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In re Emerson Radio Corp.

filed: April 3, 1995; As Corrected April 7, 1995.

IN RE: EMERSON RADIO CORP.; MAJEXCO IMPORTS, INC.; H.H. SCOTT, INC.; EMERSON COMPUTER CORP.; EMERSON TECHNOLOGIES & DEVELOPMENT CORP.; EMERSON TECHNOLOGIES, L.P.; WAYNE J. ARANHA, PROVISIONAL LIQUIDATOR OF FIDENAS INVESTMENT LIMITED DEBTORS WAYNE J. ARANHA, PROVISIONAL LIQUIDATOR OF FIDENAS INVESTMENT LIMITED, APPELLANT IN RE: WAYNE J. ARANHA, OFFICIAL LIQUIDATOR OF FIDENAS INVESTMENT LIMITED, DEBTOR IN A FOREIGN PROCEEDING, PETITIONER THE HONORABLE NOVALYN L. WINFIELD, UNITED STATES BANKRUPTCY JUDGE, NOMINAL RESPONDENT


On Appeal from the United States District Court for the District of New Jersey. (D.C. Civil No. 94-04380).

Before: Greenberg, Nygaard, and Mckee, Circuit Judges.

Author: Greenberg

Opinion OF THE COURT

GREENBERG, Circuit Judge.

In this opinion we dispose of two cases. In number 94-5657, appellant-petitioner, Wayne J. Aranha, seeks reversal of an order entered by the district court pursuant to Bankruptcy Rule 1014(b) transferring venue of a case pending in the Bankruptcy Court for the Southern District of New York ("the New York bankruptcy court"), to the District of New Jersey. Aranha had filed the case in New York under section 304 of the Bankruptcy Code, 11 U.S.C. § 304, ancillary to a Bahamian insolvency proceeding. We find that the transfer was proper and therefore will affirm the order of the district court.

Following the transfer, the Bankruptcy Court for the District of New Jersey ("the New Jersey bankruptcy court") dismissed the transferred case pursuant to section 305(a) of the Bankruptcy Code, 11 U.S.C. § 305(a), as it concluded that the controversy arising from the ancillary case was essentially a shareholder dispute. In case number 95-5100, Aranha seeks a writ of mandamus directing the New Jersey bankruptcy court to withdraw the dismissal order.*fn1 Because Aranha has available another procedure for review of the dismissal order, i.e., an appeal to the district court, we will deny the petition.

I. FACTUAL BACKGROUND

On September 29, 1993, Emerson Radio Corp. and its subsidiaries filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in the New Jersey bankruptcy court.*fn2 At that time, Fidenas Investment Limited ("FIL") owned approximately 20% of Emerson's common stock and controlled Emerson. Geoffrey Jurick and Petra Stelling, among others, indirectly owned FIL through various entities. Jurick and Donald Stelling, Petra Stelling's husband, served on the boards of directors of Emerson and FIL. In addition, Jurick was Emerson's chief executive officer, and Donald Stelling was its board chairman.

Earlier in September 1993, Emerson and its bank lenders entered into an Agreement in Principle to implement a plan for its reorganization. The Agreement in Principle called for FIL to provide $15 million to secure a credit facility for Emerson's operations as a debtor in possession, and to provide $75 million to fund the reorganization plan. In exchange, FIL was to receive 90% of the common stock of the reorganized Emerson and a $45 million promissory note. Based on this funding commitment, Emerson, FIL, and the bank lenders also entered into a Voting Agreement providing for the bank lenders to vote to accept the reorganization plan.

Implementing these agreements, Petra Stelling provided FIL with the $15 million, which FIL used to obtain the credit facility for Emerson. About two months after the Chapter 11 filing, Donald Stelling resigned from his positions at Emerson and as a director of FIL. In his resignation letter, Donald Stelling indicated the following:

Regarding the Emerson restructuring, the refinancing is to be provided by FIL. Neither I nor the Stelling family have ever been personally liable for the obligations of FIL. I strongly encourage you to take all steps necessary to assure yourself that FIL will be able to perform its obligations to provide financing for the Emerson restructuring.

Jurick alleges that Donald Stelling's actions required him to find alternative sources for the funding which he expected the Stellings to provide. Jurick was successful in this endeavor, as he raised $45 million from Congress Financial Corp. for post-confirmation financing and $14.8 million from third-party investors. He then caused this $14.8 million and the $15 million used to secure the credit facility ($15.2 million with interest) to be invested in Emerson indirectly through various entities he controlled rather than through FIL.

On March 30, 1994, the New Jersey bankruptcy court confirmed the reorganization plan. As a result of the change in the sources of financing and thus of the reorganization plan, the common stock in reorganized Emerson was not issued to FIL. Rather, the stock was issued to the following entities: 15,552,542 shares to Fidenas International Limited ("FIN"); 12,000,000 shares to GSE Multimedia Technologies Corporation ("GSE"); 1,600,000 shares to Elision International, Inc. ("Elision"); and 847,458 shares to Gerhard Eisenbach (collectively, "the Emerson shares"). Jurick controls FIN and GSE.

About two weeks later, certain of FIL's creditors who were also its shareholders, and whose actions the Stellings apparently controlled, instituted insolvency proceedings against FIL in the Bahamas. The Bahamas Supreme Court then appointed Wayne J. Aranha as provisional liquidator for FIL. Aranha subsequently applied to and obtained permission from the Bahamas Supreme Court to proceed against Jurick and FIN for wrongfully ...


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