COURT FILE NO.: CV-23-00702777-00CL DATE: 2023-07-18 SUPERIOR COURT OF JUSTICE - ONTARIO (COMMERCIAL LIST)
RE : IN THE MATTER OF THE COMPANIES’ CREDITORS ARRANGEMENT ACT , R.S.C. 1985, c. C-36, AS AMENDED AND IN THE MATTER OF DIEBOLD NIXDORF, INCORPORATED; DIEBOLD NIXDORF TECHNOLOGY FINANCE, LLC; DIEBOLD GLOBAL FINANCE CORPORATION; DIEBOLD SST HOLDING COMPANY, LLC; DIEBOLD HOLDING COMPANY, LLC; DIEBOLD SELF-SERVICE SYSTEMS; GRIFFIN TECHNOLOGY INCORPORATED; IMPEXA, LLC; DIEBOLD NIXDORF CANADA, LIMITED and DIEBOLD CANADA HOLDING COMPANY INC.
APPLICATION OF FOREIGN REPRESENTATIVE CARLIN ADRIANOPOLI UNDER SECTION 46 OF THE COMPANIES’ CREDITORS ARRANGEMENT ACT, R.S.C. 1985, c. C-36, AS AMENDED
IN THE MATTER OF THE COMPANIES’ CREDITORS ARRANGEMENT ACT, R.S.C. 1985, c. C-36, AS AMENDED
BEFORE: Chief Justice Geoffrey B. Morawetz
COUNSEL: D.J. Miller, Rebecca L. Kennedy and Puya Fesharaki, for the Foreign Representative Jennifer Stam, Arnold Cohen and Noah Schein, Canadian Counsel to the Ad Hoc Group and DIP Lenders John F. Higgins and Megan Young-John, Texas Counsel to the Ad Hoc Group and DIP Lenders Daniel T. Moss, Nicholas J. Morin, Heather Lennox and T. Daniel Reynolds, U.S. Counsel for the Chapter 11 Debtors and Debtors in Possession Dylan A. Consla and Amber Leary, U.S. Counsel to the Ad Hoc Group and DIP Lenders Seth Lieberman and Andrew S. Richmond, U.S. Counsel for Computershare Trust Company, National Association, as successor trustee under the 2024 Stub Unsecured Notes Indenture and Second Lien Notes Indenture
HEARD: July 18, 2023
Endorsement
[1] This Application was brought by Carlin Adrianopoli, Senior Managing Director of FTI Consulting, Inc. (the “Applicant”), in his capacity as foreign representative (the “Foreign Representative”) of Diebold Nixdorf, Incorporated (“Diebold”), Diebold Nixdorf Technology Finance, LLC, Diebold Global Finance Corporation, Diebold SST Holding Company, LLC, Diebold Holding Company, LLC, Diebold Self-Service Systems, Griffin Technology Incorporated, Impexa LLC, Diebold Nixdorf Canada, Limited (“DNC”) and Diebold Canada Holding Company Inc. (“DCH”) (collectively, the “Chapter 11 Debtors”) for certain Orders pursuant to sections 46 through 49 of the Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C-36, as amended (the “CCAA”), inter alia:
(a) declaring that: (i) the Applicant is a “foreign representative” of the Chapter 11 Debtors pursuant to section 45 of the CCAA; (ii) the Chapter 11 Cases, as defined below, are “foreign main proceedings” pursuant to sections 47 through 48 of the CCAA; and
(b) recognizing and enforcing in Canada certain orders of the U.S. Court made in the Chapter 11 Cases, including but not limited to: (i) an Order (the “DIP Order”) granting a super-priority debtor-in-possession charge over the Property of the Chapter 11 Debtors located in Canada (the “DIP Charge”), to give full effect to the DIP Order; and (ii) an Order (the “Plan Confirmation Order”) recognizing the Chapter 11 Debtors’ prepackaged plan of reorganization (as amended from time to time, the “U.S. Plan”).
[2] Capitalized terms used herein and not otherwise defined have the meaning given to them in the Affidavit of Carlin Adrianopoli sworn July 16, 2023 (the “Adrianopoli Affidavit”).
[3] The Application was not opposed.
Background
[4] The Chapter 11 Debtors, together with their non-debtor affiliates (collectively, the “DN Group”) operate a global financial and technical company focused on providing point-of-sale and other services to the retail and banking sectors.
