StockItOut
3 years ago
Play by play of Banro shareholder destruction.
As lain out particularly similar to as listed below:
https://seekingalpha.com/instablog/52535199-hymcz-warrant-holders/5509902-new-investment-risk-emerged-in-precious-metals-mining-industry
A New Investment Risk Has Emerged In The Precious Metals Mining Industry
A New Investment Risk Has Emerged In The Precious Metals Mining Industry
Oct. 20, 2020 5:21 PM ET|
About: Agnico Eagle Mines Limited (AEM), AGI, AU, AUY, BTG, BVN, CAGDF, CDE, EDV
Summary
* A new unavoidable danger was just recently discovered.
* Affects investors of all publicly traded precious metals miners.
* Investors should watch out for the red flags mentioned in this article.
The inherent nature of precious metals such as gold, silver and palladium, naturally make this asset class a risky investment. Aside from these risks, a new unavoidable danger was just recently discovered in which investors must take into account.
Since this new peril affects all major precious metal miners such as NEM, GOLD, FNV, NCMGF, WPM, AEM, KL, KGC, AU, GFI, RGLD, BTG, PAAS, AUY, SCEXF, SSRM, EDVMF, ZIJMF, AGI, CAGDF, HMY, BVN, FCX, SBSW, CDE, HL, as well as all junior miners, investors now have to be even more careful when conducting due diligence.
With the recent surge in price of these and other precious metals, greed is now on the rise. In a similar manner as with the advent of credit cards, how fraudsters quickly figured out how to manipulate systems to their advantage, corporate entities traded on the national exchanges, their directors, and associated funding sources have now discovered how to enrich themselves at the cost of shareholders.
Today, precious metal investors are not only placing capital in a high risk investment, but these investors may actually be exchanging hard earned capital for worthless shares, as part of a fraudulent preplanned transfer of assets from the hands of public shareholders to one or more public or private entities, outside the radar of the Securities and Exchange Commission and completely unbeknownst to shareholders.
This is accomplished behind the scenes by those pulling the strings who have methodically planned out every step of the process in order to bypass the standard red flags of the various enforcement authorities.
Here's how it works:
Step 1
The organization raises capital by issuing equity, claiming that funds will be used to develop the associated precious metals asset in which the organization runs. The funds are actually used for this purpose. Therefore, no red flags are thrown.
Step 2
The directors seek out and hire a new Chief Financial Officer who is ready and willing to carry out the needed tasks. Many tasks must be completed by the CFO and without this piece, the asset transfer would be impossible. The hired CFO may or may not be involved in the operation and may simply be taking orders.
Step 3
After the organization has issued all of the secondary offerings required to accomplish its goals, and has the new CFO in place, the company then takes on debt in a rather large amount. This is done on purpose in order to accomplish the tasks later mentioned in steps 7, 8, 9, and 10.
Step 4
Next, the CFO commences spending. This is gradually completed as time progresses in order to appear that the organization, after two or more quarterly SEC financial filings, would look as though it is struggling with cash reserves. However, since this happens over time, it does not raise a red flag. This piece may be confirmed by looking at the spending track record of the prior CFO, versus the spending by the newly hired CFO.
Some methods used to accomplish this spending:
A. The organization may use the capital on any current project. This will not raise a red flag because this is the normal course of the business and will consume a large amount of the funds.
B. The organization may purchase more than needed for initial capital requirements on it's prospective projects.
C. The organization may continue to spend on projects that are not priority or projects that have been suspended because these projects can consume a large portion of the public offerings.
D. The organization may deliberately destroy any remaining cash reserves by entering into risky agreements. For instance, Diesel and Currency Swaps.
E. The organization may refuse to hedge the precious metals it mines in order to both increase the rate at which the cash reserves are depleted, and if the price of the precious metal declines, to later claim exacerbated valuation impairments.
Step 5
Next, the organization may deliberately stop all incoming revenue. This is done to prevent cash reserves from being replenished, thereby speeding up the acceleration at which cash is depleted, effectively cutting off the arms and the legs of the company, so that it falls to the ground quickly.
