The South Bay Law Firm Law Blog highlights developing trends in bankruptcy law and practice. Our aim is to provide general commentary on this evolving practice specialty.

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      Bankruptcy and Insolvency News and Analysis Ė Week Ending October 21, 2016
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    Bankruptcy and Insolvency News and Analysis Ė Week Ending October 14, 2016

    Posts Tagged ‘Cross-Border Issues’

    Chapter 15 and US Bankruptcy Courts: How Universal is “Universalism”?

    Saturday, March 12th, 2011

    Chapter 15 of the US Bankruptcy Code, enacted in 2005, was Congress’ effort to make cross-border insolvency proceedings just a little more predictable.¬†

    Specifically,¬†the statute’s policy objective was to¬†“recognize” the efforts of foreign insolvency administrators and trustees to administer their debtors’ US-based assets – thereby¬†helping to “standardize” the way assets and claims are treated in non-US insolvency proceedings.

    View of Capitol Hill from the U.S. Supreme Court

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    Chapter 15 reflects a strong Congressional preference for what has been described as a “universalist” (rather than a “territorial”) approach to cross-border insolvency administration.¬† But have US Bankruptcy Courts actually followed through on this “universalist” policy?

    That is the question behind an empirical study on Chapter 15 recently published by Jeremy Leong, an advocate and solicitor with Singapore’s Wong Partnership.¬† According to Mr. Leong, the study (entitled¬†IS CHAPTER 15 UNIVERSALIST OR TERRITORIALIST? EMPIRICAL EVIDENCE FROM UNITED STATES BANKRUPTCY COURT CASES, and forthcoming in the Wisconsin International Law Journal) and its results indicate that, despite its ostensibly “universalist” objectives:

    United States courts applying Chapter 15 have not unconditionally turned over [the] debtor’s assets in the United States to foreign main proceedings.  The results of the study show that while United States courts recognized foreign proceedings in almost every Chapter 15 case, courts entrusted United States assets to foreign proceedings for distribution in only 45.5% of cases where foreign proceedings were recognized.  When such entrustment was granted, 31.8% of cases were accompanied by qualifying factors[,] including[] orders which protected United States creditors by allowing them to be paid according to the priority scheme under United States bankruptcy law[,] or assurances that certain United States creditors would be paid in full or in priority.  In only 9.1% of cases, entrustment of assets for distribution was ordered without any qualifications[] and where there were US creditors and assets at stake.

    Based on this data, Mr. Leong goes on to conclude that “when deciding Chapter 15 cases, United States courts seldom grant entrustment [of assets for foreign distributions] without [protective] qualifications when United States creditors may be adversely affected.”¬† Consequently,¬†“Chapter 15 is not as universalist as its proponents claim it to be and exposes the inability of Chapter 15 to resolve conflicting priority rules between the United States and foreign proceedings.”

    Mr. Leong’s study is commendable as one of the earliest pieces of empirical work on how Chapter 15 is actually applied.¬† But it raises some questions along the way.¬† For example:

    Is a 45.5% “entrustment” rate really accurate?¬† Mr. Leong’s claim that “courts entrusted United States assets to foreign proceedings for distribution in only 45.5% of cases where foreign proceedings were recognized” does not really compare apples to apples.¬† That is, it measures the “entrustment” of assets across all recognized foreign proceedings – and not the smaller subset of proceedings where entrustment was actually requested.

    According to Mr. Leong’s study results, “of the 88 cases where recognition was granted, the [US bankruptcy] court made orders for [e]ntrustment in only 40 cases.¬† Of the remaining 48 cases where [e]ntrustment was not granted, [e]ntrustment had been requested by foreign representatives in 25 of these cases.”¬† In other words, “entrustment” of assets was requested in 65 of the cases in Mr. Leong’s sample – and in those cases, it was granted in 40, providing a 61.5% success rate for the “entrustment” of assets, rather than the study’s advertised 45.5% success rate.

