The Power of Trends in International Insolvency Law

On December 4, 2017, the US Bankrupty Court for the Southern District of New York had to decide about a petition to recognise Dutch insolvency proceedings launched by an affiliate of Brazilian telecoms company Oi. The petition was brought by the insolvency trustee of Oi Brasil Holdings Coöperatief UA (Coop), a Netherlands incorporated subsidiary of a Brazilian parent company, Oi S.A. The petition contained the request to recognise these  proceedings in the Netherlands as a foreign main proceeding, and to terminate or modify the court's prior recognition under Chapter 15 US Bankruptcy Code of Brazilian bankruptcy proceedings in relation to Oi. Aurelius Capital Managment, and other creditors in the international bondholder committee, supported the petition. Together these parties are called 'Movants'. The relief requested was opposed by the debtors that had previously received recognition of the Brazilian bankruptcy proceedings in the New York Court. These debtors were joined by a separate group of Oi Group creditors (the 'Steering Committee') and the debtors in the prior case. These parties are called 'Objectors'.

The Court decided on the parties' competing views of the applicable legal standard for evaluating the Dutch petition and Coop's centre of main interests (COMI). The Movants urged the Court to conduct a de novo review of Coop's COMI under Section 1517(a) US Bankruptcy Code as of the date the petition was filed. On the other hand, the Objectors advocated reviewing this case under Section 1517(d) US Bankruptcy Code, which looks at whether a prior COMI determination should be terminated or modified because it was incorrect in the first instance or based on events that occurred after that recognition. 

The Court found that Section 1517(d) provided the appropriate standard.

Subsequently, the Court considered whether the doctrines of judicial estoppel and comity applied in this case, ie should the Court conduct its own determination of COMI under Chapter 15 or should it defer to prior rulings made by the Dutch courts. The Court concluded that judicial estoppel and comity should not apply in this case, one reason being the differences between the legal question before it and the one decided by the Dutch courts.

Finally, the Court evaluated the two prongs of Section 1517(d) for terminating or modifying a prior recognition. The first of these prongs directs the Court to determine whether the grounds for granting recognition were lacking. The Court examined the records before the Court at the time it recognized Coop's COMI as Brazil. The Court determined that it should not modify or terminate recognition under the first prong in Section 1517(d). The second prong in Section 1517(d) examines whether the grounds of recognition have ceased to exist. The Court examined whether events after the prior recognition had changed Coop's COMI from Brazil to the Netherlands, concluding that this second prong had not been met. It also considered the economic reality of the special purpose nature of Coop, the expectations of creditors, the limitations on the Dutch Insolvency Trustee presented by the proceedings in Brazil, and allegations of impropriety against creditor hedge fund Aurelius. Aurelius' actions were deemed inconsistent with the trend in international insolvency law in the light of the present draft rules from the UNCITRAL working group studying cross-border insolvencies of multinational enterprise groups  at issue in this case. Its actions here were considered to be at odds with the focus of this draft legislation on cooperation, value maximization and enterprise preservation. 

The Court's findings of fact and conclusions of law were presented in a detailed 120-page decision

A more detaled analysis of the case and its implications can be found here.

Bob Wessels is Professor emeritus of International Insolvency Law at the University of Leiden, the Netherlands.


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