On December 4, 2017, the U.S. Bankruptcy 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 U.A. (Coop), a Netherlands incorporated subsidiary of a Brazilian parent company Oi S.A. The petition contains 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 U.S. Bankruptcy Code of Brazilian bankruptcy proceedings in relation to Oi. These proceedings include the Dutch Coop. Aurelius Capital Management, and other creditors in the international bondholder committee, supported the petition. Together these parties are called ‘Movants’. The relief requested is opposed by the debtors that previously received recognition of the Brazilian bankruptcy proceedings in the New York Court. These debtors are joined by a separate group of Oi Group creditors (the ‘Steering Committee’). These parties are called Objectors. The Court decides on the parties’ competing views of the applicable legal standard for evaluating the Dutch petition and Coop’s centre of main interest (COMI). The Movants urge the Court to conduct a de novo review of Coop’s COMI under Section 1517(a) U.S. Bankruptcy Code as of the date this petition was filed. On the other hand, the Objectors advocate reviewing this case under Section 1517(d) U.S. 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 finds that Section 1517(d) provides the appropriate standard.
Subsequently, the Court considers whether the doctrines of judicial estoppel and comity apply in this case: 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 concludes that judicial estoppel and comity should not apply here, one reason being the differences between the legal question before it and the one decided by the Dutch courts.
Finally, the Court evaluates 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 examines the record before the Court at the time it recognized Coop’s COMI as Brazil. The Court determines 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 examines whether events after the prior recognition have changed Coop’s COMI from Brazil to the Netherlands. The Court concludes that this second prong has not been met and considers 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 are inconsistent with the trend in international insolvency law in the light of present draft rules from the UNCITRAL working group studying cross border insolvencies of multinational enterprise groups of the kind at issue in this case. Its actions here are at odds with the focus of this draft legislation on cooperation, value maximization and enterprise preservation.
In a 120 pages decision, the Court’s findings of fact and conclusions of law are presented. I have commented the case in the Dutch case law review JOR 2018/57, in English. The commentary is attached.