    Is a 45.5% “entrustment” rate really all that bad?¬† Success rates – like many other statistics – are significant only by virtue of their relative comparison to other success rates.¬† Assuming for the moment that¬†the 45.5% “entrustment” rate observed where¬†US courts apply Chapter 15 was indeed accurate, how does that rate compare¬†against similar requests in the insolvency courts of other sophisticated business jurisdictions applying their own¬†recognition statutes?¬†¬†

    Without such benchmarks or relative rankings, the conclusion that US courts are not “universal” seems premature.

    Is “asset entrustment” really the true measure of “universalism?”¬† Finally, and perhaps most fundamentally, Mr. Leong’s focus on the “entrustment” of assets – i.e., the turnover of US-based assets for distribution in a foreign insolvency case – seems to neglect the other reasons for which a US bankruptcy court’s recognition of cross-border insolvency might be sought.¬† Such reasons include the “automatic stay” of US-initiated litigation against the debtor, access to US courts for the purpose of gaining personal jurisdiction over US-based defendants and the recovery of assets, and access to the “asset sale” provisions of the US Bankruptcy Code which automatically apply along with recognition under Chapter 15.

    Given the breadth of strategic reasons for seeking recognition of a foreign insolvency in the United States (many of which are unrelated, at least directly,¬†to the ultimate distribution of assets), the study’s focus on “entrustment” as a measure of “universalism” may be over-narrow.

    These questions aside, however, Mr. Leong’s study¬†asks thought-provoking and empirically-grounded questions about the true nature of “universalism” as applied in US bankruptcy courts.¬† It is an important initial step in framing the proper assessment of cross-border insolvencies in coming years.

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    Chapter 15 Round-Up: February – April 2009

    Sunday, May 10th, 2009

    The first four months of 2009 have been busy ones for Chapter 15 filings.¬† Though New York has, to date, been and remains the focal point for a significant amount of cross-border work, the Bankruptcy Code’s newest chapter was pressed into service in a variety of cross-border insolvencies around the country.¬† The following summary (culled from news reports and from the national dockets) highlights some of the more notable filings from February through April:

    – Brazilian beef exporter, leather manufacturer, and logistics operator Independencia SA sought recognition on Febriary 27 from New York’s judge Stuart Bernstein with respect to its Brazilian “recupera√ß√£o judicial” – the equivalent of a Chapter 11 reorganization – then pending in the Lower Civil Court of Cajamar in S√£o Paulo. At the time of the filing, approximately $525 million of the company’s $1.2 billion in debt was in outstanding bonds priced at 9.875%. The Chapter 15 proceeding was commenced to protect US-based assets (primarily bank accounts and accounts receivable) and to stay US-based litigation.

    – On February 10, PricewaterhouseCoopers AG, Zurich (“PwC”), in its role as the bankruptcy liquidator and putative foreign representative of Lehman Brothers Finance AG (also known as Lehman Brothers Finance SA) (“LBF”), filed a Chapter 15 proceeding and concurrently sought the dismissal of LBF’s Chapter 11 bankruptcy case on the grounds that, under Bankruptcy Code section 305, the wholly owned subsidiary of Lehman Brothers Holdings Inc. was to be liquidated – and, further, that “[g]iven LBF’s limited connections to the U.S. and the existence of¬†[LBF’s] swiss bankruptcy, PwC believes that a chapter 15 case is the most efficient and appropriate vehicle to administer any assets LBF may have in the United States, and that dismissal of the Chapter 11 Case is in the best interests of LBF, its creditors and equity holders.”¬† According to the liquidators,¬†“PwC has access to the books and records of LBF and has already done an in-depth investigation into LBF’s assets and liabilities, and is already tasked with protecting the interests of LBF’s creditors world-wide. In addition, as most of LBF’s creditors and assets are outside the U.S., maintaining the Chapter 11 Case will require LBF to expend unnecessary time, money and effort to coordinate the Chapter 11 Case with the swiss bankruptcy, which will deplete the estate and reduce the recovery of all stakeholders.”¬† PwC’s motion was granted on March 13.¬† One pending adversary involving LBF was transferred to the Chapter 15 case, while a second remained pending under the jointly administered Chapter 11 cases of Lehman Brothers Holdings, Inc., et al.

