Drydocks World restructuring talks unlikely to be impacted by Monarch lawsuit

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Drydocks World’s debt restructuring is unlikely to be significantly impacted by a court case launched in London by Monarch Alternative Capital, with any judgment against Drydocks World holding little sway in Dubai, one Dubai-based and one London-based lawyer and a distressed debt trader told dealReporter.

However, should the court rule in Monarch’s favour and enforce payment of debts owed, the distressed debt fund may choose to pursue Drydocks World’s assets located in other territories outside Dubai with closer legal ties to the UK, a third lawyer said.

Monarch Alternative Capital, a US-based hedge fund, is suing Drydocks World for the repayment of a slice of debt of approximately USD 45.5m via its UK-based subsidiary Monarch Master Funding in a suit filed on 6 October 2011, the fund confirmed.

A judgment in the High Court of London in Monarch’s favour would have no legal weight in Dubai, said Mazen Boustany, head of Banking and Finance at Habib al Mulla in Dubai. “In order for judgments to be enforced in Dubai, relying on federal civil code procedures Article 325, there has to be reciprocity between Dubai and the concerned jurisdiction,” he said.

“Since the UK courts do not enforce directly UAE judgments, Monarch will have to file a suit again in Dubai,” he said.

Even if a judgment in the High Court of London was considered in Dubai, questions remain about how it would be handled and in which jurisdiction, said the London-based lawyer, who is working on cases before the Dubai World Tribunal (DWT).

The DWT was established in late 2009 as an alternative to the Dubai Courts to hear claims related to Dubai World’s USD 26bn debt restructuring, from which Drydocks was excluded, as reported.

“Drydocks is a Dubai World subsidiary and so, as a matter of Dubai law, the DWT has jurisdiction over any disputes,” the London-based lawyer said. “Enforcement is normally a matter for the local courts but recognition of arbitration awards, for example, is a matter for the DWT. I don’t know where you would need to take a foreign judgment,” he said.

While a favorable judgment would not enable Monarch to claim Drydock’s assets in the UAE, the fund may pursue some of the company’s international assets, said the third lawyer. “It may well be that [Monarch] would attempt to go after some of [Drydock’s] assets in friendlier jurisdictions abroad, such as Singapore or Malaysia for example, or wherever part of its fleet might be located at any one time,” he said.

“As in all litigation, there are a number of options available to a claimant when enforcing its rights, and all are being actively considered,” a Monarch spokesperson said.

However, Drydock’s has not disputed the debt obligations it has to its lenders, said a distressed debt trader, who was skeptical about the merits of Monarch’s case. Any court is likely to recognize that Drydock’s owes money, he noted.

“Any court would give that favourable judgment. But after that, what? It doesn’t take you anywhere. The company would be very happy to confirm outstanding obligations. But it doesn’t get you a resolution,” the trader said.

Drydocks World is now in regular dialogue with its creditor steering committee and has started “in earnest” the process to restructure USD 2.2bn of debt, Drydocks chairman Khamis Juma Buamim told this news service last week.

Drydocks has an outstanding three-year USD 1.7bn syndicated facility issued in 2008, and a five-year USD 500m Islamic facility. The trader speculated that some US-based investment banks involved in the original transactions had sold off their exposure to Drydocks.

Drydocks World declined to comment.

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