Pereira v. WWRD US, LLC (In re Waterford Wedgwood USA, Inc.)Pereira v. WWRD US, LLC (In re Waterford Wedgwood USA, Inc.)
Chapter 7
MEMORANDUM OF DECISION
Bеfore the Court is a motion (the “Motion”) by Defendant WWRD US, LLC (“WWRD”) seeking summary judgment on the fraudulent conveyance claim asserted against WWRD under 11 U.S.C. § 548 by John S. Pereira (the “Trustee”), as Chapter 7 Trustee for Waterford Wedgwood USA Inc., Royal Doulton USA, Inc., Kil-barry Inc., Waterford Wedgwood Partners, Waterford Wedgwood, Inc., Waterford Wedgwood Holdings, Inc., WW Inc., Wedgwood USA, Inc., Waterford Wedgwood Finance, Inc., and Waterford Crystal Inc. (together, the “Plaintiffs”).
At the heart of the fraudulent conveyance claim is a transaction in which WWRD and certain non-U.S. affiliates (together “KPS”)
BACKGROUND
The relevant facts necessary for resolution of the Motion are undisputed. The Plaintiffs are all indirect subsidiaries of PLC. Compl. ¶ 16 (ECF No. 25); Answer ¶ 16 (ECF No. 27). Based in Ireland, PLC was the holding company for the worldwide manufacturing and distribution of crystal, china, and other products under brands inсluding Waterford Crystal, Wedgwood and Royal Doulton.
A. The Marketing Process
After a failed attempt in 2008 to raise capital through a rights offering, PLC retained Lazard Fréres & Co. (“Lazard”) to solicit potential investors and buyers for PLC.
In January 2009, PLC commenced insolvency proceedings in Ireland and the United Kingdom. Compl. ¶25 (ECF No. 25). At that time, Deloitte was appointed as administrator in the United Kingdom and receiver in Ireland, serving on behalf of the senior secured creditors. Presentation at 3 (ECF No. 65-5); Notice of Appointment of Administrator ¶ 1 (Joint Letter regarding Foreign Insolvency Proceedings, dated Jan. 23, 2013, Ex. A, ECF No. 77). Deloitte followed up on Lazard’s efforts and identified “alternative bidders ... tо ensure that the market ha[d] been thoroughly tested and to confirm that no better offers [were] available [than] that offered by KPS.” Presentation at 3 (ECF No. 65-5). Deloitte obtained 78 expressions of interest in the whole or part of the business. Id. at 5. Of these, Deloitte identified eight “serious” potential bidders for the whole business, and eventually narrowed this to three parties with the greatest potential to complete a transaction. Id. at 5-7. Simultaneously, JPM Caze-nove was appointed as part of the M & A team to utilize its own network and identify other potential buyers. Id. at 3, 5-7. As of January 2009, JPM Cazenove had contacted 55 parties identified as having potential interest. Id.
Deloitte considered the KPS bid as one for the “whole business” and did not receive any serious offers for individual divisions of the business. See Presentation at 10 (ECF No. 65-5); see also CBIZ Report at 32 (ECF No. 71-5) (“There were no other substantial offers that would have separately added up to a greater value than the KPS deal.”). Indeed, Deloitte had concluded that “[a] transaction at [a] divisional level [would have] required separation issues to be addressed, particularly in relation to USA sales and distribution.” Presentation at 10 (ECF No. 65-5).
At the end of the marketing process, Deloitte chose KPS as the highest and best bidder, acceрted KPS’s offer to pur
B. The Sale
The KPS Transaction was completed through two agreements, the Share and Business Sale Agreement (the “Main Transaction Agreement”) and the Asset Purchase Agreement (the “U.S. Sale Agreement” ).
The U.S. Sale Agreement included, as an express condition to closing, that the Main Transaction must be consummated “substantially contemporaneously with the closing.” U.S. Agreement § 7.01(a) ( ECF No. 65-4). The .U.S. Sale Agreement would not impose any obligations on either buyer or sellers unless the Main Transaction closed on or prior to the closing date of the U.S. Sale Agreement. See id. at §§ 7.01(a), 7.02(a)). The Main Transaction was similarly conditioned on “the substantially contemporaneous completion of the transactions contemplated under the U.S. Sale Agreement.... ” Main Agreement § 5.1.5 (ECF No. 65-1).