    –¬†On March 11, South Korean bulk ocean carrier Samsun Logix Corp. sought recognition of its rehabilitation proceeding under Korea’s Act on Rehabilitation and Bankruptcy of Debtors, commenced approximately one month previously in in the 3rd Bankruptcy Division of the Seoul Central District Court.¬† The dry bulk shipping carrier sought recognition of its Korean case to protect its US-based assets during the pendency of the rehabilitation proceeding.

    –¬†Road Town, British Virgin Islands-based private investment holding company Grand Prix Associates Inc. and 10 affiliates filed Chapter 15 petitions on March 18 in Newark. The filings were commenced after the debtors sought protection in the High Court of Justice of the Eastern Caribbean Supreme Court, and were allegedly triggered by disputes over obligations with Credit Suisse Strategic Partners. The New Jersey filings were commenced to protect the companies’ US-based assests.

    РBrazilian Air cargo transporter Varig Logistica SA sought recognition in Miami for its São Paulo restructuring on March 31.  By the filing (and concurrent request for an injunction), the company sought relief from litigation in Florida and New York over aircraft leasing agreements while the reorganization proceeds.  Litigants Pegasus Aviation I Inc., Pegasus Aviation II Inc., Pegasus Aviation IV Inc. and Pegasus Aviation V Inc. have sought relief from the automatic stay.  A hearing is scheduled for May 11.

    – Bernard Madoff’s English business unit, Madoff Securities International Ltd., sought Chapter 15 protection in on April 14 before Bankruptcy Judge Paul Hyman Jr. in West Palm Beach, Florida. Its liquidators seek recover assets, including a vintage Aston Martin automobile, from Madoff’s brother, Peter.

    – Renton,¬†Washington-based¬†Washington Gaming Inc. and its corporate parent Evergreen Gaming Corp. sought recognition on April 15 in the Western District of Washington for their proposed reorganization under the Canadian Companies’ Creditors Arrangement Act (CCAA).¬† The sole need for the Evergreen group’s decision to seek protection under the CCAA stems from Evergreen’s default with respect to a $29 million obligation to the company’s primary secured creditor, New York-based Fortress Credit Corp.¬† The Chapter 15 case was initiated to protect the companies’ US assets while the CCAA proceeding is ongoing.

    – British offshore oil and gas exploration and production company¬†Oilexco North Sea Ltd. sought and obtained interim protection from Judge Robert Drain in New York on April 28 in advance of¬†recognition of¬†the company’s voluntary arrangement (CVA), then pending in London.¬† Its Canadian parent, Oilexco Inc. –¬†which sought separate protection under Canada’s Companies’ Creditors Arrangement Act on Feb. 5 – was not involved in the filing.¬† Oilexco North Sea’s CVA was approved on April 15 and will be implemented on May 13, if not challenged in the interim.¬† The company’s US filing was initiated to protect it from several domestic lawsuits.

    Clico (Bahamas) Ltd.‘s liquidator sought recognition of its Bahamian winding-up proceeding from Bankruptcy Judge Jay Cristol in Miami on April 28.¬† The Caribbean insurer made more than $70 million in loans to various real estate developments in Florida.¬† Recognition in the US would protect these¬†assets, as well as others, from creditors and permit them be liquidated through the Bahamian proceedings.

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    All Right . . . Who’s In Charge Here?!!

    Monday, April 27th, 2009

    When a foreign representative meets a federal receiver, who’s ultimately in charge?¬† And in charge of what?

    The US Bankruptcy Code’s cross-border provisions were enacted by Congress to foster “cooperation between (A) courts of the United States, United States trustees, trustees, examiners, debtors and debtors in possession; and (B) the courts and other competent authorities of foreign countries involved in cross-border insolvency cases.”¬† The same provisions were also intended to promote “greater legal certainty for [international] trade and investment.”

