Scarinci Hollenbeck, LLC, LLCScarinci Hollenbeck, LLC, LLC

Firm Insights

Hovensa LLC Files for Chapter 11 Bankruptcy

Author: Joel R. Glucksman

Date: October 13, 2015

Key Contacts

Back

On Sept. 15, Hovensa LLC, once one of the world’s largest oil refineries , announced that it had filed for Chapter 11 bankruptcy protection, according to a CNBC report. In court papers, the company cited poor economic conditions and increased competition for its slide into insolvency.

Hovensa falls into debt

The company, a joint venture between Petróleos de Venezuela, the national oil company of Venezuela, and Hess Corp., had witnessed a significant decline in recent years, which led to its closing in 2012. According to company officials, their remote location in the U.S. Virgin Islands, the plant’s antiquated energy infrastructure, and the company’s high operating costs, all led to their balance sheet being saddled with massive debt.

In its bankruptcy documents, the company listed more than $1.3 billion in liabilities and assets between $100 million and $500 million, with roughly $750,000 in cash on hand. According to the Wall Street Journal, the company’s remaining assets include the oil refinery, 2,000 acres of commercial property, storage and distribution facilities, various equipment and land permits and rights.

Prior to its bankruptcy filing, the company had operated solely as a storage facility and fuel importer for the Virgin Islands, despite the fact that the refinery has not been operable since 2012. Following the litigation costs and the inoperability of the refinery, Hovensa decided to seek bankruptcy protection because it owes Hess Corp. and Petróleos de Venezuela $1.86 billion.

Hovensa involved in several lawsuits

On the same day it filed for Chapter 11 bankruptcy, Hovensa announced that the Virgin Islands government had filed a lawsuit against the company. In the lawsuit, the Virgin Islands government stated that it sought 100 percent of returns from over $6.5 billion in tax exemptions and incentives it provided to Hovensa from 1965 to 2015.

This lawsuit followed a rash of litigation in which the company was involved. Previously, the Virgin Islands government sued Hess Corp. under the Virgin Islands’ Criminally Influenced and Corrupt Organizations Act for more than $1.5 billion for shuttering the refinery. The Virgin Islands government claimed in the lawsuit that Hess Corp. exhibited a “pattern of misconduct”, alleging that the company began liquidation of its assets in order to leave the government with the debt.

Earlier this year, the Virgin Islands Bureau of Internal Revenue filed a grievance against Hess Corp. and Petróleos de Venezuela alleging that the partners owed approximately $3.8 billion in taxes and penalties related to the Hovensa refinery.

Hess responded to the claims with a countersuit against the Virgin Islands government seeking an $84 million tax refund for payments made on the Hovensa refinery. However, that case was later thrown out by the U.S. District Judge J. Paul Oetken.

The refinery’s restructuring plan

As part of its reorganization plan, Hovensa agreed to sell its refinery and storage facilities to Limetree Bay Holdings LLC for $184 million. In the sale agreement, that is subject to court approval, Limetree would take on a portion of Hovensa’s debt load, which is estimated to be ten times more than the acquisition price. Approximately $40 million in proceeds from the proposed sale will be paid to the Virgin Islands government as part of a claim against Hovensa for natural resource damage.

According to court documents, Hovensa stated that the offer by Limetree Bay will be subject to higher bids at a bankruptcy court auction. These bids are subject to court approval.

In a separate filing, Hess Corp. and Petróleos de Venezuela would provide $40 million in bankruptcy financing to ensure that the company maintained operations during the bankruptcy period. The company’s goal is to re-emerge from the bankruptcy process as a viable oil refinery with a fresh influx of capital to sustain operations.

The reorganization plan will also require an operating agreement to be reached with the Virgin Islands government.

The future of Hovensa

According to company officials, upon re-opening the refinery, Hovensa will supply 15 million barrels of crude oil and various refined products to market, in addition to operating as a storage facility. Hovensa cited the fact that there is a shortage of crude oil storage facilities in the Caribbean, which positions the company to grab a substantial share of the market upon re-opening operations.

