China Branding Group Ltd (in Official Liquidation) Between: Tony Bobulinski Applicant v China Branding Group Ltd (in Official Liquidation) Respondent
| Jurisdiction | Cayman Islands |
| Judge | Sir Jack Beatson, JA,Sir Michael Birt, JA,Sir John Goldring |
| Judgment Date | 01 July 2022 |
| Court | Court of Appeal (Cayman Islands) |
| Docket Number | CICA (Civil) Appeal No. 26 of 2021 |
In the Matter of China Branding Group Limited (In Official Liquidation)
The Rt. Hon. Sir John Goldring, President
The Hon. Sir Michael Birt, Justice of Appeal
The Rt. Hon. Sir Jack Beatson, Justice of Appeal
CICA (Civil) Appeal No. 26 of 2021
(FSD CAUSE NO. 52 of 2016 (RMJ))
IN THE CAYMAN ISLANDS COURT OF APPEAL
ON APPEAL FROM THE GRAND COURT OF THE CAYMANS ISLANDS
FINANCIAL SERVICES DIVISION
Mr Ben Tonner QC and Ms Sally Bowler of McGrath Tonner for the Applicant
Mr Matthew Goucke, Mr Peter Kendall and Mr Chaowei Fan of Walkers for the Liquidators
The Rt. Hon Sir Jack Beatson, JA
On 19 May 2022 the court heard the application by Mr Tony Bobulinski made on 4 October 2021 for leave to appeal out of time against the Order of McMillan J dated 4 February 2019. The judge dismissed his appeal against the partial rejection of his revised proof of debt in the winding up of China Branding Group Limited (“CBG”) by the Joint Official Liquidators, Messrs Hugh Dickson and David Bennett of Grant Thornton (“the liquidators”). The judge rejected his claim to be a secured creditor under a Senior Secured Promissory Note and Pledge Agreement concerning a loan by him to CBG and to be entitled to a 2.5 times cash multiplier of the sum loaned and to US$140,000 in respect of his legal fees in proving the claim. The judge also made three costs orders on 5 April 2018, and on 26 September 2018 and 5 February 2019, totalling over US$600,000 and on 6 May 2019 issued a Default Costs Certificate for US$562,170 which has not been paid.
The application came before the Full Court pursuant to the Order of the President on 11 October 2021. That Order provided that should time be extended and leave granted, the appeal be heard at the same hearing. Since then, the liquidators have stated that they wish to adduce further evidence and, if there is to be an appeal, to cross examine Mr Adam Roseman, a former director and Chief Executive of CBG. At their request, and with the agreement of those representing Mr Bobulinski, it was ordered that the hearing would solely consider whether leave should be granted.
Mr Bobulinski's application, supported by his 5 th Affidavit sworn on 4 October 2021, is based on evidence disclosed in 2021 in proceedings he brought in California against Mr Roseman and the well-known principles in Ladd v Marshall [1954] 1 WLR 1489. He also seeks to rely on Mr Roseman's 4 th Affirmation sworn on 20 April 2022, and an expert report on Californian law dated 30 April 2022 provided by Ms Melainie Mansfield a partner in Willkie Farr & Gallagher LLP. As the President stated at the beginning of the hearing, the very extensive documentation before the court was not in good order. For example, there was no reading list to indicate which of the documents should be read before the hearing and there was either no reference or a wrong reference to the location of a number of the documents referred to in the skeleton argument filed on behalf of Mr Bobulinski.
At the end of the hearing, and after considering submissions by Mr Matthew Goucke on behalf of the liquidators and by Mr Ben Tonner QC on behalf of Mr Bobulinski, the court indicated that it would grant leave. The President stated that it would do so subject to Mr Bobulinski's payment of sums outstanding on costs orders made by the judge. Mr Tonner referred to a bond in the full amount of the outstanding costs orders Mr Bobulinski had been required to provide as a condition of him pursuing an appeal against summary judgment in proceedings in California to enforce the Cayman costs orders which Mr Bobulinski was appealing. He submitted that Mr Bobulinski should not have to pay twice. The President suggested that the parties seek to find a practical way forward, whether by Mr Bobulinski abandoning his appeal in California or by him securing the release of the bond but stated that this court would not countenance non-compliance with the orders of the Cayman courts. He also stated that the court was minded to require Mr Bobulinski to provide security for the costs of the appeal. The parties were given 7 days to make short written submissions on these matters and on the scope of the appeal.
In the remainder of this judgment, I summarise the grounds on which the application was made, the underlying background, and the submissions of the parties. I then give my reasons for joining in the decision to grant leave and my conclusions on the matters on which the court has now received submissions from Mr Tonner and Ms Bowler on behalf of Mr Bobulinski and from Walkers on behalf of the liquidators.