    To this end, Chapter 15 of the Bankruptcy Code sets forth relatively simple, straightforward requirements necessary for foreign representatives to obtain recognition of a “foreign proceeding,” and provides further that once such recognition is granted, US courts “shall grant comity or cooperation to the foreign representative.”¬† But the same chapter also provides that the recognizing US court may “modify or terminate” the relief otherwise available by statute to a foreign representative where the interests of creditors and the debtor “are sufficiently protected.”

    These policy objectives – along with the Code’s cross-border provisions – are about to undergo a Texas-sized test next month, where a federal receiver appointed in Dallas to marshal the assets of Sir Allan Stanford’s Stanford Financial Group and other, related companies is wrangling with liquidators appointed for Antiguan affiliate Stanford International Bank, Ltd. – the entity that issued¬†“certificates of deposit”¬†purchased by investors in an alleged $8 billion, world-wide¬†Ponzi scheme.

    The case is likely to offer important insight into how federal courts will reconcile¬†their equitable perogatives in other, non-bankruptcy insolvency proceedings (such as federal receiverships) with the Bankruptcy Code’s cross-border insolvency provisions.

    In late February, the Securities and Exchange Commission sought a Temporary Restraining Order and immediate appointment of a receiver for the US-based assets of Stanford Financial Group (SFG) and related companies to stop an alleged¬†“massive, ongoing fraud orchestrated . . . through . . . Antiguan-based Stanford International Bank, Ltd. and its affiliated Houston-based financial advisors . . . .”

    Upon US District Court Judge David Godbey’s grant of a TRO, Dallas attorney Ralph Janvey was appointed Receiver.¬† Very shortly thereafter, Antiguan regulators placed Stanford¬†International Bank,¬†Ltd.¬†(SIB) into liquidation and¬†appointed Nigel Hamilton-Smith and Peter Wastell as liquidators.

    All the parties acknowledge that there were at least initial efforts to reach cooperative arrangements regarding the administration of the concurrent liquidation proceedings.  Unfortunately, these efforts apparently went nowhwere.

    In mid-March, Janvey’s counsel requested an amendment of the District Court’s receivership order so as to provide Janvey with the exclusive power to commence any federal bankruptcy proceeding (including the prohibition of any petition for recogntion by any other party without prior Court order) and¬†to act as “foreign representative” in non-US courts on the companies’ behalf.¬† The proposed Order further left such arrangements in place for approximately 6 months.

    Judge Godbey granted the motion, which was unopposed – but struck provisions of the Order that would designate Janvey as a “foreign representative” in non-US proceedings.

    Last Monday, Hamilton-Smith and Wastell sought recognition under Chapter 15 before Judge Godbey and requested (i) a further amendment of Janvey’s already-amended receivership order so as to remove the prohibition against their commencement of a Chapter 15 case; and (ii) referral of the Chapter 15 case to the US Bankruptcy Court.

    In papers supporting their requests, the English liquidators essentially argue that the receivership order is unenforceable insofar as it purports to restrict the commencement of a Chapter 15 case – and that the District Court simply may not enjoin such a filing.¬† Hamilton-Smith and Wastell claim further that Janvey has attempted – improperly and, apparently, without success – to interpose himself into the Antiguan liquidation and to have himself appointed as liquidator in that proceeding as well as in the US receivership.¬†¬† Predictably, Hamilton-Smith and Wastell also devote significant attention to establishing Antigua as the “center of main interests” for SIB’s Antiguan liquidation.

    Mr. Janvey has yet to respond.¬† But he provided some indication of what that response will be in a 58-page Interim Report filed last Thursday.¬† In it, Janvey claims that SIB is an asset of the Receivership estate, since it was owned by¬†Sir Allan¬†Stanford on the date the receivership was instituted.¬† According to Mr. Janvey, his efforts to intervene in the Antiguan liquidation were rebuffed by the Antiguan court on the grounds that the receivership had no effect in Antigua, and that Janvey was therefore not an interested party to the liquidation.¬† Janvey further accuses Hamilton-Smith and Wastell of obtaining a Canadian registrar’s order recognizing them as the “foreign representatives” for SIB within the contemplation of Canadian insolvency law . . . all with no prior notice to him.

