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Cross Border Restructuring and Insolvency Update - July 2018

(1) Nori Holdings Ltd (2) Centimila Services Ltd (3) Coniston Management Ltd V Public Joint-Stock Co Bank Otkritie Financial Corp (2018)

The facts

The case concerned an application for an anti-suit injunction by three companies, two of which were incorporated in Cyprus and one in the BVI (together the "Claimants"), against the Public Joint-Stock Co Bank, Otkritie Financial Corp, a Russian Bank in temporary administration (the "Bank") following the restructuring of an existing loan arrangement between the parties. 

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AABAR Block Sarl V Maud [2018] EWHC 1414

Where a debt is jointly owned, one creditor is not entitled to seek a bankruptcy order without the engagement of the other unless that creditor is in breach of its duty as trustee of the jointly owned debt.

We have previously written about the bankruptcy proceedings against Glenn Maud which resulted in a bankruptcy order being made by Registrar Briggs in 2016. Permission to appeal was granted on the basis that the Registrar had not fully considered the class interest when deciding to make the order.

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Short Stories

Abraaj launches restructuring plan as court appoints liquidators

Abraaj, the Middle East's biggest private equity firm, appointed provisional liquidators on 19 June 2018 in order to allow the troubled group to launch a court-supervised restructuring plan and protect Abraaj from creditor action against defaults.

A statement released by the firm stated that a Cayman Court had appointed executives from PwC as joint provisional liquidators of Abraaj Holdings and executives from Deloitte for the same role at the asset management arm, Abraaj Investment Management Limited ("AIML").

Abraaj's founder, Arif Naqvi, founded Abraaj with $60 million in 2002 and built it into an emerging market champion with assets of $13.6 billion at its peak before a row between four of its investors over how it used their money in a $1 billion healthcare fund forced the firm to suspend the fund and shakeup its management. Abraaj has denied misusing the funds.

Two unsecured creditors had presented petitions in Cayman to wind up Abraaj, however, the court proceeded to appoint PwC and Deloitte as provisional liquidators following a contested hearing.

Abraaj's has debts estimated at over $1 billion met its creditors earlier this month to reach a standstill deal that will facilitate the sale of AIML to Cerberus Capital Management. This was supported by the main secured creditors of Abraaj. Cerberus has made an offer to buy AIML for around $125 million, with an extra $50 million in working capital.

British lawmakers press regulator over PwC's BHS audit

The Financial Reporting Council ("FRC") announced on 12 June 2018 that they had sanctioned PwC UK and audit partner Steve Denison in relation to the 2014 audits of BHS and the Taveta Group following an investigation under the Accountancy Scheme. PwC were fined a record £6.5 million and Steve Denison £325,000 (reduced from £10million and £500,000 respectively for early settlement). Steve Denison has also voluntarily given an undertaking to remove his name from the register of statutory auditors.

PwC’s audit signed off BHS as a “going concern” days before billionaire retailer Sir Philip Green sold the loss-making group for a £1 to Dominic Chappell's Retail Acquisitions. BHS’s collapse in April 2016 put 11,000 people out of work and permanently reduced the pensions of 20,000 people.

The FRC commenced its investigation in 2016 and has said that, under the terms of the agreement, PwC would "monitor and support its Leeds audit practice and provide detailed annual reports about that practice to the FRC for the next three years".

Sir Philip Green's company, Taveta, had applied to redact parts of the FRC's report, arguing that it could cause "serious and potentially irreparable harm" to his reputation and those of former BHS executives. However, the High Court opted not to grant the injunction on the basis that these reservations were not sufficient to justify an injunction to block publication of a report by a public body.

US retail giant Sears announces it is closing 68 stores as sales tumble

Sears announced on 6 June 2018 it was closing another five stores, on top of the 63 stores it announced it was closing on 31 May 2018.

Sears has cut its store count in half within the past five years. The company had 894 stores as of 5 May 2018, down from 1,980 stores in 2013.

The new list, which the company posted on Wednesday, includes Sears' stores in Connecticut, Nebraska, and Louisiana. Liquidation sales at the stores began in June, and the stores will close by September. The full list of closings includes 15 Kmart stores and 53 Sears stores.

The stores are being closed as the company's sales continue to slide, with revenue falling in the most recent quarter by more than 30%, to $2.9 billion, from $4.2 billion in the year-ago period. Same-store sales during the period dropped by 13.4% at Sears stores and by 9.5% at Kmart.

The company is looking to raise cash through a potential deal with ESL Investments, the hedge fund run by Sears' CEO, Eddie Lampert.

In April, Lampert proposed that ESL Investments purchase Sears' Kenmore brand, its home-improvement business, its Parts Direct division, and some of the company's real estate.

Sears CFO Rob Riecker announced "While we are pleased with the progress on our capital structure initiatives, we are continuously exploring additional opportunities to further streamline operations and adjust inventory and operating expenses". The company, "will need to continue to right-size our store base and focus on our best stores, including our new smaller store formats."