A foreign proceeding

Daniel Roque Vítolo
Foreign Debtors Filing Petitions
under Section 304, Chapter 11 of
US Bankruptcy Courts
Why, Who and How?
Prague, September 2005
www.vitolo-abogados.com.ar
General
Background
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A foreign debtor
A foreign proceeding
A case ancillary to a foreign proceeding
Assets, interests or properties in the US
A foreign representative
A specific petition
Compliance with some requirements
„ Absence of fraud
„ Just treatment for creditors
„ Justified balance between parties
„ Comity
New chance (for human beings only)
Why
US Courts?
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Because some creditors have filed or could file an
“involuntary case” in the US against you as a foreign
debtor (303)
„ You need to controvert the petition
„ You need to protect your assets
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Because you need to file a restructuring proceeding
under some basis that are not allowed in your country
(303)
„ To use a business reorganization proceeding only to
reorganize some part of your liabilities
„ To avoid a “default” declaration in your own country
that would imply that some activities, concessions, or
specific rights could be terminated
• You must have a “connection point” with US
Why filing
for a 304?
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Because you have a main foreign proceeding and...
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You need that all creditors come to that unique foreign
proceeding
You need to include those credits as liabilities under only
one proof of claim proceeding
You need to manage the negotiation of the plan in only
one Court
You need to obtain majorities required by law including
all creditors under only one system
You need to brake some particular creditors’ rights and
systems (i.e. bonholders unanimous decision)
You need to avoid that your collections or assets could
be frozen by creditors’ action in a foreign country
You need to use all your assets, cash flow and facilities
to develop the plan avoiding using them to pay only
foreign credits
What is a
Foreign
Proceeding?
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UNCITRAL Model Law
„ Collective proceeding
„ Judicial or administative
„ Under Insolvency rules
„ Debtor assets under Court’s control
„ Reorganization or liquidation
Section 101 US BC
„ Judicial or Administrative
„ Under bankruptcy law or not
„ In a foreign country (debtor must have there his
domicile, residence, principal place of business,
principal assets, at the begining of the proceeding)
„ Purpose of liquidation an estate adjusting debts by
composition, extension or discharge or company
restructuring or reorganization
New
Chapter 15
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A collective proceeding
Judicial or Administrative
Under bankruptcy law or not
Interim or definitive
In a foreign country (debtor must have there his
domicile, residence, principal place of business,
principal assets, at the begining of the proceeding)
Purpose of liquidation an estate adjusting debts by
composition, extension or discharge or company
restructuring or reorganization
Assets and affairs of the debtor subject to control or
supervision of a foreign court
SOME
SOUTH-AMERICAN
EXPERIENCES
Cía. Gral. de
Combustibles
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Final arbitral award against CGC in US
confirmed by a District Court (the creditor
was a company with headquarters in Texas)
CGC filed for a business reorganization
proceeding in Argentina (Bs.As.)
Filed for a 304 asking a preliminary
injunction
Creditors objected that petition
The injunction was granted (provisionally
first and confirmed afterwards) not only in
US but abroad
Singer
Brazil
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Singer filed for a Business reorganization proceeding in
Brazil
Reached an agreement with 85% of noteholders
Singer considered that US was a more convenient
jurisdiction to negotiate with them
Singer filed for Chapter 11 in US
Some conflict of rules
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Payments on pre-filed debts
Absence of a stay period against secured creditors
Finally US Court and Brazilian Court approved the global
reorganization
Varig
Brazil
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A Brazilian company with affiliates with creditors
in US
Filed a business reorganization proceeding in Brazil
Filed for assets protection in US Courts
US considered that entry of an injunction would
contribute to an economical and expeditious
administration for the Debtor’s estate
All persons subject to the jurisdiction of the US
Court were enjoined and restrained from
commencing or continuing any action to collect a
pre-petition debt without obtaining relief from the
Court
Multicanal
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Multicanal filed for an off-court reorganization
agreement in Argentina (APE)
„ Including US creditors (who participated there)
Some foreign creditors commenced two law suits in
the US Supreme Court
„ Asking a decision about their payment
„ Asking a declaratory and injunctive relief (not to
restructure Notes in the APE)
In response Multicanal filed for a 304 proceeding
for recognition of its APE [insolvency reorganization
procedure similar to US prepackaged plans]
Multicanal (ii)
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The Court established that:
„ There were a “foreign representative”and a “foreign
proceeding”
„ The APE beared a strong resemblance to US
prepackaged plans of reorganizations
„ It was not necessary for APE’s recognition a judicial
oversight during the period in which the debtor
formulates the plan
„ The touchstone to recognize the foreign proceeding
under Section 304 is whether that foreign
proceeding allows for the economical and
expeditious administration of the foreign estate
consistent with the factors set forth in Section 304
(c)
„ Nothing in the terms of the APE agreement was
fundamentaly inconsistent with the provisions of a
confirmable Chapter 11 plan
Cablevision
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First Cablevision offered to cancel some Notes
and exchange them for 50% of their value
under an APE system
Cablevision filed for an APE in Argentina
(Buenos Aires) and decided to announce not
to count some Noteholders votes for purpose
of calculating majorities
Creditors filed an action in New Jersey
claiming that cablevision was violating the
tender offer rules under Williams Act and Trust
Indentiture Act
Cablevision
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Cablevision filed for a Section 304 proceeding in US
trying to stop creditors’ action
The Court granted Cablevision’s application and
issued a TRO to stay creditors’ action in the District
Court
Creditors filed a motion to Withdraw the Reference
pursuant to 28 USC 157 (d)
The case finished with a settlement
However the District Court said that it might very
well be that Section 304 and it deference to foreign
insolvency proceedings overrode the TIA and it
might also well that extending comity to the APE
would be the appropriated course…
What’s coming on…
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Next October will operate New Chapter 15 US
Bankruptcy Code
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More flexibility in recognizing foreign
proceedings
More cooperation between Courts
More countries adopting UNCITRAL Model Law?
Is Universalism beginning to win the battle?
For how long..?
How will this new rules impact credit
markets..?
Will them imply increasing the interest rate..?
If you are looking
for an answer…
Don’t miss SIRCS’ sessions
in the next IBA Meetings
ATHENS, May 2006
and
CHICAGO 2006