Cross-Border Restructuring

On Tuesday, September 15, 2015, Judge Kevin J. Carey, United States Bankruptcy Judge for the District of Delaware, granted motions to dismiss Chapter 11 proceedings relating to the failed Baha Mar resort project filed by Baha Mar’s Bahamian creditors CCA Bahamas Ltd. and Export-Import Bank of China.  The Debtors include fourteen corporations based in the Bahamas, as well as Northshore Mainland Services, Inc., which is incorporated in Delaware.

In his Memorandum Opinion, Judge Carey dismissed the Chapter 11 cases filed by the Bahamas-based debtors under section 305(a) of the Bankruptcy Code.  While the court considered a numbers of factors before concluding that granting the motions to dismiss would serve the best interests of the Debtors and all creditors, Judge Carey’s decision rested primarily on the fact that: (i) CCA, Export-Import, and the Debtors are Bahamian entities and, (ii) given that the project was based in the Bahamas, the parties would expect any resolution of the proceedings to be most effectively accomplished in the Bahamas.  Judge Carey therefore concluded that there was “no greater good to be accomplished by exercising jurisdiction over these chapter 11 cases.”

However, Judge Carey denied the motion to dismiss with respect to Debtor Northshore, holding that as a Delaware corporation, the “[p]arties would expect Northshore’s financial difficulties to be addressed in a proceeding in the United States.”

The court’s ruling may serve as a warning to international creditors that U.S. Bankruptcy Courts will not extend their jurisdiction limitlessly, and creditors should seriously consider whether a proceeding would be more appropriately brought in their home countries.

On January 10, 2014, the Supreme Court agreed to hear Argentina’s appeal of the Second Circuit’s decision allowing “holdout” bondholders to subpoena banks for information about Argentina’s assets.  EM Ltd. v. Republic of Argentina, 695 F.3d 201 (2d Cir. 2012), cert. granted, Case No. 12-842, 2014 LEXIS 15 (Jan. 10, 2014).  In the lower courts and in its petition for review, Argentina argued that allowing the subpoenas to apply to non-U.S. assets would violate Argentina’s sovereign immunity.  The U.S. Solicitor General filed an amicus curiae brief arguing that the Supreme Court should grant certiorari because the Second Circuit’s decision “raises significant foreign-policy concerns for the United States.”

As discussed here, Argentina is also expected to seek Supreme Court review of the Second Circuit’s decision upholding an injunction barring Argentina from paying holders of restructured debts while “holdout” creditors remain unpaid.  The petition for certiorari in that case is due in February 2014.

Check back with the Hughes Hubbard Bankruptcy Blog for further developments in these cases.

On November 18, 2013, the Second Circuit issued an order denying Argentina’s petition for rehearing of the court’s decision upholding an injunction that barred Argentina from paying holders of restructured debts while “holdout” creditors remain unpaid.  NML Capital, Ltd. v. Republic of Arg., Case No. 12-105, Docket No. 1035 (2d Cir. Nov. 18, 2013).  As discussed here and here, the “holdout” creditors are primarily hedge funds who declined Argentina’s 2005 and 2010 restructuring offer to trade sovereign bonds for newly issue bonds at a significant haircut and are now trying to collect on the original debt.

The district court injunction remains stayed pending further appeals.  Argentina has 90 days to petition the Supreme Court to review the case.  As discussed here, the Supreme Court rejected Argentina’s earlier petition to hear the interim decision of the Second Circuit that all bondholders must be treated equally.

Oil firm OGX Petroleo & Gas Participacoes SA, petroleum, filed for bankruptcy protection in a Brazilian court on Wednesday, October 30th, after the company had difficulties finding and producing oil and natural gas. OGX is owned by former billionaire Eike Batista and a part of his EBX Group conglomerate. The bankruptcy case is anticipated to be one of the largest of its kind in Latin American history. It is also expected to challenge the bankruptcy laws in Brazil, which are only about a decade old.

CRG Partner Christopher K. Kiplok spoke to Law360 (subscription required) and The Deal (subscription required) concerning the bankruptcy. “For that jurisdiction, this is a case of major size,” Chris told Law360. Chris also explained to the publication that size does not necessarily lead to a difficult case, but that any large filing brings with it the potential for uncertainty no matter how well-orchestrated it might be.  He told The Deal that OGX’s filing “is not a surprise and that is a good thing in so much as it was not a chaotic filing.” Chris further noted, “The thing to watch now is what litigation stems from this, because the more of that there is the greater the chance of delays to the process.”

“In any big case, there is an air of uncertainty,” Kiplok told Euroweek (subscription required) “And for OGX you have to layer on to the size the fact that the Brazilian bankruptcy regime has been reformed in recent years. Big cases with big complicated issues don’t have much of a playbook to follow, and with a new regime less so.”  He added, “In my experience, the best bankruptcies are collaborative processes. In the absence of any consensus, there is a real risk of value erosion.”

Chris was also quoted in Latin Lawyer, among other business and legal publications.