[5] Diebold is the ultimate parent company of the DN Group and is based in the State of Ohio in the United States (“U.S.”). Diebold’s subsidiaries span North and South America, Europe, Asia and the Middle East. The operations and business segments of the DN Group however are highly integrated, and all of the various subsidiaries rely on executives located in the U.S. for key decision-making.
[6] The DN Group operates in Canada through the Canadian subsidiaries, DCH and DNC, who are each directly or indirectly owned by Diebold. DCH and DNC service customers in Canada and have their own local business functions within Canada (such as accounting and human resources). However, both subsidiaries report directly to U.S.-based supervisors who manage the operations on a North American basis.
[7] The Canadian operations form an integrated part of the DN Group’s overall business, but do not account for a significant portion of the DN Group’s total revenue or assets. For fiscal year ended December 31, 2022, the combined total revenue of DCH and DNC represented less than 3% of the DN Group’s total revenue for the year ending December 31, 2022, and the combined total assets of DCH and DNC represented less than 8% of the DN Group’s total assets based on book values.
[8] DCH and DNC rely on their U.S. and international affiliates in many other respects, including for the supply of the products provided to customers in Canada, which are provided subject to standard transfer pricing and intercompany accounts.
[9] The DN Group has a capital structure that is more fully set out in the Adrianopoli Affidavit. As of the Petition Date (as defined below), the DN Group had over $2.7 billion in outstanding funded debt obligations, of which 96% is nominally secured. DCH and DCN are borrowers and/or guarantors under all such senior debt obligations.
[10] The DN Group has suffered from liquidity challenges for several years. The challenges have persisted notwithstanding numerous cost-cutting measures, and the refinancing of certain indebtedness of the DN Group’s indebtedness.
[11] In May 2023, the DN Group entered into a restructuring support agreement (the “Restructuring Support Agreement”) that provides for a de-leveraging of the DN Group’s capital structure and the influx of more than $500 million in additional liquidity (the transactions contemplated are collectively defined as the “Prepackaged Transaction”). The Prepackaged Transaction is to be implemented, in part, pursuant to the U.S. Plan, of which they are seeking confirmation in the United States Bankruptcy Court for the Southern District of Texas (the “U.S. Court”).
[12] The Prepackaged Transaction contemplates maintaining the status quo in respect of: (a) day-to-day operations; and (b) the DN Group’s relationships with employees, vendors and customers, for the benefit of all such stakeholder groups. Pre-filing and post-filing unsecured claims (other than unsecured funded debt claims) will continue to be paid in the ordinary course under the Prepackaged Transaction.
[13] On June 1, 2023 (the “Petition Date”), each of the Chapter 11 Debtors filed a voluntary petition for relief (the “Chapter 11 Cases”) under chapter 11 of title 11 of the United States Bankruptcy Code (the “Bankruptcy Code”).
[14] Also on the Petition Date, the Chapter 11 Debtors sought and were granted the following orders by the U.S. Court (the “First Day Orders”):
(a) an Order directing joint administration of the Chapter 11 Cases;
(b) an Order scheduling a combined disclosure statement approval and plan confirmation hearing, and approving certain other scheduling and procedural matters;
(c) an Order authorizing Carlin Adrianopoli to act as Foreign Representative of the Chapter 11 Debtors;
(d) an Order confirming the protections of sections 362, 365 and 525 of the Bankruptcy Code;
(e) an Order establishing notice and objection procedures for transfer of equity securities and granting related relief;
(f) an Order authorizing the Chapter 11 Debtors to continue their insurance, workers’ compensation, surety bond programs and granting related relief;
(g) an Order approving the redaction in public filings of certain personally identifiable information for individual creditors and interest holders;
(h) an Order authorizing the employment and retention of Kroll Restructuring Administration LLC as claims, noticing, and solicitation agent;
(i) an Order authorizing the Chapter 11 Debtors to pay prepetition employee wages and related amounts;
(j) an Order authorizing the Chapter 11 Debtors to pay prepetition trade payables and related amounts;
(k) an Order establishing adequate assurance procedures with respect to utility providers and granting related relief;
(l) an Order approving the continued use of the Chapter 11 Debtors’ cash management system; and
(m) an interim DIP Order authorizing a US$1.250 billion post-petition senior secured debtor-in-possession financing facility (the “DIP Facility”) and granting the DIP Charge over all of the Chapter 11 Debtors’ property securing same, in priority to all other secured obligations.