Some methods used to accomplish this:
A. The organization may halt production of precious metals on purpose. This may be confirmed by watching for a change in production dates which cause production to suddenly end years earlier than previously stated in prior press releases.
B. The organization may use clever methods to cause other forms of incoming revenue to be halted.
Step 6
Now that the corporation has stopped all incoming revenue, and has caused the company cash reserves to run low, the corporation then begins to destroy stockholder equity on purpose.
There are several ways the company may achieve this:
A. The organization may write down large assets that are not actually impaired, making these assets look as though they are imparied, by using clever techniques that do not raise red flags.
The more write-downs of this type that can be accomplished the better for the beneficiaries of the fraud because these assets will remain even after shareholders are surgically removed in step 8.
B. The organization may make large noncash adjustments in one or more quarters which appear suddenly when prior quarters with similar metal prices never reflected these large write-downs.
C. The organization may sell its exploration properties to entities that may or may not also be involved in the fraud. This is done so that maximum stockholder equity can be destroyed. For example, selling a $100 million property for $20 million, destroys $80 million in stockholder equity instantly.
D. Now that production has been halted, the organization can now claim that it can write off precious metals that have yet to be processed. This part of the fraud can be confirmed if the organization chooses to impair its stock piles instead of having them processed at another company's plant for a fee.
This is a double destruction of stockholder equity:
1. This prevents income from being added to the balance sheet.
2. Instead of adding income, this act removes the potentially added income and then impairs the asset, making this write-off twice as destructive.
E. The organization may, for the first time in it's financial reporting, group one or more asset classes together that can not be written off with an asset class that can be written off, in order to attempt to make additional large impairments.
F. The company may fabricate one or more losses. This can be confirmed by investigating the source of the loss.
G. The company may greatly exaggerate impairments when all other variables remain constant leaving no logical reason for the significantly exaggerated write-offs.
Step 7
The company may attempt to destroy the stock price in preparation to appear that the organization is struggling in order to pave the way for the bankruptcy filing to soon follow. These moves are preplanned by those pulling the strings in order to provide a series of stair stepped price declines that do not raise red flags.
There are several ways the company may achieve this:
A. From the moment of the beginning of the fraud, to the end, those pulling the strings may short the stock, or encourage other parties to short the stock for them, since these individuals know without a doubt that the company will go bankrupt, seeing that this was by design.
B. The organization may announce one or more secondary public offerings just months prior to filing for bankruptcy, which may or may not be made to the public, and instead may be singled out to specific entities involved to cover large short positions used to profit from the fraud. These offerings are designed specifically to cause the stock price to plummet further the moment they are announced.
This can be confirmed by:
1. The company itself exposes who the offerings were issued to.
2. The fact that the entities who receive shares from the offering would have lost their entire investments but never complained or filed a lawsuit.
C. Announcements may be made about certain agreements between the company and bondholders that are designed to also instantly drop the stock price further. The debt offering in step three serves multiple purposes with this being one such purpose.
D. The organization may use any other clever devices that drop the stock price in a series of stair step declines in order to avoid red flags.
Step 8
The shareholders are then surgically removed from the equation.
Once all assets have been purchased, and a long enough period of time has passed so as not to cause suspicion, there is no longer a need for shareholders. At this point, all stockholder equity has been destroyed and accounted for, prior to announcing these impairments to the public.
In order to accomplish the surgical removal of shareholders, the large debt offering (not equity offering) in step three will be used in the bankruptcy in order to claim that bondholders need to receive relief before shareholders. Since all stockholder equity was accounted for, shareholders are left with nothing and the holders of the debt receive all assets paid for by the shareholders.
Step 9
The organization may or may not offer any form of relief to shareholders. This depends entirely on the level of the greed by those who are responsible for the operation. If the organization provides warrants, investors can rest assured that the warrants will ultimately be made worthless or have very little value as the goal of the fraud is to wipe out shareholders completely.