No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.

Scarinci Hollenbeck, LLC, LLC

Related Posts

See all
Corporate Transactions: Best Practices for Successful Deals post image

Corporate Transactions: Best Practices for Successful Deals

Corporate transactions can have significant implications for a corporation and its stakeholders. For deals to be successful, companies must act strategically to maximize value and minimize risk. It is also important to fully understand the legal and financial ramifications of corporate transactions, both in the near and long term. Understanding Corporate Transactions The term “corporate […]

Author: Dan Brecher

Link to post with title - "Corporate Transactions: Best Practices for Successful Deals"
How to Conduct a Fair and Legal Employee Termination in 2025 post image

How to Conduct a Fair and Legal Employee Termination in 2025

Ongoing economic uncertainty is forcing many companies to make tough decisions, which includes lowering staff levels. The legal landscape on both the state and federal level also continues to evolve, especially with significant changes to the priorities of the Equal Employment Opportunity Commission (“EEOC”) under the Trump Administration. Terminating an employee is one of the […]

Author: Angela A. Turiano

Link to post with title - "How to Conduct a Fair and Legal Employee Termination in 2025"
Admin Dissolution for Annual Report: What You Need to Know post image

Admin Dissolution for Annual Report: What You Need to Know

While filing annual reports may seem like a nuisance, failing to do so can have significant ramifications. These include fines, reputational harm, and interruption of your business operations. In basic terms, “admin dissolution for annual report” means that a company is dissolved by the government. This happens because it failed to submit its annual report […]

Author: Dan Brecher

Link to post with title - "Admin Dissolution for Annual Report: What You Need to Know"
What Is Antitrust Litigation Law? post image

What Is Antitrust Litigation Law?

Antitrust laws are designed to ensure that businesses compete fairly. There are three federal antitrust laws that businesses must navigate. These include the Sherman Act, the Federal Trade Commission Act, and the Clayton Act. States also have their own antitrust regimes. These may vary from federal regulations. Understanding antitrust litigation helps businesses navigate these complex […]

Author: Robert E. Levy

Link to post with title - "What Is Antitrust Litigation Law?"
Dissolving Your Business: Essential Legal Steps to Protect Your Interests post image

Dissolving Your Business: Essential Legal Steps to Protect Your Interests

If you’re considering closing your business, it’s crucial to understand that simply shutting your doors does not end your legal obligations. Unless you formally dissolve your business, it continues to exist in the eyes of the law—leaving you exposed to ongoing liabilities such as taxes, compliance violations, and potential lawsuits. Dissolving a business can seem […]

Author: Christopher D. Warren

Link to post with title - "Dissolving Your Business: Essential Legal Steps to Protect Your Interests"
The Role of Corporate Restructuring in Mergers & Acquisitions post image

The Role of Corporate Restructuring in Mergers & Acquisitions

Contrary to what many people think, corporate restructuring isn’t all doom and gloom. Revamping a company’s organizational structure, corporate hierarchy, or operations procedures can help keep your business competitive. This is particularly true during challenging times. Corporate restructuring plays a critical role in modern business strategy. It helps companies adapt quickly to market changes. Following […]

Author: Dan Brecher

Link to post with title - "The Role of Corporate Restructuring in Mergers & Acquisitions"

No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.

Sign up to get the latest from our attorneys!

Explore What Matters Most to You.

Consider subscribing to our Firm Insights mailing list by clicking the button below so you can keep up to date with the firm`s latest articles covering various legal topics.

Stay informed and inspired with the latest updates, insights, and events from Scarinci Hollenbeck. Our resource library provides valuable content across a range of categories to keep you connected and ahead of the curve.

Let`s get in touch!

* The use of the Internet or this form for communication with the firm or any individual member of the firm does not establish an attorney-client relationship. Confidential or time-sensitive information should not be sent through this form.

Sign up to get the latest from the Scarinci Hollenbeck, LLC attorneys!