    Not surprisingly, Janvey believes the US¬†– and not Antigua – constitutes the “center of main interests” for these cases, and that his receivership, rather than the Antiguan liquidation,¬†ought to be deemed the “main” or primary insolvency proceeding.

    Can a federal court, acting within a federal receivership,¬†interpose its own additional barriers upon the Bankruptcy Code’s relatively minimal requirements for obtaining recognition of a foreign insolvency?¬† Can foreign representatives, once they have obtained recogntion for a foreign proceeding, demand and expect “comity” from any US court in aid of their own insolvency objectives, regardless of that court’s ongoing efforts to administer an insolvent estate?¬† Or can¬†that court modifiy the relief otherwise available to suit its own pre-existing administrative scheme for the same estate?¬† Can a federal court utilize its equitable powers to institute a receivership that will administer world-wide assets, claims, and recovery actions?¬† Or can the Court instead use similarly broad¬†discretion to fashion and direct the mutual cooperation that, to date, has eluded Messr’s. Janvey, Hamilton-Smith, and Wastell?

    This is a matter well worth watching.

    Judge Godbey has scheduled briefing¬†on the Antiguan liquidators’ requests into early May.¬† Copies of the SEC’s¬†papers in support of the TRO, the District Court’s¬†amended receivership order, the liquidators’ notice of Chapter 15 case, motion to amend the receivership order, and papers in support of the motion to refer matters to the Bankruptcy Court¬†. . . and the receiver’s interim report¬†. . . are all available here.

    Happy reading.

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    An Out-of-Court “Winding Up” Entitled to Recognition Under Chapter 15? You Bet!

    Monday, March 23rd, 2009

    Chapter 15 of the Bankruptcy Code¬†– the Code’s “cross-border” provision – was enacted in 2005 to protect US-based assets and preserve US-based claims for administration overseas whenever a foreign debtor finds itself in insolvency proceedings outside the US.¬† Though many of Chapter 15’s “core” concepts are the same as those that existed under prior US cross-border bankruptcy law, some significant differences exist.

    A recent decision by Nevada Bankruptcy Court Judge (and UNLV Law School professor) Bruce Markell highlights an important one of those differences.

    The facts presented to Judge Markell in¬†In re Betcorp Limited (In Liduiqdation) were straightforward: Betcorp was an Australian-based on-line betting operation whose customers were located in the US.¬† From about 2002 through 2006, the company grew its operations into a purported “one-stop shop” for on-line gamblers.¬† In the process, it allegedly infringed on an Interenet data-transmission technology patent held by US-based 1st Technology LLC.¬† Despite threats of litigation and offers to settle, Betcorp and 1st Technology could never come to terms.

    Meanwhile, Betcorp’s business was effectively terminated in late 2006 when the US enacted the Unlawful Internet Gambling Enforcement Act (31 U.S.C. ¬ß¬ß 5361-67) and effectively cut off the company’s gambling revenues from its US customers.¬† At an extraordinary directors’ meeting the following year, the company appointed two Australian liquidators and began a voluntary “winding up” under Australian insolvency law.

    A voluntary “winding up” is essentially a private liquidation authorized by the Australian Corporations Act, conducted by company-retained liquidators under the auspices of the Australian Securities & Investments Commission (ASIC) and reviewable on appeal by Australian courts.¬† It has statutory analogues in most countries whose civil law derives from the old British Commonwealth system, and is very generally anlogous to an American “assignment for the benefit of creditors” (ABC).¬† ABC’s are recognized under the laws of virtually every state in the US, and – in California – are commonly used as a very quick and inexpensive means of winding up a company’s affairs and disposing of its assets.

