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Foley Team Wins Affirmance of Bankruptcy Court’s Dismissal of ‘Rogue’ Bankruptcy Petition

29 August 2018 Media Contact: Jill S. Chanen

A team of Foley attorneys has persuaded a federal appeals court to affirm the dismissal of a ‘’rogue” bankruptcy petition by the ousted former board of directors of a scandal-plagued Chinese coal company.

The Foley team represented Robert W. Seiden, the court-appointed receiver for Sino Clean Energy, Inc. (SCEI), a Nevada-based holding company that, through various subsidiaries, produces coal-water slurry in China.

SCEI had once been one of the largest producers of clean energy fuel in China. The company, based in Xi’an, China, listed its shares on the NASDAQ stock exchange after a reverse merger in 2006 with a largely defunct company called Endo Networks and then raised more than $26 million in the United States.

In 2012, however, SCEI abruptly stopped filing certain required forms and financial information with the U.S. Securities and Exchange Commission and failed to convene its required annual shareholders’ meetings and elections of directors under Nevada statutes. The SEC subsequently deregistered the company and it was de-listed from NASDAQ.

By October 2013, a group of shareholders had filed suit in a Nevada state court and obtained a default judgment against SCEI after it failed to respond to their demands for books and other records regarding money invested with the company. The shareholders then filed a motion for the appointment of a receiver to take over the company, which was granted in 2014, and Seiden eventually replaced SCEI’s board with a sole director.

In 2015, Baowen Ren, SCEI’s former chairman and CEO, purported to “reconstitute” the company’s former board and attempted to file a voluntary petition for Chapter 11 bankruptcy. The bankruptcy court dismissed the action, holding that the petition was filed “without corporate authority” because SCEI’s board had been replaced by the receiver. A district court judge affirmed.

Ren and the former board members appealed the decision to the Ninth Circuit, which, in a seven-page ruling Monday, affirmed.

Applying Nevada law to the facts of the case, the court said, the individuals who filed the bankruptcy petition were not members of the board of directors of SCEI at the time they filed the petition, and were not authorized to file a bankruptcy petition on behalf of the company.

“The bankruptcy court correctly dismissed the action because appellants lacked corporate authority when they filed the rogue bankruptcy petition,” Senior District Judge Ivan L.R. Lemelle wrote for the three-judge panel.

The Foley team consisted of senior counsels Katie Catanese (who argued the appeal) and Tamar Dolcourt, along with partner Doug Spelfogel and associate Carly Krupnick.