Europe, the Middle East and Africa. It operates from leased premises in London. The business conducted by the Company using the Video Advertising Software accounts for a substantial proportion of the Group's revenue and accounts receivable.
Events Leading to the Chapter 11 Proceedings
7. The advanced television market is still relatively new, and in the early days of its business, the Group required substantial resources to get the Video Advertising Software onto the market. Initially, the Group focussed on online video sales using third-party data (the ``Legacy Business''). However, as time progressed, the Legacy Business faced substantial competition.
8. In 2015, the Group launched its `Core Use' business, which enabled its clients to utilise the Group's technology for their advertising strategies (the ``Core Use Business''). The Core Use Business has enjoyed strong growth since its launch, with 29% revenue growth in the first year, 27% in the second year and approximately 60% growth expected through the current year.
9. However, the transition from the Legacy Business to the Core Use Business utilised substantial capital resources. This led the Group to pursue additional funding and from about 2014 to engage LUMA Partners, an investment bank focused on digital media and marketing, to provide advice and assistance in finding potential partners and purchasers for its business. These efforts were increased in Spring 2017 when the Group's financial difficulties worsened. LUMA and the Group contacted 27 potential financing partners. Five of these potential partners progressed to the due diligence stage of negotiations with the Group, but the negotiations foundered at the end of 2017 and ultimately no transaction was concluded. One of the reasons cited for the failure of such negotiations was the complex capital and debt structure of the Group.
10. Earlier this year, the lack of available capital led to the Group's largest client placing a temporary hold on payments. In turn this caused the Group's secured lenders to call a default under the Group's loan agreements, to seize control of the Group's operating bank accounts and significantly to restrict the Group's access to cash. This had a serious adverse effect on the Company.
11. On 10 May 2018, Inc. and certain of its subsidiaries, including the Company, filed voluntary petitions under Chapter 11 in the United States Bankruptcy Court for the District of Delaware. The purpose of the Chapter 11 proceedings was for the companies concerned to obtain protection from action by individual creditors, to stabilise their current operations and thereby to preserve value, to restructure their balance sheets, and in due course to effect a co-ordinated sale of the Group's business and assets.
12. At the commencement of the Chapter 11 process, the Company's principal financial liabilities were as follows:
i) Secured Liabilities
a) In July 2017 the companies in the Group had entered into or become parties to three loan and security agreements (``the Finance Agreements'') with Fast Pay Partners LLC (``Fast Pay'') as agent for various lenders, conveniently referred to as the UK Loan Agreement, the US Loan Agreement and the Receivables Financing Agreement. The UK Loan Agreement and the US Loan Agreement were governed by Californian law; the Receivables Financing Agreement was governed by English law. At the commencement of the Chapter 11 process, about US$11.3 million was outstanding from the Company under the UK Loan Agreement.
b) In connection with the Finance Agreements, the Company had also entered into a number of debentures and charges, all of which were subject to English law and some of which included a qualifying floating charge.
ii) Unsecured Liabilities At the commencement of the Chapter 11 process, the Company had unsecured (trade) creditors of about US$57.5 million, of which about 90% are overdue. As a result, the Company had been the subject of a number of county court proceedings and threats of insolvency proceedings from various trade creditors in the UK.
iii) Tax The Company had a liability to HMRC of about US$950,000 and penalties (which are disputed) had been levied for late filing of returns.
13. Prior to the commencement of the Chapter 11 process, two of the previously interested parties had expressed a renewed interest in purchasing the Group's business and assets, taking advantage of the simplification of the capital structure and the protections that would be available under a Chapter 11 process. One of those parties, Amobee Inc., entered into an Asset Purchase Agreement dated 5 May 2018 (the ``APA''). This wa referred to as the ``stalking horse'' bid, and in effect provided a backstop to the competitive auction process which would take place if other qualified bidders submitted overbids in the Chapter 11 proceedings. That auction process required bids to be submitted by 11 July 2018 and the stated intention was that a sale would be completed shortly thereafter.
14. In order to be able to continue to trade during the period required for the business of the Group to be sold, debtor-in-possession (``DIP'') financing was obtained from Draper Funder LLC (the ``DIP Lender'') and security granted by companies in the Group (including the Company) for such loans.
15. The evidence was that after completion, the proceeds of sale of the Group's business would be used to repay the DIP Lender, administrative expenses and other priority claims. The next step would be for the creditors' committee and the debtor companies to negotiate a Chapter 11 plan for distribution of those net proceeds. In that regard, one of the first issues would be to agree a proper allocation of the proceeds of sale between the Group companies, including, in particular between Inc. (as owner of the intellectual property rights) and the Company (as owner of a substantial proportion of the accounts receivable).
The Applications for Recognition
16. Although the filing of the proceedings under Chapter 11 by Inc. and the Company resulted in immediate protection from individual creditor action under US law, it was considered essential for similar protection to be obtained by both companies in the UK. To that end, on 11 May 2018, the day after the Chapter 11 proceedings were commenced, two urgent applications were made to me under the CBIR (i) by Inc. and Mr. Ferber, and (ii) by the Company and Mr. Ferber, for:
i) recognition of the Chapter 11 proceedings in relation to both Inc. and the Company as foreign main proceedings under Article 17 of the Model Law; and
ii) discretionary relief pursuant to Article 20(6) and/or Article 21(1) of the Model Law, substantially in the form of the administration moratorium under paragraph 43 of Schedule B1 to the Insolvency Act.
17. In respect of Inc., I was satisfied on the evidence...
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