Re Trident Microsystems

• Jurisdiction: Cayman Islands
• Judge: (Cresswell, J.)
• Judgment Date: 20 April 2012
• Court: Grand Court (Cayman Islands)
• Date: 20 April 2012

Grand Court, Financial Services Division

(Cresswell, J.)

IN THE MATTER OF TRIDENT MICROSYSTEMS (FAR EAST) LIMITED

Ms. C. Moran and Ms. V. Lissack for the JPLs;

R. Bell for Sigma Designs Inc.

Cases cited:

(1) Barclays Bank plc v. HomanUNK, [1993] BCLC 680; sub nom. Maxwell Communications Corp. plc (No. 2), Re, [1992] BCC 757, considered.

(2) Edennote Ltd. (No. 2), Re, [1997] 2 BCLC 89, referred to.

(3) Greenhaven Motors Ltd., Re, [1999] 1 BCLC 635; [1999] BCC 463, referred to.

(4) High Risk Opportunities HUB Fund Ltd., In re, C.A., Case No. 521/1998, April 30th, 2004, unreported, referred to.

(5) Lancelot Investors Fund Ltd., In re, 2009 CILR 7, dicta of Quin J. considered.

(6) MHMH Ltd. v. Carwood Barker Holdings Ltd., [2006] 1 BCLC 279; [2005] BCC 536; [2004] EWHC 3174 (Ch), referred to.

(7) Paradise Manor Ltd. v. Bank of Nova Scotia, 1984–85 CILR 437, considered.

(8) Philadelphia Alternative Asset Fund Ltd., In re, Grand Ct., Case No. 440/2005, July 19th, 2007, unreported, considered.

(9) Universal & Surety Co. Ltd., In re, 1992–93 CILR 149, referred to.

Legislation construed:

Companies Winding Up Rules 2008, O.21: The relevant terms of this order are set out at para. 3.

Companies-liquidators-powers and duties-sale of company property-primary duty to obtain best price having regard to nature of asset, relevant market, steps taken and urgency of sale-not normally provisional liquidators” function to realize substantially all company”s assets, but may be appropriate-if court sanction required, liquidators” views important, but decision ultimately court”s-to consider, in particular, financial consequences for stakeholders and creditors” wishes

Trident Microsystems (Far East) Ltd. petitioned to be wound up.

The company was incorporated in the Cayman Islands and its parent company was incorporated in Delaware. In January, both applied to the Delaware Bankruptcy Court for relief seeking, inter alia, the court”s sanction for the sale of certain assets. In the Grand Court, pending the determination of the company”s winding-up petition, joint provisional liquidators (‘JPLs’) were appointed and it was ordered that any sale of the company”s assets be subject to court approval. The Grand Court subsequently adjourned the winding-up petition to allow for a consideration of a potential restructuring of the companies” TV business after the proposed sale of its set-top box business. In accordance with the Grand Court Rules 1995, O.21, r.2(3), the Delaware court and the Grand Court approved a cross-border insolvency protocol stipulation entered into between the parties which provided a framework for the courts” cooperation; in particular, it provided that the liquidators would seek approval of the procedures for the sale of material assets, and authority to sell, first from the Delaware court and thereafter from the Grand Court, and would not complete any sales unless the necessary approvals were received from both courts.

In March, the companies received the approval of the Delaware court and the Grand Court of the proposed sale of the companies” set-top box business; and-despite the earlier proposals for a restructuring-they also sought the courts” approvals of a proposed sale of their TV business. If the TV business were sold, the company would have had only two remaining businesses which could not operate as stand-alone entities and so substantially all of the company”s assets would have to be realized.

The companies had been trying hard to sell the TV business since October 2011 and had contacted approximately 22 potential purchasers, of whom 9 had expressed an interest and 2 had submitted offers. In March, the companies accepted Sigma Designs Inc.”s offer, which was considered preferable, and entered into a purchase agreement which allowed them to solicit competing offers for one further week and was subject to the approval of both courts. The courts approved the bid procedures and, during the final week, the directors contacted the two parties that had previously expressed a material interest in purchasing but had not made offers-neither, however, wished to submit a competing bid and accordingly no further bids were received before the deadline. The companies obtained the Delaware court”s approval of the sale to Sigma and, in the present proceedings, the JPLs sought the Grand Court”s parallel approval.

