Vol 1 (2004) - Issue 4

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Whatever Happened to Cenargo?

The Cenargo Group of companies traded as a transport group specializing in shipping, ferry and chartering businesses together with a logistics business. The business was an old privately owned affair with its origins in the tanker trade. In recent years the sole shareholder, who was also the chief executive, had shifted his focus to ferry operations in the Irish Sea together with a time charter business. The fleet of over a dozen vessels of varying age and specifications had been funded by debt and capital leases in excess of USD 300 million. Parts of the shipping businesses were profitable but, coupled with a downturn in the Irish Sea business and loss-making logistics operations, the debt was no longer sustainable by late 2002. This led to the start of formal restructuring proceedings.

Choice of jurisdictions

In 2003 this transaction gained notoriety as a case involving a significant jurisdictional conflict in respect of the US and the UK insolvency regimes.
Briefly, at a time when the Group had breached financial covenants and was under pressure from its financial creditors for information and explanation, it applied for bankruptcy protection under Chapter 11 in the US Bankruptcy Court. On 28 January 2003 a leasing creditor, Lombard, applied to the High Court for the appointment of joint provisional liquidators on the basis that the company was insolvent and that although it had filed under Chapter 11 all of the group’s business and assets were based in countries other than the US, predominantly England, Ireland and other EU countries, with the notable exception of secured note holders who were based in the US. As a result the Court appointed officers from Ernst & Young LLP as provisional liquidators. There then followed some inter-Court jurisdictional issues that led to the provisional liquidation being discharged and the administration orders being placed over the majority of Group companies.

In effect, management in this case was seen as trying to keep control of a restructuring process by filing for a Chapter 11, whilst a significant financial creditor, on the other hand, wanted any insolvency proceedings to be based in the location of the debtor’s business and where all transactions were originated: namely the UK jurisdiction.

The US Court finally acknowledged the position and discharged the US proceedings to allow the UK process to continue unhindered. In this we were helped by demonstrating the fact that the UK process was already well underway, that it was capable of achieving a similar objective to one that a Chapter 11 would, and that it had wider creditor recognition and a more effective European Union-wide moratorium. As a result, on 14 February 2003 the US Court suspended the Chapter 11 proceedings and ultimately they were dismissed on 23 September 2003.
The case is likely to remain a significant landmark for future reference as regards cross-border proceedings, in particular as regards considerations necessary when non-US debtors choose to file in the US in non-consensual circumstances.

Momentum for the restructuring exercise

Alongside the jurisdiction issues, Cenargo’s restructuring and re-organization exercise itself represents a useful case study of a successful turnaround. The core shipping business continues to operate, without the taint of administration, with improved liquidity and balance sheet position. The successful outcome was co-developed with the management and creditor collaboration, notwithstanding that creditors lost a significant portion of the pre-petition claims. This collaboration led to trade creditors accepting a significant loss, secured creditors and lessors signing up new arrangements, management accommodating some key changes and the note holders giving up their security interest and re-investing significant sums which they could have otherwise withdrawn.

It was early in the initial discussions around the appropriate jurisdiction that Steve Adams of Wayland Securities (then an affiliate of Cargill), who held approximately 45% of the secured notes, indicated that Wayland was prepared to consider a restructuring of the Group. Additionally Steve Adams indicated that as one of the note holders with substantial sway he and his advisors would be looking to persuade other note holders.