Even if the bankruptcy court documents preserve shareholders by allowing "non-dilutive warrants", it is likely that when the company restructures, and issues the strike price, the strike price will be far out-of-the-money, instantly causing the non-dilutive warrants to be diluted by 10,000%, i.e. worthless, effectively causing the asset transfer from shareholders to the fraudsters to be complete.
Step 10
The bondholders may then wait for a period of time to pass for the dust to settle, and then walk away keeping the entire company to themselves with all assets, latest mine developments, with the newly purchased and unused costly components, all paid for by the shareholders.
It is apparent that this type of fraud benefits at least three different parties:
1. Any party found to short the underlying stock
2. Any party who buys or sells stock options in the underlying stock
3. Bondholders
One such case of this type of fraud is found in the following 29 chapter book, just recently published and sent to the SEC on September 21, 2020, titled, "Management's Step By Step Plan To Take The Hycroft Mine From Shareholders".
The above mentioned book involves Hycroft Mining Holding Corp. HYMC, previously known as Allied Nevada Gold Corp. ANV, and connects the purchaser of Allied Nevada's exploration properties to Clover Nevada, a subsidiary of Waterton Global, to Barrick Gold, through a member of the Allied Nevada board of directors, who served as President at Barrick Gold.
The book reveals the complete details of the entire plan from start to finish, how it was carried out, and each party involved. Precious metal investors are encouraged to familiarize themselves with this case in order to quickly recognize these red flags. The chapter names listed in the table of contents provide a quick summary and can be downloaded at any one of the following 4 links:
Download Book - Server 1 | Download Book - Server 2
Download Book - Server 3 | Download Book - Server 4
Our recommendation on Hycroft Mining Holding Corp HYMC
According to the latest press release dated January 14, 2020, titled, "Mudrick Capital (MUDS) to Combine with Hycroft Mining", Hycroft Mining has an enterprise value of approximately $537 million. If Hycroft Mining Holding Corp is found to have violated one or more securities laws, the SEC could potentially file a lawsuit against HYMC which may result in the share price being greatly reduced in order to provide relief to the HYMCZ warrant holders for the mishandling of $608,985,000 in secondary public offerings while the company was under the name Allied Nevada Gold Corp.
Based on the information contained in this article, our recommendation for investing in Hycroft Mining Holding Corp HYMC is to remain cautious until sufficient time has passed to allow for the U. S. Securities and Exchange Commission to investigate the above mentioned matter.
In order to prevent this type of fraud from happening in the future, investors are called to share this article with their respective CFOs.
Investors of all publicly traded precious metal mining corporations are encouraged to forward this article to their respective CFOs, requesting that this article then be forwarded to the company decision makers. Knowing that this tactic has now been publicly exposed, this will deter similarly planned frauds from occurring.
Investors involved in the above mentioned case are also called to act.
If you are a former Allied Nevada Gold Corp ANV investor, or currently hold Hycroft Mining Holding Corp HYMCZ warrants, the warrants received from the bankruptcy proceedings, previously HYCTW, you are encouraged to:
Join the warrant holders email list to receive the latest updates regarding these warrants
Other press releases and news regarding the above mentioned book:
Allied Nevada Gold Corp Investors May Be On Track To Soon Receive Relief From The SEC
SEC Receives Complaints From 432 Investors Filed Against Hycroft Mining Holding Corp HYMC And Former CFO Stephen Jones
Other news stations:
KTVN Channel 2 Reno Nevada
News Channel Nebraska
Channel 21 WFMJ Ohio
Fox 40 WICZ TV New York
Disclosure: I am/we are long HYCTW.
Additional disclosure: The author of this article was responsible for compiling and editing the above mentioned book and is one of the 447 individuals listed in Chapter 29.
StockItOut
5 years ago
Blackwater founder expands operations in Congo
https://www.mining.com/web/blackwater-founder-expands-operations-in-congo/
Reuters | June 13, 2019 | 10:36 am Intelligence
A company run by private security firm Blackwater’s founder Erik Prince has registered a subsidiary in Democratic Republic of Congo with a mandate to extract minerals and timber and conduct financial operations, corporate filings show.
