Distributions to Creditors and Shareholders in the Collins & Aikman Administration: Unique Solutions to Unique IssuesLyndon Norley, Partner, and Kon Asimacopoulos, Partner, Kirkland & Ellis LLP, London, UK
The administrations of the majority of the companies comprising Collins & Aikman Europe have recently ended.In a trend that became its hallmark, unique issues
were being addressed by the administrators through to the end. This article analyses how the administrators navigated issues relating to making distributions to creditors and shareholders given the complexity of the
administrations and the existence in certain cases of surplus funds following creditor distributions.
In May 2005, Collins & Aikman, a global automotive components manufacturer, filed for Chapter 11 reorganisation in respect of its US operations. Upon that
filing, the US companies withdrew their financial and managerial support for the European group, and on 15 July 2005 the English High Court placed 24 of Collins
& Aikman’s European companies in 10 European countries into English administration proceedings on the basis that the centre of main interests (COMI) of each was in England, and accordingly that each of those proceedings were main proceedings for the purpose of Articles 3 and 4 of the European Insolvency
Regulation (the ‘EIR’).
By recognising that the European group operated as a cohesive unit, the administrators and their lawyers believed that the maintenance of the English administration proceeding as the single, main proceeding, would significantly improve the ability of the administrators to achieve the statutory purposes of the administration. In this context, the administrators had a real concern
that the opening of secondary proceedings in the local European jurisdictions and the resultant appointment of local insolvency practitioners (whilst specifically authorised by the EIR) would fragment the group-wide process, invariably leading to the absence of a common strategy and increased costs to the estate. They also believed it would ultimately negatively impact the prospect of effecting a value enhancing sale of all, or substantially all, of Collins & Aikman’s European operations to a single, or as few purchasers, as possible.
In order to minimise the risk of creditors opening local secondary proceedings, the administrators entered into discussions with creditors in each of the local
jurisdictions and gave them assurances that notwithstanding no secondary proceedings being opened in their relevant local jurisdiction, their respective priorities as creditors under the local law would be respected in the English administration.
The result was an overwhelming success. At the conclusion of the administrations, just 24 months after the administrations commenced, there was only one involuntary secondary proceeding (Austria), and the maintenance of the English administration as the primary, main proceeding in respect of the remainder of the companies enabled the administrators to achieve their objectives. Most importantly, a sale of most of the European business was achieved at a higher price than all initial estimates (and almost all of the employees’jobs were saved).
Following the completion of the sale in April 2006, the administrators filed an application to the English High court for directions to make distributions to creditors in accordance with the assurances, to consult with creditors’ committees in relation to those distributions, and to return to court to examine any objections by creditors and to hand down final orders. As no objections
were submitted, Mr Justice Lindsay made final orders on 6 June 2006.
The application was made on the basis that the English court and the administrators were empowered to honour the assurances given by the administrators to local creditors and thereby comply with local law on three grounds.