KPS closed both transactions on March 26, 2009, thereby acquiring the Plaintiffs’ U.S. assets and Waterford Wedgwood’s global assets in nine other countries. Le-Patner Decl. ¶¶ 3-4 (ECF No. 64). At the time of closing, a single purchase price of €107.5 million for the global acquisition was paid with a single wire transfer. Id. at ¶ 4. No individual payments werе made for any of the individual assets purchased by KPS in the global transaction. Id.
At the time it acquired Waterford Wedgwood, KPS valued “the business on a global basis” and did not perform any analysis of the value of the U.S. assets or the assets in any other specific jurisdiction. Deposition of Evan LePatner, dated March 28, 2012, at 12:24-13:8 (“LePatner Tr.”) (Leon Decl. Ex. F, ECF No. 65-7) (‘We didn’t think about [the value in] any one jurisdiction independent from the rest of the company.”). WWRD and the sellers agreed for tax purposes, however, to allocate the total purchase price of €107.5 million for the KPS Transaction among the various geographicаl jurisdictions where the assets were located. LePatner Tr. 23:25-24:4 (ECF No. 65-7). The parties allocated €25 million to the assets of Waterford Wedgwood USA and Royal Doul-
C. The Global Debt
PLC and certain of its affiliates, including several of the Plaintiffs, were parties to a Facility Agreement (the “Facility”) with Bank of America (“BofA”) as lender and agent bank. See Facility Agreement at Schedule I (listing several Plaintiffs as original borrowers and obligors) (Campo Decl. Ex. 2, ECF No. 71-2). The Facility provided two tranches of loans. Id. at §§ 2.1-2.4. The senior tranche was a combination of term loans secured by real рroperty, equipment, inventory, and accounts receivable, all totaling €200 million. Id.) see also Facility Agreement at Schedule II, Part II (describing security). The Facility was also secured by $25 million cash collateral, which had been deposited by the principals of PLC. See Counter-statement ¶ 3 (citing generally Facility Agreement) (ECF No. 68). The Facility’s second level, Tranche B, consisted of $60 million at effectively junk bond interest rates. Facility Agreement § 2.4. Tranche B was secured by the same assets, but was subordinated to the first tier of the Facility. Id.; see also CBIZ Report at 8-9 (ECF No. 71-5). Prior to the creation of the BofA Facility, PLC had issued secured bonds in the amount of apрroximately $200 million, which were subordinated to PLC’s bank debt. CBIZ Report at 9 (ECF No. 71-5).
The borrowers under the Facility cross-guaranteed repayment of the total amount of loans outstanding under the Facility. Compl. ¶ 20 (ECF No. 25); Facility Agreement at 70, 125-26 (ECF No. 71-2). In addition, the borrowers and other PLC affiliates, including several Plaintiffs in this case,
At the time of the KPS Transaction, the book value of the secured debt to BofA was at least €344,821,000, more than three times the €107.5 million purchase price paid by WWRD. CBIZ Report at 12 (ECF No. 71-5). As the Plaintiffs’ senior creditor, BofA had priority over all proceeds from the sale of Waterford Wedgwood’s assets. Id. at 8-9. A1 net proceeds from the KPS Transaction — roughly €82 million — went directly towards satisfying the globally secured antecedent debt for which all the Waterford Wedgwood entities, including but not limited to the Plaintiffs, were liable. LePatner Decl. ¶ 3 (ECF No. 64); CBIZ Report at 34 (ECF No. 71-5). As a result, BofA holds a secured claim for $221 million against each one of the Plaintiffs. See Schedule Ds (Leon Supp. Decl. Ex. I, ECF No. 73).
