United States District Court, D. New Jersey
IN RE MANLEY TOYS LIMITED, Debtor in a Foreign Proceeding.
FOREIGN LIQUIDATORS, et al., Appellees. ASI, INC., Appellant,
HELLRING LINDEMAN GOLDSTEIN & SIEGAL LLP BY: RICHARD B.
HONIG, ESQ., MATTHEW E. MOLOSHOK, ESQ. AND WEISBROD MATTEIS
& COPLEY PLLC BY: STEPHEN A. WEISBROD, ESQ. COUNSEL FOR
& GREINER PC, BY: STEPHEN M. PACKMAN, ESQ., DOUGLAS G.
LENEY, ESQ. AND GOODWIN PROCTOR LLP BY: DANIEL M. GLOSBAND,
ESQ. COUNSEL FOR APPELLEES
RENÉE MARIE BUMB, UNITED STATES DISTRICT JUDGE
March 22, 2016, Manley Toys Limited (“the
Debtor”) commenced a creditors' voluntary
liquidation in Hong Kong, pursuant to Hong Kong law. Mat Ng
and John Robert Lees were appointed as liquidators
(“the Liquidators”), and on the same day, the
Liquidators filed a Chapter 15 case and motion in the United
States Bankruptcy Court for the District of New Jersey. ASI,
Inc., f/k/a Aviva Sports Inc. (“Aviva”), a
judgment creditor of the Debtor, opposed the
motion. After a three-day evidentiary hearing, the
Bankruptcy Court granted the motion, and recognized the Hong
Kong liquidation of the Debtor as a “foreign main
proceeding, ” 11 U.S.C. § 1502(4). Aviva appeals
from that decision. For the reasons stated herein, the Court
will affirm the Bankruptcy Court's well-reasoned and
comprehensive recognition decision.
Court recites the facts as found by the Bankruptcy Court in
its decision. In March of 2016, the Debtor was in
significant financial and legal distress. Faced with
“alleged declining sales, ” an over $8.58 million
judgment entered against it in favor of Aviva in Minnesota
Federal District Court, Aviva's ongoing efforts to
collect on that judgment, and an upcoming jury trial in
litigation with Toys “R” Us in this District, the
Debtor decided “to enter into voluntary liquidation in
Hong Kong.” In re: Manley Toys Ltd., 580 B.R. 632, 635
(Bankr. D.N.J. 2018).
March 11, 2016, notice of the “Creditors Meeting”
to be held 11 days later (March 22nd) in Hong
Kong-- the meeting that begins the liquidation process under
Hong Kong law-- “was sent by regular mail to all of the
Debtor's known creditors [(including Aviva)], and notice
was published in three Hong Kong newspapers.” Manley
Toys, 580 B.R. at 636. Importantly, notice was not sent by
email or fax, id., although-- as the Bankruptcy Court found,
and Aviva does not contest on appeal-- Hong Kong law does not
require such notice. Id. The Bankruptcy Court
further found, and Aviva does not contest on appeal, that
Hong Kong law also does not require the notice period-- i.e.,
the period of time between when the notice is sent and when
the meeting is held-- to be of any particular length.
Id. at 640-41. In short, there is no record evidence
that there were any procedural irregularities under Hong Kong
law with regard to the notice of the Creditors Meeting.
Creditors Meeting on March 22, 2016, liquidation of the
Debtor was formally initiated in Hong Kong by the appointment
of a “Committee of Inspection”
(“COI”). Manley Toys, 580 B.R. at 636. The COI
appointed the Liquidators and authorized the Liquidators to
commence the Chapter 15 case, which the Liquidators did that
same day. Id.
argued before the Bankruptcy Court, and continues to argue on
appeal, that the Debtor and its former principals
“initiated the Hong Kong liquidation and the Chapter 15
case in bad faith, ” as “part of the
principals' long-running scheme to defy and undermine the
U.S. judicial system.” (Dkt 18-2836, p. 6, 12) In
support of its argument, Aviva points to the following
actions and events that occurred, or allegedly occurred, in
the time leading up to March 22, 2016.
in late February 2016, two Manley affiliates, Toy Quest Ltd.
and Manley Fashion Direct Ltd., paid approximately HK $125
million to Hang Seng Bank and HSBC to pay off two loans made
to the Debtor. (Aviva Exs. 118, 121, 164-65) The result of
these transactions was to substitute Debtor affiliates (Toy
Quest and Manley Fashion) for independent creditors (Hang
Seng Bank and HSBC), which, in turn, nudged the percentage of
the Debtor's total liabilities owed to Debtor-related
companies past 50%, vesting control of the entire creditor
group in Debtor affiliates. According to Aviva, this was a
premeditated scheme to ensure control over the anticipated
liquidation, and consequently, Aviva's marginalization
from that process.
Aviva believes the short notice given for the Creditors
Meeting, and the decision not to email or fax notice to
creditors, demonstrates that the Debtor and its principals
desired to exclude Aviva from the meeting. However, as the
Bankruptcy Court found, “the Liquidators and the COI
have offered to place Aviva on the COI to cure any perceived
prejudice related to lack of notice, but Aviva has
refused.” Manley Toys, 580 B.R. at 641.
Aviva asserts that “by the time the Principals [of the
Debtor] formally put the company in liquidation, it had been
stripped of nearly all of its assets.” (Dkt 18-2836,
Entry 19, p. 86) According to Aviva, “[a]t most, the
Liquidators have less than U.S. $13, 000 available to them in
Hong Kong, ” which “could not possibly be enough
to pay for” the litigation of claims “for the
actual benefit of  independent creditors” like Aviva.
(Id. at 86-87) While the Liquidators have received
funding from Toy Quest, Aviva suggests that a potential
conflict of interest exists insofar as Toy Quest itself
allegedly has “a highly suspect creditor claim and, in
addition, is an obvious potential target of fraudulent
transfer and alter ego litigation” (Dkt 18-2836, Entry
29, p. 13) in connection with Aviva's attempts to collect
on its judgment against the Debtor.
Court has jurisdiction to hear appeals from the Bankruptcy
Court's final orders pursuant to 28 U.S.C. § 158(a).
The Bankruptcy Court's legal determinations are reviewed
de novo; its factual findings are reviewed for clear error.
In re: Titus, -- F.3d --, 2019 WL 693026 at *3 (3d Cir. Feb.
appeal, Aviva contests only three issues with regard to
recognition: (A) that the Hong Kong proceeding is
“collective” in nature, as required by 11 U.S.C.
§ 101(23); (B) that the proceeding is a
“main” (as opposed to “nonmain”)
proceeding because the Debtor's “center of main
interests” (“COMI”), 11 U.S.C. §
1502(4), is in Hong Kong; and (C) that recognition of the
Hong Kong proceeding is not “manifestly contrary to the
public policy of the United States.” 11 U.S.C. §
Collective in nature
other requirements, a foreign liquidation must be
“collective in nature” to be recognized under
Chapter 15. In re: ABC Learning Centres Ltd., 728 F.3d 301,
308 (3d Cir. 2013) (citing § 101(23)). A proceeding is
collective if it considers the rights and obligations of all
creditors. In re: ABC Learning Centres Ltd., 445 B.R. 318,
328 (Bankr. D. Del. 2010), aff'd, 728 F.3d 301 (3d Cir.
2013). The collective proceeding requirement
reflects U.S. policy “to provide an orderly liquidation