    Undeterred by Betcorp’s Australian winding up, 1st Technology commenced a patent infringement action against Betcorp in Nevada’s US District Court.¬† After further, unsuccessful efforts to amicably resolve the infringement claims, the liquidators sought recognition under Chapter 15 to administer the dispute through the Australian winding-up process.¬† 1st Technology disputed the request, arguing that Betcorp’s (essentially) private “winding up” was not a “foreign proceeding” to which Chapter 15 relief applies.

    In a 39-page decision, available here, Judge Markell granted recogntion to the liquidators.¬† To do so, he gave extensive discussion to the establishment of Australia as Betcorp’s “center of main interests” (COMI) – an important element in gaining relief under Chapter 15 and the subject of a number of prior, published decisions in the US.¬† Of interest for this post, however, Judge Markell also delved into the amended meaning of the term “foreign proceeding.”

    What is a “foreign proceeding” under the amended Bankruptcy Code?¬† Judge Markell devoted nearly 15 pages – over half his analysis – to spell it out, applying a seven-part test to address this question of apparent first impression . . . and finding, in the end, that Betcorp’s private “winding up” met the test.

    Judge Markell was not writing purely to satisfy his own intellectual interest.¬† The definition of a “foreign proceeding” is a potentially¬†critical one¬†for international insolvency lawyers looking to strategize the preservation of assets and admnistration of claims in a multi-national case.¬† It is noteworthy that the Bankruptcy Court for the Southern District of New York came to exactly the opposite conclusion under prior US law about a nearly identical¬†“voluntary winding up” proceeding, this one¬†in Hong Kong (like Australia, a former Commonwealth jurisdiction with roots in the British civil law system).¬† That court’s decision – In re Tam – is located at 170 B.R. 838 (Bankr. S.D.N.Y. 1994).

    Judge Markell’s decision¬†suggests that at least some private liquidations in some foreign jurisdictions are now entitled to the very same level of¬†recognition and protection in the US as are more formal, judicial insolvency proceedings.¬† ¬†If this conclusion bears out, it permits foreign debtors the potential ability to use such liquidations to exert far greater control over the disposition of US-based assets and resolution of US-based claims than was available under former US law.

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    Chapter 15 Recognition for Insolvencies North and South of the Border

    Sunday, February 22nd, 2009

    An update on recent recognition requests from North and South America:

    Railpower Technologies Corp.¬†– The Quebec-based manufacturer of high performance, clean locomotives and power plants for the transportation and related industries obtained provisional relief for its U.S. subsidiary, Railpower Hybrid Technologies Corp., in the Western District of Pennsylvania on February 4.¬† A continued hearing on the requested relief, pending recognition of Railpower’s Canadian proceeding, is scheduled for March 5.¬† A copy of the provisional Order and the¬†memorandum of law in support is available here.

    CPI Plastics – CPI Plastics Group Ltd., which previously obtained recognition in the Bankruptcy Court for the District of Wisconsin in order to protect its primary US asset – a films plant in Pleasant Prairie, Wis. – is now up for sale.¬† The Mississauga, Ontario-based profile and film extruder had been placed into receivership after its primary secured creditor, Bank of Montreal, petitioned to take over the company.¬† It continues to operate pending a sale.¬† According to news reports, the company’s C$3.4 million (US$2.7 million) fourth quarter losses triggered loan covenant violations with the bank.¬† A prior restructuring effort was unsuccessful.¬† The request for relief and the Bankruptcy Court’s subsequent recognition¬†Order and related relief is available here.

    ITSA – Brazilian telecom ITSA obtained recognition from Judge Alan Gropper in New York’s Southern District in furtherance of its proposed plan of reorganization.¬† The company – which petitioned a Brazilian court for ratification of its extrajudicial reorganization plan last April – viewed the ancillary filing in New York as necessary in order to enforce the Brazlilian plan’s treatment of the company’s $35 million in 12% senior secured notes, which¬†are held by U.S. creditors and whose indenture was issued under and governed by New York state law.¬† The company has no other assets or business operations in the United States.¬† Bankruptcy Judge Allan Gropper’s¬†Order¬†granting recognition are available here.