To prevail on a motion for summary judgment, the moving party must demonstrate “that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56; see also Celotex Corp. v. Catrett,
Section 548 of the Bankruptcy Code states in part, “[t]he trustee may avoid any transfer ... of an interest of the debtor in property, or any obligation ... incurred by the debtor, that was made or incurred on or within 2 years before the date of the filing of the petition, if the debtor voluntarily or involuntarily ... received less than a reasonably equivalent value in exchange for such transfer or obligation.” 11 U.S.C. § 548(a)(1). Thus, a successful fraudulent conveyance claim requires proof of four elements: (1) the debtor must have an interest in the propеrty; (2) the transfer occurred within two years of the filing of bankruptcy; (3) the debtor was insolvent at the time of the transfer or became insolvent as a result thereof; and (4) the debtor received less than a reasonably equivalent value for the interest transferred. BFP v. Resolution Trust Corp.,
The parties do not dispute that a transfer occurred within two years of filing the petition involving property in which the Plaintiffs had an interest. Nor is there any dispute that the Plaintiffs were insolvent. At issue here is whether the Plaintiffs received reasonably equivalent value for the transfer. WWRD contends that the transfer of assets should be considered part of one integrated transaction, and that the value given for the entire transaction was fair. The Trustee denies that this is a global transaction, and argues the Court must instead look only at the value of the Plaintiffs’ American assets and that the value given was not fair. Thus, to decide this motion for summary judgment, the Court must make two determinations: (1) whether the sale of Plaintiffs’ assets was part of an integrated transaction for the sale of all of Waterford Wedgwood’s global business; and (2) whether WWRD conveyed reasonably equivalent value in the transaction.
The integrated transactiоn doctrine, also referred to as the step transaction doctrine, is most commonly used in tax law. See e.g., Commissioner v. Clark,
In the bankruptcy context, collapsing transactions commonly arises in leveraged buyout cases. See HBE Leasing,
Collapsing transactions is compatible with fraudulent conveyance principles as both emphasize substance over form. See 5-548 Collier on Bankruptcy P 548.03 (“Fraudulent transfer law has always exalted substance over form.”); Salomon,
This parallels the “end result” test used in the tax context to determine whether the integrated transaction doctrine applies.
Here, the Court finds it appropriate to collapse the two sales agreements and treat them as one integrated transaction. In doing so, the Court is mindful that it need not adhere to labels assigned by the parties, but rather can consider the intent of the parties in structuring the transaction. See, e.g., In re Best Prods. Co.,
The burden then falls on the Trustee to present competent evidence that a genuine issue of fact exists. Matsushita,
The Trustee argues that the relevant case law on the integrated transaction doctrine all involves multiple transactions by the same debtor. See Opp. at 14 (ECF No. 67). As a threshold matter, the Court
B. Plaintiffs Received Reasonably Equivalent Value
Moving on to the second inquiry before the Court, the Trustee must prove that the debtor received “less than reasonably equivalent value” for the transfer to be avoided as a fraudulent conveyance under Section 548 of the Bankruptcy Code. 11 U.S.C. § 548(a)(1)(B)(i); BFP,
In contrast to its definition of “value,” Congress left it to the courts to mark the scope and meaning of the term “reasonably equivalent.” Cooper v. Ashley Communications, Inc. (In re Morris Communications NC, Inc.),
The value received by a debtor does not need to be a “penny for penny exchange,” but can be “ ‘roughly’ the value of the transfer made.” Gonzalez,
Here, WWRD has shown that the sale was the product of a robust bidding process to obtain fair market value. La-zard solicited bids from 182 potential investors, Deloitte obtained 78 expressions of interest in purchasing either the entire business or part of it, and JPM Cazenove contacted 55 of those parties. Eight serious potential bidders expressed interest in the whole business. KPS submitted the highest and best bid, which was an offer to purchase the global business for €107.5 million. Deloitte accepted KPS’s bid and entered into the sale with KPS. Absent some reason to distrust the bidding process, KPS’s winning bid establishes that the transfer of the global assets was exchanged for reasonably equivalent value. Nextwave,
The Trustee has not presented any evidencе that provides a basis to disavow the results of this bidding process. The Trustee’s pleadings contain various musings about the sales process. See e.g., Opp. at 10 (ECF No. 67) (stating that “efficacy” of efforts to market assets after receiver and joint administrator were appointed are “open to question”); Id. at 17 (“the sales process used in this case may not have been the sort of orderly, systematic process that would result in a market-driven maximized price for PLC’s global assets.”). But such unsubstantiated speculation is insufficient to defeat summary judgment. Scotto v. Almenas,
Similarly, the Trustee is misguided in arguing that the Plaintiffs did not receive a
In evaluating the question of reasonably equivalent value here, the Court also cannot overlook that the reduction in Plaintiffs’ secured debt as a result of the integrated transaction was €82.1 million, which greatly exceeds the Trustee’s own valuation of the Plaintiffs’ assets on a standalone basis. Compare CBIZ Report at 34 (ECF No. 71-5) (effective balance paid to Senior Lenders was €82,134,000.00, or approximately $109 million), with Opp. at 12 (ECF No. 70) (Trustee’s expert estimates fair value of Plaintiffs’ assets were approximately $65.9 million).