The JPLs submitted that the sale should be approved as (i) after an extensive marketing process, the Sigma bid was the best offer; (ii) the business was making substantial losses of approximately US$1.25m. per week and there was no realistic prospect of it becoming profitable as part of the Trident Group; (iii) the companies and the JPLs were satisfied that the sale represented a better deal for the companies than a restructuring of the business; and (iv) the creditors” committee appointed in these proceedings had consented to the agreement.

Held, granting the application:

(1) The terms of the cross-border insolvency protocol stipulation would be strictly followed. The principles in the Companies Winding Up Rules 2008, O.21 concerning international protocols applied equally to provisional liquidations such as the present and, as such a protocol had been approved, the court would cooperate with the Delaware court to ensure the fair and efficient management of the insolvency in the interests of all the creditors and other interested persons (para. 3; para. 7).

(2) The court would sanction the proposed sale. When a liquidator sought the court”s sanction to sell company assets, the court would apply the following principles: (i) the liquidator”s primary duty was to take reasonable care to obtain the best price available in the circumstances-taking account of the nature of the asset, the relevant market, the steps taken to market and sell the asset and the urgency of the sale; (ii) the court should give the liquidator”s views considerable weight unless there were substantial reasons for not doing so; but (iii) the decision was ultimately one for the court, which must consider the correctness of the liquidator”s decision, having regard to all the evidence-in particular the financial consequences for stakeholders; the creditors” wishes; and whether the stakeholders” interests were best served by sanctioning the sale. In the light of the urgency created by the substantial weekly losses, the extensive marketing carried out, the court”s approval of the bid procedures, and the JPLs” and creditors” committee”s agreement to the proposed sale, the court would sanction it. Whilst it was not normally the function of provisional liquidators to realize substantially all of the assets of a company in

provisional liquidation, the court”s broad discretion to appoint provisional liquidators was a flexible remedy, not restricted to particular categories of cases (paras. 18–22).

1 CRESSWELL, J.: On January 4th, 2012, Trident Microsystems (Far East) Ltd. (‘the company’ or ‘TMFE’), a company incorporated in the Cayman Islands and its parent company, Trident Microsystems Inc. (‘TMI’), incorporated in Delaware, applied to the US Bankruptcy Court for the District of Delaware (the ‘Delaware Bankruptcy Court’) for relief pursuant to Chapter 11 of Title 11 of the US Code in respect of both the company and TMI (the ‘Delaware bankruptcy proceedings’). The stated purpose of the Delaware bankruptcy proceedings was to seek to stabilize the operations of TMI and the company, to sanction the sale of certain assets of the company, TMI and their subsidiaries and to explore restructuring options for the company and the Trident Group, including further asset sales or a plan of re-organization, the object of which was to discharge all obligations to the creditors of the company and TMI. No trustee in bankruptcy has been appointed in the Delaware bankruptcy proceedings and instead the company and TMI are operating their businesses on a day-to-day basis as debtors in possession.

2 On January 4th, 2012, the company also filed a winding-up petition in this court and a summons seeking the appointment of joint provisional liquidators (‘JPLs’). On January 11th, 2012, Mr. Gordon MacRae and Ms. Eleanor Fisher of Zolfo Cooper (Cayman) Ltd. were appointed as JPLs to the company in order to support the Delaware bankruptcy proceedings and to facilitate the orderly implementation of any plan of re-organization. Since January 11th, 2012, the company has continued to operate its business as a debtor in possession subject to the oversight of the JPLs and the ultimate supervision of the Delaware Bankruptcy Court and this court.

The cross-border insolvency protocol

3 Where a company is in liquidation, CWR, O.21 contains provisions as to international protocols as follows:

‘Application and definitions (O.21, r.1)

1. (1) In this Order “company in liquidation” means a company which is incorporated under the Law and is the subject of an official liquidation under Part V.

(2) This Order has no application to foreign companies which are the subject of an official liquidation under Part V.

(3) This Order applies-

(a) when a company in liquidation is the subject of a concurrent bankruptcy proceeding under the law of a foreign country; or

(b) when the assets of a company in liquidation located in a foreign country are the subject of a bankruptcy proceeding or receivership under the law of that country.

(4) In this Order-

(a) “foreign officeholder” means a person appointed by a foreign court or other authority to exercise powers similar to those of an official liquidator in respect of a company or to exercise powers similar to those of a receiver in respect of assets of a company;

(b) “foreign court or authority” means the foreign court or foreign governmental authority which has appointed and exercises supervisory jurisdiction over a foreign officeholder;

(c) “international protocol” means an agreement made in...