[15] On July 12, 2023 and July 13, 2023, the U.S. Court granted, respectively (i) a final DIP Order; and (ii) a Plan Confirmation Order (collectively with the First Day Orders, the “Foreign Orders”).
[16] Pursuant to the interim DIP Order, the lenders thereunder advanced on June 5, 2023 the US$1.250 billion DIP Facility, which included: (a) approximately $733,000,000 of new money term loans used to refinance outstanding existing prepetition obligations; and (b) $516,000,000 of new money term loans used to bring certain outstanding trade debt current and to fund operations and restructuring expenses.
[17] Each of the Chapter 11 Debtors jointly and severally guaranteed the obligations under the DIP Facility.
[18] All of the Chapter 11 Debtors’ pre-petition secured lenders who have liens that will be subordinate to the liens granted to secure the DIP Facility either: (a) explicitly consented to the DIP Facility pursuant to the terms of the Restructuring Support Agreement; (b) are deemed to have consented to the priming of their liens and to the Chapter 11 Debtors’ use of cash collateral under the applicable prepetition debt documents intercreditor agreement; and/or (c) if required under the CCAA, have received notice of the priming lien granted to the DIP Lenders.
[19] The DIP Charge is not expected to impact creditors of DCH and DNC (other than those lenders of funded debt) because the Prepackaged Transaction provides that all general unsecured claims (other than funded debt unsecured claims) are unimpaired. Further, all secured creditors located in any Province or Territory of Canada have consented to the DIP Order and DIP Charge through the execution of the Restructuring Support Agreement and/or entry into the applicable prepetition debt documents, other than in respect of registrations relating to motor vehicles or similar specific assets, that will remain unaffected by the DIP Charge.
[20] The Chapter 11 Debtors, through their noticing and claims agent, held a vote in respect of the U.S. Plan. Both classes accepted the U.S. Plan in each instance.
[21] On July 13, 2023, the U.S. Court granted an Order confirming the U.S. Plan.
Issues
[22] The issues before the Court are:
(a) whether this Court ought to recognize the Chapter 11 Cases as foreign main proceedings, and the Foreign Representative as the foreign representative in this proceeding;
(b) whether the Orders granted by the U.S. Court should be recognized;
(c) whether the DIP Order and the Plan Confirmation Order should be recognized and given effect with respect to the Canadian Collateral; and
(d) whether the requirement for the Foreign Representative to post a notice in a newspaper of the foreign recognition order should be dispensed with in the circumstances.
Recognition of a Foreign Proceeding
[23] On application by a foreign representative, section 47(1) of the CCAA provides that two requirements must be met before a court shall recognize a foreign proceeding:
(a) the application for the recognition of a foreign proceeding relates to a foreign proceeding; and
(b) the applicant is a foreign representative in respect of that foreign proceeding.
[24] The Chapter 11 Cases were commenced under Chapter 11 of the Bankruptcy Code, and Canadian courts have consistently found such proceedings to be “foreign proceedings” for the purposes of the CCAA (Section 45(1) of the CCAA). (See: Lightsquared LP (Re), 2012 ONSC 2994 [Lightsquared] at para 18; Massachusetts Elephant & Castle Group, Inc. (Re), 2011 ONSC 4201 [Elephant & Castle] at para 13; LTL Management LLC, 2023 ONSC 2648 at para 27).
[25] The Foreign Representative Order made by the U.S. Court has already authorized the Applicant to act as Foreign Representative on behalf of the Chapter 11 Debtors in any judicial or other proceeding in any foreign country.
[26] I am satisfied that the Chapter 11 Cases are “foreign proceedings” to which the present application relates.
[27] The next point to be addressed is whether this foreign proceeding is a foreign main proceeding or a foreign non-main proceeding. A “foreign main proceeding” is a “foreign proceeding in a jurisdiction where the debtor company has the centre of its main interests” (its “COMI”). In the absence of proof to the contrary, section 45(2) of the CCAA establishes the presumption that a debtor company’s registered office is deemed to be its COMI.
[28] This presumption may be rebutted if there are factors which, viewed objectively by third parties, would support the conclusion that the centre of main interest is other than the location of the debtor company’s registered office. There are three primary factors which will be considered in assessing whether the location in which the foreign proceedings have been commenced is the debtor company’s COMI:
(a) whether the location in which the foreign proceedings has been filed is readily ascertainable by creditors;
(b) whether the location in which the foreign proceedings have been filed is one in which the debtor’s principal assets or operations are found; and
(c) whether the location in which the foreign proceedings has been filed is where the management of the debtor takes place.