Based on the foregoing, the Court finds that the sale proceeds partially satisfied an obligation of the Plaintiffs, thus providing value to the Plaintiffs, and that the undisputed bidding process establishes thаt the value was fair. Accordingly, the Court finds that Plaintiffs received reasonably equivalent value in exchange for their assets.
CONCLUSION
For all the reasons set forth above, WWRD’s summary judgment motion is granted. The Defendant is directed to settle an order on five days’ notice.
Notes
. WWRD and certain non-U.S. affiliates were newly formed companies or "acquisition vehicles” created by KPS Capital Partners, L.P. ("KPS”) to effectuate the purchase of substantially all of PLC’s assets. Amended Consolidated Complaint ("Compl.”) ¶ 15 (ECF No. 25); Answer and Affirmative Defenses of WWRD ("Answer”) ¶ 15 (ECF No. 27). KPS is not a party to this adversary proceeding. Id.
. WWRD refers to the global group of affiliates and brands held by PLC as Waterford Wedgwood, and the Court shall do the same.
. WWRD stated that Lazard was retained to solicit bids from potential buyers. WWRD Stmnt. ¶ 2 (ECF No. 62). The Trustee disputes this fact, asserting that Lazard was retained to find investors to inject additional equity into the business. Counterstatement ¶ 7 (ECF No. 68); CBIZ Report, dated March 25, 2009, at 15, (Campo Decl. Ex. 5, ECF No. 71-5). There can be no dispute that Lazard contacted many entities, including KPS, regarding investment in or purchase of PLC. See Presentation at 3, 5 (ECF No. 65-5); Michael Psaros Deposition, dated March 28, 2012, at 7:9-8:3 ("Psaros Dep.”) (Leon Decl. Ex. B, ECF No. 65-3). Subsequently, De-loitte and JPM Cazenove obtained expressions of intеrest and contacted potential buyers using, among other things, the bids originally solicited by Lazard. Id. Although the Trustee disputes the nature of Lazard's initial retention, the Trustee has not demonstrated that this fact is material to the outcome of this case, nor does the Court find it to be material. For example, the Trustee does not assert that the process to find a purchaser was somehow untrustworthy or unreliable because Lazard had initially solicited investors.
. WWRD contends that two sales agreements were used because the U.S. entities were not parties to the insolvency proceedings in the U.K. and Ireland, thus necеssitating a separate sale agreement for the U.S. assets. WWRD Stmnt. ¶ 14. The Trustee disputes this explanation, claiming that the two agreements demonstrate that the U.S. Sale was a separate, independent transaction. Counter-statement at 3 (ECF No. 68); Memorandum in Opposition to Motion at 15 (“Opp.”) (ECF No. 67). In any event, it is undisputed that títere are two agreements. And for reasons discussed below, the Court disagrees with the legal conclusion that Trustee draws from this undisputed fact.
. Waterford Wedgwood USA, Inc. and Royal Doulton USA Inc. were original borrowers and guarantors under the Facility. Facility Agreement at 125-126 (ECF No. 71-2). Waterford Wedgwood Inс., Waterford Wedgwood Holdings, WW Inc., and Waterford Wedgwood Finance were original guarantors under the Facility. Id.
. Courts have applied three tests to determine whether the integrated transaction doctrine should apply to collapse multiple transactions into one: (1) the end result test, (2) the interdependence test, and (3) the binding commitment test. True,
. The Trustee contends that it is a disputed fact whether PLC received fair value from the sale of Plaintiffs’ assets in the United States. See Opp. at 16-17 (ECF No. 67). But as the Court has collapsed the Main Transaction and the U.S. Sale into one transaction, the value of the U.S. assets alone is not relevant. Rather, the question is whether PLC received fair value for its global assets and whether the Plaintiffs received reasonably equivalent value
. In comparing the reduction of secured debt measured in euros to the valuation of the Trustee’s expert in dollars, the Court takes judicial notice of the general conversion rate between these two currenсies at the time of the transaction. See Fed.R.Evid. 201 (providing that a court may take judicial notice of a fact that "can be accurately and readily determined from sources whose accuracy cannot reasonably be questioned”); see also Denius v. Dunlap,