IN ITS 2018 ANNUAL REPORT, FSG LISTED CONGO, LAOS, MYANMAR AND CAMBODIA AS COUNTRIES IT HAD IDENTIFIED FOR INVESTMENT, IN CONNECTION WITH CHINA’S BELT AND ROAD GLOBAL DEVELOPMENT STRATEGY
Prince, who renamed Blackwater and sold it in 2010 after several of its employees were indicted on unlawful killing charges in connection with their work as U.S. government contractors during the Iraq War, has run Hong Kong-based Frontier Services Group (FSG) since 2014.
FSG has close ties to the state-owned Chinese investment company CITIC and provides security, aviation and logistics services to Chinese firms operating in Africa.
FSG has owned a small Congolese trucking company called Cheetah Logistics in Congo since 2015, but the new subsidiary, Frontier Services Group Congo, has a more expansive mandate, according to a filing with Congo’s business registry.
Among its aims are “the exploration, exploitation and commercialisation of minerals”, forest logging, security, transport, construction and “all financial, investment and project financing operations, both public and private”.
The filing, shows Frontier Services Group Congo was registered on Aug. 20, 2018, and formally established on Nov. 13, 2018.
FSG did not respond to a request for comment.
In its 2018 annual report, released in April, it listed Congo, Laos, Myanmar and Cambodia as countries it had identified for investment, in connection with China’s Belt and Road global development strategy.
Besides his work for FSG, Prince has been pushing a plan to deploy a private army to help topple Venezuela’s socialist president, Nicolas Maduro, sources with knowledge of the effort told Reuters in April.
He has also tried unsuccessfully to convince the Trump administration to replace U.S. soldiers in Afghanistan with security contractors.
FSG owns aviation companies based in Kenya and Malta and provides security training to companies in China. It says it is also active in more than a dozen countries in Asia, Africa and Europe.
Prince told the Financial Times earlier this year he was aiming to raise up to half a billion dollars through a new fund to invest in mining metals like cobalt, copper and lithium that are needed for electric car batteries.
Congo accounts for roughly 60 percent of the world’s cobalt output and is Africa’s largest producer of copper.
Chinese companies have snapped up valuable concessions in recent years as Western firms reduce their footprint in Congo, which is mired by armed conflict and political instability.
Blackwater, which Prince founded in 1997, was contracted by the U.S. State Department to provide security during the Iraq War. In 2007, Blackwater employees shot and killed 17 Iraqi civilians in Baghdad. One of the employees involved was convicted of murder in December and three others have been convicted of manslaughter.
Blackwater agreed in 2010 to pay $42 million in fines for hundreds of violations of U.S. export rules, including making unauthorized proposals to train troops in southern Sudan. The company now operates as Virginia-based Academi.
(By Aaron Ross; Editing by Mark Potter)
StockItOut
5 years ago
Gold operation revival plan takes shape
https://www.miningreview.com/gold/gold-operation-revival-plan-takes-shape/
April 25, 2019
Privately-owned Canadian gold producer Banro Corporation has set in motion a plan to revive its two operating gold mines in the Democratic Republic of Congo (DRC).
It has a vision to develop and bring into production an additional two mines in the country within the next five to seven years, chairperson and CEO BRETT RICHARDS tells CHANTELLE KOTZE.
This article first appeared in Mining Review Africa Issue 4, 2019
With all the makings of a major gold miner including the largest land package in Africa, a scalable mineral resource that could easily grow to 20 Moz and untapped potential, Banro has had a difficult run in the DRC since its inception in 1996.
The company had its assets seized by the government during the country’s civil war in 2001, and then rewarded its licences back in 2003 through a process of arbitration.
Subsequent to this, Banro was granted a mining convention, which afforded it various tax and other incentives to develop mines along the richly endowed 210 km long Twangiza-Namoya gold belt in the South Kivu and Maniema provinces of eastern DRC.
The company opened up its first gold mine –Twangiza – in September 2012, which was later followed by the second mine – Namoya – in January 2016.