(See: Elephant & Castle, supra note 27 at paras 30-31.)
[29] These primary factors may be interpreted with reference to the following:
(a) the location where corporate decisions are made;
(b) the location of employee administrations, including human resource functions;
(c) the location of the company’s marketing and communication functions;
(d) whether the enterprise is managed on a consolidated basis;
(e) the extent of integration of an enterprise’s international operations;
(f) the centre of an enterprise’s corporate, banking, strategic and management functions;
(g) the existence of shared management within entities in an organization;
(h) the location where cash management and accounting functions are overseen;
(i) the location where pricing decisions and new business development initiatives are created; and
(j) the location of an enterprise’s treasury management functions, including management of accounts receivable and accounts payable.
(See: Elephant & Castle, supra note 27 at paras 26-31; Voyager, supra note 19 at para 21; Hollander, supra note 21 at para 32.)
[30] The focus remains, at all times, on identifying a principal place of business that is consistent with the objectively ascertainable expectations of the stakeholders who dealt with the enterprise before the foreign proceedings commenced.
[31] In this present matter, while DNC’s registered office is in Ottawa and DCH’s registered office is in Calgary. Counsel to the Applicant submits there are several material factors which objectively indicate that their COMI is in the U.S., rather than in Canada.
[32] The Chapter 11 Debtors both operate and are managed on a consolidated basis out of the U.S. Diebold is the ultimate parent of both DCH and DNC, and the North American corporate headquarters of the Chapter 11 Debtors are in Hudson, Ohio. All major strategic decisions for the Americas are made by the senior executive team located at the Ohio corporate headquarters, and both Canadian entities each have no more than one director or officer who is Canadian. This sole director or officer is in place to comply with minimum statutory requirements, and the remaining directors and officers are all individuals who both work and reside in the U.S.
[33] In addition, the Chapter 11 Debtors’ consolidated management is similarly apparent at the functional level. The Chapter 11 Debtors’ marketing and communication functions for the Americas business, are both carried out in the U.S. While DCH and DNC have some of their own local business functions, including accounting and human resources, each of those functions nevertheless directly report to U.S.-based supervisors.
[34] DCH and DNC are not only integrated with the Chapter 11 Debtors in respect of their management but are also integrated financially. Each entity is either a co-borrower or guarantor of the DN Group’s obligations under the terms of their prepetition credit facilities and notes, all of which are governed by U.S. law. Further, all the Chapter 11 Debtors’ financial reporting, for the purpose of reporting to their lenders, is performed on a consolidated basis from the Ohio corporate headquarters.
[35] Further, the depth of financial integration is further reflected in the globally integrated Cash Management System employed by the Chapter 11 Debtors and their non-debtor affiliates. The DN Group makes and receives thousands of payments per week through the Cash Management System, with over $2 billion in cash flowing through the system annually.
[36] Having considered the factual matrix, I am satisfied that, notwithstanding that DNC’s registered office is in Ottawa and DCH’s registered office is in Calgary, the COMI for both entities is in the U.S. Consequently, this foreign proceeding is a “foreign main proceeding” for the purposes of s. 47 – 48 of the CCAA.
Recognition of the U.S. Court’s Order
[37] The Foreign Representative requests that the Court recognize and give effect to the Foreign Orders. The relief is described in detail in the Adrianopoli Affidavit, and specifically includes authorizing the Foreign Representative in his capacity as Foreign Representative to seek recognition of the Chapter 11 Cases in Canada. The relief granted in the Foreign Orders further includes, inter alia:
(a) authorization to pay prepetition employee obligations;
(b) authorization to pay prepetition trade and other unimpaired claims, along with associated expenses;
(c) authorization to continue using the Cash Management System, including performing intercompany transactions and using existing bank accounts; and
(d) confirmation of the U.S. Plan and the termination of the U.S. Proceedings upon implementation of the U.S. Plan.
[38] Circumstances where Canadian courts express a reluctance to recognize the orders of a foreign court in foreign main proceedings generally arise only where such orders do not align with the substance of Canadian insolvency law or the provisions of the CCAA, or are contrary to public policy (See; Ibid, para 21; Elephant & Castle, supra note 27 at para 39.).