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    Hong Kong Government Mulls Changes to Region’s Insolvency Law

    Saturday, January 24th, 2009

    Last week’s post (below) covered a recent Chapter 15 petition commenced by Armada (Singapore) Pte. Ltd. in aid of the company’s efforts to effect a scheme of arrangement with its creditors and asked whether – had Armada’s “home jurisdiction” been Hong Kong rather than Singapore – the company’s efforts to protect US-based assets might have warranted a different approach in US courts.

    This week brings fresh news from Hong Kong – this time about a possible change in that region’s insolvency law.¬† As reported by Bonnie Chen and Patsy Moy in the Hong Kong Standard:

    The government is considering reintroducing a corporate rescue bill – shot down by the Legislative Council eight years ago – to help companies with short-term financial difficulties but viable long-term prospects ride out the financial tsunami . . . .¬† The measure, first proposed in 2001, is similar to the United States’ Chapter 11 bankruptcy code that is intended to save companies from going bust . . . . [Hong Kong Chief Executive Donald Tsang Yam-kuen] said the rescue procedure would resemble those in place in the United States and Britain that give firms with serious liquidity problems time to restructure their business, secure new funds and find new investors. He said that under current legislation, companies with liquidity problems had no choice but to go into bankruptcy and dispose of their assets. A similar proposal failed to find consensus in 2001 mainly because of some business people, Tsang said, but the time is now ripe for renewing efforts. “The financial tsunami presents an opportunity for all parties concerned to strike a compromise, and resume the necessary legislative work, so as to minimize business closures and job losses,” he said.

    How long would such a compromise take?¬† According to the Standard, “[a] bill will be drafted for consultation and the legislative process could take at least a year.”

    Even in Hong Kong, and even in current economic conditions, some compromises just take time.

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    Armada (Singapore) Pte. Ltd. Seeks Chapter 15 Recognition

    Friday, January 16th, 2009

    Citing a collapse of the global dry bulk markets as the precursor of an anticipated $395 million loss for FY 2008, Singapore-based bulk shipper Armada (Singapore) Pte. Ltd. sought recogniition and ancillary protection last week in the US in furtherance of a proposed scheme of arrangement commenced under Section 210 of the Singapore Companies Act.

    The company’s petition for recognition under Chapter 15 of the US Bankruptcy Code highlights the destruction visited upon certain portions of the shipping industry late last year as a result of the global economic crisis.¬† According to filings made by the company concurrent with its January 7, 2009 petition filed in the Southern District of New York:

    Since Summer 2008, the charter industry has faced a[n] historic drop in freight rates, particularly with respect to the very large . . . vessels that Armada Singapore charters.¬† In June, a typical charter for a Cape size vessel was $233,988 per day.¬† In early December of 2008, the market rate hit a bottom of $2,316 a day, representing a 99% drop in the market value of Armada Singapore’s contracts.

    That’s quite a drop.

    In larger terms, the company’s filing also offers a glimpse into some of the contrasts between the insolvency schemes and corporate rescue provisions currently prevalent in Pacific Rim jurisdictions.

    Here, Armada faced significant financial difficulties in Singapore and litigation in the US.¬† In response, it petitioned for a scheme of arrangement – a procedure roughly equivalent to that of a voluntary US Chapter 11 proceeding – in Singapore.¬† Importantly for Armada, such schemes permit the¬†Singapore court overseeing the proposed arrangment ¬†to impose a moratorium on litigation against the debtor.¬† The language of the Singapore statute suggests that such relief is universal in¬†nature (“the Court may, . . . on [summary] application . . . restrain further proceedings in any action or proceeding against the company except by leave of the Court and subject to such terms as the Court imposes.”).¬†¬†Following its arrangement petition in Singapore and in furtherance of that relief, Armada sought corresponding protection in the US under Chapter 15.