As to the grounds, the written submissions on behalf of Mr Bobulinski are based on the evidence disclosed in the California proceedings which was in the possession of the liquidators. It is submitted on his behalf that this evidence shows that the hearing before the judge proceeded on a false basis. It is said that this is because before the judge that basis was that at the material time CBG held no assets which qualified as collateral under a Senior Secured Promissory Note and Pledge Agreement securing a loan by him to CBG. But the evidence disclosed in the Californian proceedings shows that CBG did hold such assets.
For present purposes, the factual background can be summarised as follows. CBG was the parent company of a group operating in the USA and China the primary business of which was the provision of media content to the Chinese market. In 2015 it was in financial difficulties and decided to sell the business.
On 15 April 2015 and in February and March 2016, Mr Bobulinski and others made loans to CBG. Their loans are governed by materially identical Senior Secured Convertible Promissory Notes and Pledge Agreements with a maturity date of one year, that is 15 April 2016. The total sum CBG borrowed from Mr Bobulinski was US$650,000. By then a purchaser had been identified. On 28 February 2016, Remark Media Inc. (“Remark Media”) entered into a LOI to buy CBG for $8.5m cash and $15m in securities. The transaction did not proceed because CBG's series B preferred Shareholder, SIG China Investments Master Fund III, LLLP (SIG), exercised a right of veto.
Under the Pledge Agreements, the Noteholders, including Mr Bobulinski, were granted security interests over “all assets (including intangible assets) of the Pledgor in the United States, including without limitation its content library, licence agreements, and physical assets such as production equipment”. By clause 3.1 of the Promissory Notes:
“ Upon the consummation of a Liquidity Event on or before the Maturity Date, the Principal Loan Amount shall automatically convert into a new class of preferred equity securities …”
By clause 3.3:
“if neither (a) a Liquidity Event nor (b) a bona fide equity financing of the Borrower has been consummated on or before the Maturity Date, the Principal Loan Amount shall convert into equity securities of the Borrower on terms and conditions to be negotiated in goodfaith by the Borrower and the Noteholder”.
On 24 April 2016 CBG informed the Noteholders and its other creditors that it was unable to meet its obligations. On 28 April 2016 its largest creditor, Hickory Grove LLC, presented a creditor's winding up petition in the Grand court against CBG, and on 19 May 2016 CBG applied for the appointment of Joint Provisional Liquidators. The application was unopposed, and Messrs Dickson and Bennett were appointed JPLs on 2 June 2016. On 7 July 2016, they applied to the court for authority to acquire 100% of the equity securities of RAAD Productions LLC (“RAAD”) and to sell all of CBG's assets, including its shares in its subsidiaries China SNS and FansTang, and the securities it was to acquire in RAAD, to Remark Media. On 18 August 2016 the court gave the JPLs authority to enter into these transactions, put CBG into official liquidation and appointed the JPLs as Joint Official Liquidators.
It was a condition precedent to the completion of the proposed Asset and Securities Purchase Agreement (the “APA”) between CBG and Remark Media that the Noteholders agreed to subordinate their claims against CBG to CBG's unsecured creditors. All the Noteholders except Mr Bobulinski did so. The judge found at [19] – [21] that Remark Media waived the requirement for him to do so and the sale was completed on 20 September 2016. The judge also stated at [22] that the shares in RAAD, which was previously outside the CBG group, were transferred to CBG for US$10 on 19 September 2016 and then immediately sold by CBG to Remark Media.
Mr Bobulinski submitted three proofs of debt, the initial one on 6 October 2016. His revised proof, dated 19 April 2017, was for a total of US$1,765,000. This largely consisted of a 2.5 times cash multiplier of the sum loaned which Mr Bobulinski claimed had been agreed on 3 August 2015 would be paid to him in the event of a sale of CBG or other liquidity event. His case was that he had brought Remark Media to the table because of his close relationship with Shing Tao, its CEO. The liquidators admitted Mr Bobulinski's proof of debt claim in the amount of the US$650,000 he lent but rejected his claim to be a secured creditor or to apply a 2.5 times cash multiplier to the sum lent.
An application for disclosure of information about CBG's assets which fell within the pledge did not succeed. The liquidators maintained that CBG held no such assets on 24 April 2016, the date of default and that licenses held by RAAD, in which at that date CBG itself had no interest, did not qualify. At the trial, the list of issues agreed by the parties consisted of 19 issues grouped under 3 headings; waiver of the maturity date under clause 3 of the Promissory Note; promissory estoppel in relation to the...
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