.
Foreign debtor-corporation that had
brought offshore bankruptcy proceeding filed voluntary petition for a case
ancillary to a foreign proceeding. The Bankruptcy Court, John C. Akard,
J., held that absent any property owned by
debtor in the United States, particularly
within the state of Texas, that needed to be administered or protected
for the benefit of creditors, there was no basis for an ancillary bankruptcy
proceeding.
Petition dismissed.
In re Phoenix Summus Corp.
[1] KeyCite this headnote
51 BANKRUPTCY
51III The Case
51III(H) Cases Ancillary to Foreign
Proceedings
51k2341 k. In general.
N.D.Tex.,1998.
If bankruptcy court permits case ancillary
to foreign insolvency proceeding, court is granted authority to take various
actions to protect property of the foreign estate, but court also is given
guidelines for protection of
.
Bankr.Code, 11 U.S.C.A. § 304.
In re Phoenix Summus Corp.
[4] KeyCite this headnote
51 BANKRUPTCY
51XIV Reorganization
51XIV(A) In General
51k3501 k. In general; nature and purpose.
N.D.Tex.,1998.
Bankruptcy courts should be used to
reorganize debtor-corporation's debts, not to settle disputes between one
debtor and one creditor.
*380
(Cite as: 226 B.R. 379, *380)
Richard Ladd, Lubbock, TX, for Phoenix.
Sam Gregory, Lubbock, TX, H. Ty Kharazi,
Fresno, CA, for Ms. Jones.
William S. Parkinson, Office of U.S.
Trustee, Dallas, TX, United States
Trustee.
MEMORANDUM OF OPINION ON VOLUNTARY
PETITION FOR ANCILLARY PROCEEDING
PURSUANT
TO § 304
JOHN C. AKARD, Bankruptcy Judge.
On August 25, 1998, Phoenix Summus
Corporation (Phoenix) filed a voluntary petition for a case ancillary to
a foreign proceeding pursuant to 11 U.S.C.
§ 304. [FN1] The court finds
that the petition should be dismissed. [FN2]
FN1. The Bankruptcy Code is 11 U.S.C.
§ 101 et seq. References to section numbers are references to sections
in the Bankruptcy Code.
FN2. This court has jurisdiction of
this matter under 28 U.S.C. § 1334(a),
28 U.S.C. § 157(a), and Miscellaneous
Rule No. 33 of the Northern District of Texas contained in Order of Reference
of Bankruptcy Cases and Proceedings Nunc Pro Tunc dated August 3, 1984.
FACTS
Phoenix's petition listed liabilities
in excess of $9 million and 2.1 million shares of stock held by approximately
3,000 shareholders. It stated "Corp domiciled originally in New York, then
Texas (1996). In 1996 went offshore to dominion of Melchizedek, South Pacific."
Describing Phoenix's business the petition stated "Currently none--consummation
of plan will create oil and gas corporation." Attached to the petition
was a plan of reorganization and "disclosure materials" in Chapter 11 proceedings
in Case No. 97-00113-B-11 in the Karitane Bankruptcy Court, District of
Karitane Island, South Pacific. The materials contained the notation "Karitane
and the Entire Dominion of Melchizedek in 1991 Adopted the Entirety of
the United States Federal Bankruptcy Laws." At the hearing on this matter,
Phoenix introduced an order confirming amendment to plan dated August 15,
1998 which was certified to by the Honorary Consul of the Dominion of Melchizedek.
Phoenix also introduced a copy of a certificate dated January
30, 1997 stating that the corporation
was qualified to do business in Nevada. Phoenix is not authorized to do
business in Texas.
Notice was sent to various parties
and waivers of notice were filed by various parties. The only response
was filed by Sue B. Jones d/b/a Jem Homes. The answer stated that Ms. Jones
was the plaintiff in a suit against Phoenix in the state Superior Court
in Fresno, California concerning an alleged fraudulent transfer of real
property. Ms. Jones stated that she would be substantially injured if she
could not proceed with her state court suit. She asserted that many of
the matters reflected in the offshore bankruptcy proceedings were incorrect
and objected to various provisions of the plan of reorganization. She stated
that Phoenix "has a proven history of bad business dealings, perhaps even
fraudulent" and urged this court not to recognize the bankruptcy in Karitane.