[39] This Court has previously granted the specific relief sought under the Foreign Orders, permitting the debtors to pay their pre-filing obligations to suppliers in circumstances where operations could be disrupted and vendor relationships adversely impacted if such amounts were not paid (See: Eddie Bauer of Canada Inc., Re, 2009 CarswellOnt 3657, [2009] O.J. No. 2647 (S.C.J. [Commercial List]) at para 22). In this case, the evidence establishes that the Chapter 11 Debtor’s require this relief.
[40] This Court has also granted recognition of a Plan Confirmation Order when a U.S. Court has concluded that the prepackaged plan complies with applicable U.S. bankruptcy principles which mirror and underlie the principles of the CCAA. Further, the U.S. Plan is consistent with the purpose of the CCAA. (See: Xerium Technologies Inc., 2010 CarswellOnt 7712 (S.C.J. [Commercial List] [Xerium] at para. 28).
[41] In the present matter, I am satisfied that none of the Foreign Orders is inconsistent with the CCAA and its underlying principles, nor are they contrary to public policy.
Recognition of the DIP Order and DIP Charge
[42] The Foreign Orders include a DIP Order which authorizes the Chapter 11 Debtors to enter into the DIP Facility described in the Adrianopoli Affidavit. The DIP Facility permits the Chapter 11 Debtors to use a portion of the DIP Facility to repay certain existing indebtedness.
[43] Although Section 11.2(1) of the CCAA precludes a Canadian court from making an order which secures an obligation that exists before the order is made, the situation is viewed differently by Canadian courts in the context of a foreign recognition proceeding. Section 49 of the CCAA permits a Canadian court, once it has recognized a foreign proceeding, to make any order that it considers appropriate if it is satisfied that the order is necessary for the protection of the debtor’s property or the interests of its creditor or creditors.
[44] Section 49 of the CCAA has been held to authorize Canadian courts to recognize DIP orders referencing provisions made in foreign main proceedings, including DIP orders that have the effect of facilitating the payment of pre-filing obligations, as well as permit charges over assets located in Canada to give effect to such foreign orders (See: Hartford Computer Hardware Inc., Re, 2012 ONSC 964 at paras 10-12).
[45] In determining whether to recognize a DIP order made by a foreign court in foreign main proceedings, the court will consider:
(a) whether the order is necessary to protect the debtor’s property or is in the interests of its creditors; and
(b) whether there would be any material prejudice to any Canadian interests in recognizing the roll-up provisions of the DIP order (See: Xinergy, supra note 40 at paras 20-21).
[46] The Applicant submits that, in the present circumstances, recognizing the DIP Order is necessary to protect the debtor’s property, and is in the interests of the Chapter 11 Debtors’ creditors. The DIP Facility will provide liquidity to fund the DN Group’s operating, working capital and capital expenditure requirements through the restructuring process. I accept this submission.
[47] In recognizing a foreign DIP Order, the Court has considered whether doing so would alter the status quo and make any creditor group worse off (See: Payless Holdings Inc. LLC, Re, 2017 ONSC 2321 at para 43). In the circumstances, I am satisfied that recognizing the DIP Order would not materially prejudice the interests of any Canadian stakeholders. The Prepackaged Transaction expressly provides that all General Unsecured Claims will be unimpaired, and this applies to the creditors of the Canadian entities DCH and DNC.
[48] In these circumstances, I am satisfied that the interests of comity favour recognizing the DIP Order and granting the DIP Charge over the collateral of the Chapter 11 Debtors located in Canada.
Information Offer
[49] Due to the nature of the Chapter 11 Cases and the substantial support for the Prepackaged Transaction by creditors prior to commencing these proceedings, the Chapter 11 Debtors do not expect the Chapter 11 Cases to remain open for a prolonged duration. Moreover, the Canadian General Unsecured Creditors (other than unsecured funded debt creditors) will continue to be paid in the ordinary course and be unimpaired under the Prepackaged Transaction. In my view, the involvement and expense of an information officer is not warranted in the current circumstances.
Notice Request
[50] Section 53 (b) of the CCAA is a mandatory provision that requires publication of a notice of an order reorganizing a foreign proceeding containing the prescribed information. I see no basis on which to override this provision and I decline to grant such relief.
Disposition
[51] For the foregoing reasons, this Application is granted. The Foreign Orders, as defined in [15] above, are recognized and given full force and effect.
Chief Justice G.B. Morawetz
Date: July 18, 2023