It is common for a foreign debtor with assets or other connections to the U.S. to request an order enforcing its restructuring plan in the U.S. under Chapter 15 of the Bankruptcy Code. U.S. courts will generally grant comity to a foreign plan if it has been confirmed by a foreign court with jurisdiction and enforcement of that plan in the U.S. would not prejudice the rights of U.S. citizens or otherwise violate domestic public policy. Resolution of all appeals in the foreign jurisdiction is not a pre-requisite to enforcement of that plan by the U.S. court under Chapter 15. See In re Oi S.A., Case No. 16-11791 (Bankr. S.D.N.Y. July 9, 2018).
Oi S.A. and certain affiliates, which together form one of the world’s largest telecommunications service providers, filed a bankruptcy petition in Brazil to restructure approximately BRL $65 billion in debt. During the bankruptcy case, Oi negotiated the terms of a restructuring plan that was overwhelmingly approved by creditors and ultimately confirmed by the Brazilian court. However, a group of shareholders of Oi (the Pharol Parties) complained that confirmation of the Brazilian plan violated their rights. They appealed the Brazilian court’s confirmation order and sought a stay of the Brazilian court’s order. The stay request was denied, but the appeal remains pending in Brazil.
In the interim, Oi requested an order enforcing the Brazilian confirmation order and restructuring plan in the U.S. (Among other things, the plan called for the issuance of new U.S. securities.) The Pharol Parties objected, arguing that the U.S. bankruptcy court should defer ruling on the request until conclusion of the appeal and other related proceedings in Brazil. The bankruptcy court disagreed and entered an order earlier this month granting comity to Oi’s Brazilian plan.
Enforcement of a foreign restructuring plan
In analyzing the request to enforce Oi’s Brazilian plan in the U.S., the bankruptcy court considered Bankruptcy Code sections 1521(a) and 1507. Under section 1521(a), a bankruptcy court may, in its discretion, grant “appropriate relief,” which includes the issuance of an order enforcing a foreign restructuring plan, to effectuate the purpose of Chapter 15 and to protect the debtor’s assets and creditors’ interest. Under section 1507, a bankruptcy court may grant “additional assistance” consistent with principles of comity, if certain enumerated factors are satisfied.
Here, the court found that the standards of both sections 1521(a) and 1507 were satisfied. In coming to its conclusion, the court emphasized that, among other things, (1) the plan was overwhelmingly supported by stakeholders and approved by the Brazilian court, and (2) all stakeholders, including the Pharol Parties, had had multiple opportunities to be heard in Brazil. According to the bankruptcy court, extending comity to the Brazilian confirmation order and plan would ensure that the plan would be “implemented in a manner consistent with its terms and without unnecessary delay and costs.”
Foreign appeals do not hinder enforcement of a foreign plan
The Pharol Parties argued that the U.S. court should deny Oi’s request for an order enforcing the Brazilian plan, or at least delay issuing such order, until the proceedings in Brazil, including the appeals, were completed. Such a delay, they argued, would avoid the risk that certain transactions in the U.S. occurring upon entry of the U.S. court order would need to be unwound if the Pharol Parties prevailed on their appeals in Brazil. The bankruptcy court disagreed, noting that the delay would be tantamount to granting the Pharol Parties the stay that the Brazilian court previously denied. The court noted that the Pharol Parties could seek redress in Brazil and the U.S if they were successful on their appeals in Brazil.
In addition, the court emphasized that a delay would in essence be a “pocket veto” of Oi’s Brazilian plan, which provided that the failure to take certain actions by July 31, 2018 would result in its termination. In particular, Oi was required to issue U.S. securities, which it could not do without a U.S. court order, before the July deadline. Consequently, a delay in the issuance of an order enforcing the plan would likely result in termination of the plan and conversion of Oi’s bankruptcy case to a liquidation in Brazil.
A party that opposes a foreign restructuring plan should seek recourse, including appeals and stays if appropriate, in the foreign jurisdiction. A foreign appeal, however, will likely not preclude enforcement of a plan in the U.S.