[1] Section 304 of the Bankruptcy
Code provides that if a foreign representative files a case ancillary to
a foreign proceeding, and that action is controverted, the court is to
hold a hearing. The court held a hearing on this matter on October 14,
1998. Phoenix appeared through its attorney and Nicole *381 (Cite as: 226
B.R. 379, *381)
Rolfe, President of the corporation.
Although the answer on behalf of Ms. Jones was filed by a California attorney,
she appeared at the hearing through a Lubbock attorney. If the court permits
a case ancillary to a foreign proceeding, the court is granted authority
to take various actions to protect property of the foreign estate. However,
the court is given guidelines for the protection of United States' creditors
and assets in § 304(c).
Ms. Rolfe, the President and holder
of more than 20% of the outstanding shares of Phoenix, testified that the
corporation had intended to enter into a large real estate transaction
in the state of California, but was unable
to do so. She denied that Phoenix
had any liability to Ms. Jones, but acknowledged that matter was the subject
of a state court suit in California. She stated that the corporation initially
transferred its domicile to the Dominion of Melchizedek because the corporation
was going to develop some recreational property in that Dominion. She stated
that numerous people had invested lots of money in the corporation and
the only way they would ever make any recovery would be for the corporation
to enter into a new venture which would prove profitable. She acknowledged
that at this time the corporation had no assets. The Chapter 11 proceeding
was filed in Karitane because it was quicker than doing one in the United
States. She said the effect of the Chapter 11 was to convert large amounts
of debt into stock. She further testified that the corporation had an agreement
to acquire oil and gas properties in the State of Texas and that the properties
had been transferred to the corporation. When the transferor discovered
the
suit by Ms. Jones, he insisted that
the properties be re-transferred to him, which was done. She stated that
the purpose of filing this proceeding was to make arrangements to resolve
the suit filed by Ms. Jones. She stated that
arrangements had been made for a brokerage
firm to publicly sell stock in Phoenix as soon as the oil and gas properties
were acquired. Ms. Rolfe described her substantial experience in promoting
corporations and business
ventures.
DISCUSSION
[2][3] The entire tenor of §
304 is that the Debtor in the foreign proceeding have some property in
the United States which needs to be administered or protected for the benefit
of creditors. Ms. Rolfe acknowledged that Phoenix has no property. She
stated that it has a contract right to acquire oil and gas properties,
but does not say how it planned to pay for those properties. She did not
introduce a contract for the acquisition of those properties into evidence.
Since Phoenix has no property in the United States, and particularly within
the State of Texas, the court has difficulty seeing any need for an ancillary
bankruptcy proceeding.Ms. Rolfe's
testimony leads the court to the conclusion that the sole purpose of the
ancillary bankruptcy proceeding was to have Ms. Jones' suit transferred
from the state court in California to the bankruptcy court in Texas. That
is forum shopping which should not be tolerated by the court.
[4] Bankruptcy courts should be used
to reorganize a corporation's debts.
Phoenix already accomplished that
in Karitane. Bankruptcy courts should not be used to settle disputes between
one debtor and one creditor. That is what Phoenix is attempting to do with
this proceeding. The Superior Court of the
state of California is fully able
to resolve the dispute between Ms. Jones and Phoenix. The property in question
is in California. The transactions took place in California. Ms. Jones
and Mrs. Rolfe reside in California. In the interest of comity with state
courts, for the convenience of the parties, and in the interest of justice,
Ms. Jones' suit should be allowed to proceed in state court in California.
There is no federal interest to be served for that suit to be venued in
the Northern District of Texas.
CONCLUSION
The court finds that there is no basis
for an ancillary proceeding pursuant to § 304 of the Bankruptcy Code
and that the captioned case should be dismissed. In the alternative, the
court finds that it should abstain from hearing this matter and that this
matter *382 (Cite as: 226 B.R. 379, *382)
should be dismissed pursuant to §
305(a)(1) of the Bankruptcy Code.
ORDER ACCORDINGLY. [FN3]
FN3. This Memorandum shall constitute
Findings of Fact and Conclusions of Law pursuant to Fed.R.Bankr.P. 7052
which is made applicable is Contested Matters by Fed.R.Bankr.P. 9014. This
Memorandum will be published.
END OF DOCUMENT
Copr. (C) West 1999