In 2008, Vitro
became unable to service the interest payments on several series of notes it
had issued and, on November 1, 2010, commenced a voluntary judicial
reorganization proceeding in a Mexican federal court pursuant to Mexico’s business
reorganization act, the Ley de Concursos
Mercantiles. Notwithstanding the pending Mexican insolvency proceeding,
certain holders of Vitro’s notes instituted actions against Vitro and its
non-debtor subsidiaries in New York state court, seeking to accelerate the
notes and enforce the guarantees. In response to these noteholder actions,
Vitro filed a complaint in the United States Bankruptcy Court for the Southern
District of New York and requested a temporary injunction enjoining the
noteholders from attempting to enforce the non-debtor subsidiary guarantees.
The case was later transferred to the United States Bankruptcy Court for the
Northern District of Texas, which denied Vitro’s motion for a temporary
injunction. Subsequently, the Texas bankruptcy court recognized Vitro’s Mexican
insolvency proceeding as a foreign main proceeding pursuant to chapter 15 of
the Bankruptcy Code.
On February 3,
2012, the Mexican bankruptcy court entered an order approving the plan. The
plan and the approval order contained certain provisions that purported to
extinguish the non-debtor subsidiary guarantees. In spite of these provisions,
the noteholders continued their efforts to enforce the non-debtor subsidiary
guarantees in United States courts. Consequently, Vitro’s foreign
representatives in the chapter 15 case filed a motion in the Texas bankruptcy
court requesting that the court give full force and effect to the Mexican
reorganization plan by enjoining any future attempts to enforce the non-debtor
subsidiary guarantees in the United States.
Last week,
Vitro, seeking to salvage its restructuring plan, urged an appeals court to
enforce its bankruptcy plan in the U.S. over opposition from hedge fund Elliott
Management Corp. and other creditors, Bloomberg reported. Vitro is facing“legal
chaos” with a bankruptcy plan that’s valid in Mexico and unenforceable in the
U.S., Vitro attorney Andrew Leblanc told the U.S. Court of Appeals in New
Orleans today. “Vitro would be crippled in the United States” if a bankruptcy
judge’s decision that denied enforcement of the plan in the U.S. is upheld,
Leblanc said. The case came directly to the appeals court following a victory
in bankruptcy court by Elliott and other holders of some of Vitro’s $1.2
billion in defaulted bonds. U.S. Bankruptcy Judge Harlin Hale in Dallas ruled
in June that the Mexican plan was “manifestly contrary” to U.S. policy because
it reduced the liability of non-bankrupt Vitro units on the bonds. A panel of
three appeals court judges heard the case. The outcome will help determine the
boundaries on what is permissible in a foreign reorganization that seeks
recognition in the U.S., said Madlyn Gleich Primoff, a bankruptcy attorney at
Kaye Scholer LLP in New York.
Chapter 15 is a
new chapter added to the Bankruptcy Code by the Bankruptcy Abuse Prevention and
Consumer Protection Act of 2005. It is the U.S. domestic adoption of the Model
Law on Cross-Border Insolvency promulgated by the United Nations Commission on
International Trade Law ("UNCITRAL") in 1997, and it replaces section
304 of the Bankruptcy Code. The Model Law was adopted by Mexico in 2000, five
years earlier, and implemented through the enactment of Mexico’s business
reorganization act - the Ley de Concursos
Mercantiles.
The purpose of
Chapter 15 (and its correlative in the Ley
de Concursos Mercantiles and the Model Law on which they are based) is to
provide effective mechanisms for dealing with insolvency cases involving
debtors, assets, claimants, and other parties of interest involving more than
one country. This general purpose is realized through five objectives specified
in the statute: (1) to promote cooperation between the United States courts and
parties of interest and the courts and other competent authorities of foreign countries involved in
cross-border insolvency cases; (2) to establish greater legal certainty for
trade and investment; (3) to provide for the fair and efficient administration
of cross-border insolvencies that protects the interests of all creditors and
other interested entities, including the debtor; (4) to afford protection and
maximization of the value of the debtor's assets; and (5) to facilitate the rescue
of financially troubled businesses, thereby protecting investment and
preserving employment.
Mauricio
Leon de la Barra is an international law attorney licensed to practice law in
Mexico and California, and has more than 15 years of experience representing
clients in cross-border business and real estate transactions and litigation
involving international, U.S. and Mexican laws.