A little over a year since entering commercial production at its second mine, while focused on overcoming operational hiccups and finding its feet as a larger two-asset company in what is a remote, undeveloped part of the DRC, Banro experienced the first, of what would later become several security incidents at both its operating mines.
From February 2017 until August 2018 its operations faced several violent attempts by local militia groups to gain entry to the mines and who cut off areas along the sole supply road to Namoya, shutting down transit of essential supplies to the mine.
These flare-ups on the ground in the DRC surrounding the mining operations led to significant cash flow problems and culminated in the suspension of production from Namoya and then Twangiza, resulting in bankruptcy and the restructuring of Banro.
Banro emerged from the restructuring process on 4 May 2018, with two principle, controlling shareholders, namely US-based hedge fund Gramercy Funds Management and Chinese investment fund Baiyin International Investment, and under the leadership of newly appointed chairperson and CEO Brett Richards.
Prior to joining Banro, Richards worked for a number of private equity firms focused on mining projects throughout Africa where he led greenfield/brownfield start-ups and operational and financial turnarounds and exit strategies.
He has also led several exploration fund raisings, mine financings, re-financings, and successfully conducted multiple operational rehabilitations.
The start of a new chapter
Almost a year since being appointed to the helm of Banro, Richards has spent most of his time in-country working towards remediating the security at the operations while also developing a plan to recapitalise the business with the aim of rehabilitating the Namoya and Twangiza mines.
He has also prioritised identifying potential risks to the business and has implemented actions to mitigate all current and future risks.
Richards has resultantly put together a team able to lead the company through a financial, operational and exploration redevelopment/rehabilitation phase, while also putting in place the necessary governance and security structures to ensure the safe operation of both mines.
By late 2018 Banro was in a position to restart Namoya having remediated the safety and security situation at the mine but rather chose to keep the operation on slow production (similar to care and maintenance) until in a position to recapitalise the business.
Since then, Richards has been working tirelessly on a developing a new capital plan for the business and last month he successfully arranged a US$80 million capital raise to fund the rehabilitation of both Twangiza and Namoya.
Not only aiming to reclaim its competitive edge in the DRC by restarting operations at its two mines, Richards aims to position Banro as a leading gold mining company in the DRC from a production, cost, as well as social and economic growth perspective.
He therefore also plans to use a portion of the funds raised to advance Lugushwa and Kamituga through the development pipeline to the point where a construction decision can be made.
With an imminent first drawdown of funds, Richards expects to stabilise the business by September this year and by this point would have restarted gold production at both Namoya and Twangiza.
“In order to restart operations we would need to access ore at Twangiza and start ramping up to full production (from its current slow production state) at Namoya,” Richards explains, adding that he expects to be cash flow positive by the end of 2019.
Exploration drive unlocks future gold potential
Despite its already large mineral inventory, with proven and probable mineral reserves of 3.18 Moz – 7.04 Moz of measured and indicated resources, and an additional inferred resource of 5.08 Moz, Richards suggests that Banro still has room to prove up additional resources, having only explored 38% of the total land package it has under licence.
“I believe we could comfortably demonstrate a path to achieving 1 Moz of annual gold production by proving our resource up to 20 Moz with further drilling,” he says, noting that the mineralisation is well understood, consistent and quite easy to exploit.
Lugushwa
Lugushwa, the most advanced of the two exploration projects, consists of three exploration permits, located approximately 150 km southwest of the town of Bukavu.
Lugushwa has an indicated mineral resource in the oxide portion of 16.91 Mt grading at 1.35 g/t gold containing 0.73 Moz of gold and an inferred resource of 6.17 Mt grading at 1.56 g/t gold containing 0.31 Moz of gold.
Meanwhile, the transition and fresh rock portions of Lugushwa have an inferred resource of 65.01 Mt grading at 1.54 g/t gold containing 3.22 Moz of gold.
Banro will begin a significant infill-drilling programme at Lugushwa within the next few months, which will run well into 2020.
“We will then move into a feasibility study in early 2020 and be in a position to take a construction decision in mid to late 2020.