    By contrast, the insolvency scheme of Hong Kong – which, like Singapore, was a former British colony and which likewise retains the basic framework of English insolvency law – offers no moratorium on litigation during schemes of arrangement.¬† Such protection is available only in connection with a “winding up” – i.e., a dissolution proceeding.¬† Cf. Hong Kong Companies Act Sections 166 (governing arrangements);¬†180 (powers of court in winding up).¬† In fact, as described in a 2006 INSOL Journal article, relatively recent jurisprudence in Hong Kong has foreclosed a locally developed “work-around” for the lack of such protection.¬† According to local practitioners, these decisions effectively leave troubled companies in Hong Kong with no respite from litigation during an attempted corporate rescue.

    Had Armada’s “home” jurisdiction been Hong Kong, rather than Singapore, might its efforts to protect US-based assets during its attempted reorganization require a different approach within the US (not to mention Hong Kong)?¬† Would the company’s efforts to enjoin further litigation in the US under Chapter 15 ultimately be successful¬†if no such injunction was available in its “foreign main proceeding?”

    Armada’s proceeding highlights an important reality of US Chapter 15 practice: Although Chapter 15 makes certain relief “automatic” upon recognition of a foreign proceeding and further provides for interim relief while a petition for such recognition remains pending, it is frequently the law of the anticipated “foreign main proceeding” that drives tactical decisions as to whether, and how, to deploy the cross-border recognition and relief afforded by US law.

    To anticipate and and offer effective cross-border guidance in such circumstances, US insolvency counsel do well to familiarize themselves with the insolvency law of the debtor’s “home” jurisdiction.

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    Mexican Insolvency and Restructuring Law ‚Äď Landmark Articles

    Friday, January 9th, 2009

    With the New Year, International Corporate Rescue has published a new Special Issue: “Mexican Insolvency and Restructing Law – Landmark Articles.”¬† Featuring collaborative work between Lic. Eduardo M. Martinez, Sr. Ernesto Ernesto A. Linares, and yours truly, the issue includes:

  • Cross-Border Bankruptcy Reform in NAFTA Jurisdictions: Has Seizing Control of Troubled, Closely-Held Corporations Gotten Easier?
  • Advance Planning for US-Mexican Cross-Border Reorganisations.
  • More, Better, Faster: Gauging the Effectiveness of Mexican Insolvency Reform.
  • Pre-packaged Reorganisations under Mexico‚Äôs Ley de Concurso Mercantiles:New Amendments Offer New Possibilities for Cross-Border Insolvencies.
  • Hold ‚ÄôEm? Or Fold ‚ÄôEm? Labour Claims, Secured Claims, Tax Liabilities and Their Potential Impact on the Outcome of Mexican Concurso Proceedings.
  • To order a copy, go to ChaseCambria Publishing, Ltd’s. website here.

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    . . . and Durango Gains Recognition

    Friday, December 12th, 2008

    Corporation Durango S.A.B. de C.V. gained recognition for its Mexican concurso proceeding in a ruling issued yesterday (11 December) by Judge Robert Drain of New York’s Southern District.¬† The concurso, which is the paper goods manufacturer’s second, was initiated in part by spiking energy prices earlier in the year.¬† The ancillary proceeding was commenced to prevent litigation by the company’s US-based noteholders.¬† Papers filed before Judge Drain the day prior to issuance of the recognition order indicate that the¬†noteholders are presently in discussions with Durango and, therefore, acquiesce in the terms of the recognition order with a reservation of rights to seek further relief.¬† A copy of the recognition order is available here.

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    Landsbanki Joins Glitnir, Kaupthing in Chapter 15 . . .

    Friday, December 12th, 2008

    On Tuesday (9 December) Iceland’s Landsbanki hf joined that country’s two other major banks – Glitnir Bank hf and Kaupthing Bank hf – in seeking ancillary protection in New York under Chapter 15 of the US Bankruptcy Code.¬† A copy of the declaration in support of recognition is available here.¬† The supporting memorandum of law is available here.¬† Judge Robert Drain has been assigned to the case, now pending in New York’s Southern District.

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