“Lugushwa has the potential to be our biggest mine yet – comfortably able to deliver +250 000 ozpa of gold over a mine life of +10 years,” says Richards.
Kamituga
Meanwhile, Kamituga, located 100 km south-west of the city of Bukavu, hosts an inferred mineral resource (surface) of 4.14 Mt grading at 2.40g/t gold and containing 320 000 oz of gold and an inferred (underground) resource of 3.12 Mt grading at 6.00 g/t of gold containing 600 000 oz of gold.
“While we would look at establishing an initial 180 000 oz operation at Kamituga, the scale of the resource – with a mineralised strike length of over 20 km – allows us to easily scale the operation to as large as Lugushwa,” states Richards adding that Kamituga could be a complete replica of Lugushwa.
When asked how he plans bring these two projects into production, Richards explains that much like Endeavour Mining Corporation’s successful construction strategy – using a highly skilled in-house team to spearhead construction of its projects – Banro too will relocate the Lugushwa construction team to Kamituga where it will replicate the construction process, allowing 18 months for construction at each site.
With these four projects in production, Banro will be producing just shy of 1 Moz of gold a year – a feat that will help take it to mid-tier producer status.
Further growth potential beyond 1 Moz exists in unlocking the high-grade underground mining potential at both Namoya and Twangiza as well as at the five other targets along strike from Namoya, Twangiza and Kamituga, which currently require development drilling.
As the only industrialised business in eastern DRC, Richards’ believes that it is in both Banro and the DRC government’s best interest to maintain stability in the region as the restart of Namoya and Twangiza, as well as the establishment of two additional mines over the next five to seven years, could create between 2 000 and 3,000 additional jobs (and up to 30,000 indirect jobs) through economic stimulation.
StockItOut
5 years ago
Southern District of New York Dismisses Securities Law Claims on Grounds of International Comity; No Chapter 15 Proceeding Required
https://www.jdsupra.com/legalnews/southern-district-of-new-york-dismisses-15918/
March 26th, 2019
by Kramer Levin Naftalis & Frankel LLP
The Bottom Line
Recently in Ema Garp Fund v. Banro Corp., Case No. 18-01986 (S.D.N.Y. Feb. 21, 2019), the District Court for the Southern District of New York dismissed the plaintiffs’ claims against defendants Banro Corporation ("Banro") and former Banro CEO John Clarke on grounds of international comity. Among the various grounds for applying general principles of international comity, the court held that a Chapter 15 proceeding was not required for a plan approved in a Canadian CCAA proceeding to release claims in a pending litigation in the United States.
What Happened?
In December 2017, Banro, a Canadian corporation, commenced a reorganization proceeding in Canada. Companies’ Creditors Arrangement Act ("CCAA") courts issue a claims procedure requiring creditors with claims against either the debtor or its directors and officers to file proofs of claim by a specified date ("Bar Date"), or the potential claims may be extinguished. Under the CCAA, the court will then hold a creditor meeting where a proposed plan of compromise or arrangement must be approved by a vote. The court in Banro’s Canadian proceeding (the "CCAA Court") issued a Bar Date deadline of March 6, 2018.
The plaintiffs, who are Banro shareholders, knew of the Canadian proceeding but did not file any claims by the March 6 Bar Date, nor did they otherwise participate in that proceeding. Instead, on March 5, 2018, the plaintiffs filed a complaint in the District Court for the Southern District of New York alleging that Banro and Mr. Clarke committed securities violations. Subsequent to the Bar Date, the CCAA Court considered a proposed reorganization plan that exchanged secured debt for equity, extinguished the interests of Banro’s current equity holders, and granted releases in favor of the Banro debtors and their directors and officers. Banro’s creditors approved the plan, and on March 27, 2018, the CCAA court issued a “sanction order” approving the plan and releasing all equity claims. The CCAA court extinguished the plaintiffs’ claims against Banro as pre-petition equity claims and their claims against Mr. Clarke as “barred ... because of non-compliance with the Claims Procedure Order.”
In May 2018, the defendants moved to dismiss the action filed in district court on the basis of comity, and the district court granted the defendants’ motion. The district court relied on the Second Circuit decision in Allstate Life Insurance Co. v. Linger Group Limited, 994 F.2d 996 (2d Cir. 1993), to determine whether a dismissal based on international comity was appropriate. As an initial matter, the party seeking dismissal bears the burden of proving that comity is appropriate. Citing Allstate Life Insurance, the district court stated that in determining whether a foreign bankruptcy proceeding warrants comity, courts should undertake a multifactor analysis to determine whether the foreign court satisfies fundamental standards of procedural fairness. If it does, then courts should ask whether affording comity would “violate any laws or public policies” of the U.S. The district court concluded that the Canadian proceeding satisfied fundamental standards of procedural fairness because it “treat[ed] creditors equally within separate classes; provide[d] for a Monitor, satisfying the fiduciary requirement; permit[ted] creditors to submit claims and appeal denials of those claims; provide[d] for creditors’ meetings; ... provide[d] a court-imposed stay” and, furthermore, provided public notice of the proceedings. The district court found that the Canadian proceeding was fair to the plaintiffs specifically because the plaintiffs had ample knowledge of the proceeding, the stay, the applicable claims and plan objection procedures, and the hearing on the sanction order.
The district court rejected the plaintiffs’ various arguments against dismissal. The district court found that the Canadian proceeding was a parallel proceeding because it was “a forum in which Plaintiffs could have and should have pursued their claims.” Also, the district court found that whether the CCAA Court had jurisdiction over the plaintiffs was irrelevant to its comity determination, as was the fact that defendants did not file a recognition proceeding in the U.S. because defendants were under no obligation to do so. The district court rejected the plaintiffs’ argument that they would be prejudiced by a dismissal of their claims, stating that it was the plaintiffs’ own choice not to participate in the Canadian proceeding. Moreover, the equities favored the defendants because the plaintiffs had engaged in forum shopping by filing the action in the district court. Finally, the district court held that the standard for dismissal based on comity was not whether “exceptional circumstances” existed, stating that that standard is not applicable when the foreign proceeding is a foreign bankruptcy proceeding.
Having found that the Canadian proceeding satisfied fundamental standards of procedural fairness, the district court then found that dismissing the claims would not contravene U.S. law or public policy. The district court noted that the fact that the plaintiffs’ claims arose under U.S. securities law, as opposed to the U.S. Bankruptcy Code, did not alter the analysis. The Canadian proceeding was an adequate forum for the plaintiffs to raise the claims asserted in the complaint.
The district court likewise dismissed the claims against Mr. Clarke, finding that the CCAA Court had established procedures for filing claims against Mr. Clarke, and the plan included a release of those claims. To allow the claims to proceed would “interfere with” the outcome of the Canadian proceeding and defeat the purpose of granting comity. The fact that Mr. Clarke is a former CEO of Banro and not the current CEO did not change the court’s analysis because it is his status at the time of the alleged misconduct that matters. The plaintiffs had argued that because Mr. Clarke was not a party to and did not appear in the Canadian proceeding, there was no parallel proceeding in Canada for the claims asserted against him. The district court was not persuaded by this, stating that permitting the claims to proceed would “undoubtedly interfere with the implementation of the CCAA reorganization plan because that plan encompassed a release of claims against Clarke.”
Why This Case Is Interesting
The district court clearly states that the standard in the Second Circuit for determining whether to extend international comity to foreign bankruptcy proceedings is not the “exceptional circumstances” standard but is the approach set forth in Allstate Life Insurance. If the Allstate Life factors are satisfied, it is irrelevant whether the debtor has filed enforcement or recognition proceedings in the United States. The absence of a Chapter 15 proceeding will not bar enforcement of a discharge given in a foreign bankruptcy proceeding. The decision underscores that while Chapter 15 is typically viewed as a means of implementing relief from foreign insolvency proceedings (e.g., a “foreign main proceeding” in the parlance of Chapter 15) in the United States, it is not the exclusive means to do so; principles of international comity may still be applied.
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5 years ago
trunkmonk
5 years ago
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