Chapter 15

THE INTERNATIONAL SCENE: Jeffrey W. Kelley, Garrett A. Nail, Sabrina G. Fitze and Rafael X. Zahralddin-Aravena, Chapter 15 Allows Court to Recognize Solution to Tax Return Issue, XXX ABI Journal 1, 42-43, 76, February 2011 - Jeffrey W. Kelley, Garrett A. Nail, Sabrina G. Fitze and Rafael X. Zahralddin-Aravena

Vitro SAB, Mexico’s largest glassmaker, agreed to dismiss the Chapter 15 petition it filed in New York in mid-December, according to a document submitted yesterday to the U.S. Bankruptcy Court in Fort Worth, Texas, where bondholders filed involuntary Chapter 11 petitions a month earlier against Vitro’s U.S. subsidiaries, Bloomberg reported. Vitro was forced into dismissing the Chapter 15 case following a ruling from a court in Mexico this month dismissing Vitro’s attempted reorganization under that country’s version of Chapter 11. A Chapter 15 case is exclusively to provide support for a bankruptcy case pending abroad. When the Mexican case was dismissed, the necessary predicate for the Chapter 15 petition in New York evaporated. Vitro is appealing the ruling by the judge in Mexico. The company said it believes it’s proper under Mexican law to use intercompany debt when third-party creditors vote down a plan. Read more.

Judge Stuart M. Bernstein on Wednesday approved Comercial Mexicana's exit from chapter 15 protection in the U.S., the final step in the Mexican supermarket chain's restructuring of $1.54 billion in debt, Dow Jones Daily Bankruptcy Review reported on Friday. The order brings an end to Comercial Mexicana's U.S. bankruptcy case, which was filed after the supermarket chain sought protection under Mexico's equivalent of chapter 11. At the time, Fernando del Castillo Elorza, Mexico Comercial's foreign counsel, said in court papers that the company sought an injunction to block would-be dissident bondholders from throwing a wrench in the company's restructuring. Comercial Mexicana defaulted on its debt in October 2008 after racking up heavy losses on foreign-exchange derivatives during the global financial crisis.

A New York State Judge has approved a debt restructuring deal between retailer Comercial Mexicana and its creditors, the company said yesterday in a filing with the Mexican stock exchange, Reuters reported yesterday. Comerci defaulted on its obligations in late 2008 following heavy losses on currency derivatives bets, triggering a bitter battle with its creditors. The supermarket operator's plan to repay creditors about $1.5 billion over eight years was approved by a Mexican court in late November. Comerci also filed for chapter 15 bankruptcy protection in the United States. Comerci suffered more than $2 billion of losses at the height of the financial crisis in 2008 when its bets on Mexico's peso soured. Read more.

Mexican glassmaker Vitro, which has been struggling with high debt and falling sales, said it filed a restructuring plan with a local court, Reuters reported. The Monterrey-based company, which makes everything from beer bottles to perfume containers for international luxury brands, also said on Tuesday that it would seek protection from creditors under a Chapter 15 proceeding in U.S. courts once a Mexican judge approves its plan. Vitro's initiative calls for the restructuring of $1.5 billion of debt with a combination of new notes due 2019, convertible bonds and a cash payment. The company has also said it wants to include an additional $1.9 billion in debt from several of its subsidiaries in the restructuring. Read more.

Bahrain's Awal Bank BSC is withdrawing its request to withhold financial details and now plans to comply with Chapter 11 disclosure requirements, Dow Jones Daily Bankruptcy Review reported. Awal's U.K.-based administrator had previously asked the U.S. Bankruptcy Court in Manhattan for permission to follow the protocol of reorganizations in Bahrain, allowing the company to withhold information typically made public in U.S. cases, such as the exact amounts owed to the 20 largest creditors. Bahraini authorities placed Awal into administration in July 2009. The bank filed for Chapter 11 protection in the U.S. two months ago. The administrator has determined that Awal "will file its schedules and statement of financial affairs, seek court approval of the retention of the debtor's professionals...and seek court approval of the compensation" for those professionals, Awal attorneys said in court papers filed Monday. The move comes days after a unit of HSBC Holdings PLC, an Awal creditor, protested the Bahraini bank's proposed protocol for running its Chapter 11 case. HSBC Bank USA said Awal is seeking to cherry-pick the powers of the U.S. Bankruptcy Code it would like to use while ignoring other aspects of the law, including disclosure requirements. In the papers filed Monday, Awal did not release a detailed accounting of its assets and debts, but instead separately sought court permission for an extension to file such information. A hearing on the matter is scheduled for Dec. 21. Previously, Awal's administrator, London law firm Charles Russell LLP, said exposing certain financial records could be detrimental to the creditors. The administrator said creditors' claims are treated as "highly confidential" in Bahrain and those parties have already filed their claims in foreign cases with the expectation that they will kept out of public view. In the U.S., a company typically names its largest creditors and the amounts they are owed on its initial bankruptcy petition. Awal listed major financial institutions, including J.P. Morgan Chase & Co. and Abu Dhabi Commercial Bank, among its 20 largest unsecured creditors on its Chapter 11 filing, but didn't specify amounts owed to each. Awal filed for Chapter 11 in October for the limited purpose of attempting to wrest back payments made to its creditors in the U.S. That filing came more than a year after the bank sought protection under Chapter 15, the section of U.S. law governing foreign bankruptcies, to gain recognition of its foreign insolvency proceeding in U.S. courts.

A unit of HSBC Holdings PLC is protesting an attempt by Bahrain's Awal Bank BSC to pursue Chapter 11 protection in the U.S., saying Awal is seeking to cherry-pick the portions of the Bankruptcy Code it would like to use while ignoring other aspects of the law, Dow Jones Daily Bankruptcy Review reported. HSBC Bank USA, which claims to be among Awal's largest creditors, said the Bahrain bank is trying to take advantage of U.S. laws in an attempt to claw back an errant $13 million wire transfer. But Awal isn't willing to comply with disclosure requirements mandated under Chapter 11, according to papers filed by HSBC Thursday with the U.S. Bankruptcy Court in Manhattan. Allowing Awal "to cherry-pick powers from Chapter 11, without taking on any of the customary responsibilities and obligations of a Chapter 11 debtor...is contrary to the fundamental policies underpinning U.S. bankruptcy law," HSBC said in court papers. Awal filed for Chapter 11 in October for the limited purpose of attempting to wrest back payments made to its creditors in the U.S. That filing came more than a year after the bank sought protection under Chapter 15, the section of U.S. law governing foreign bankruptcies, to gain recognition of its foreign insolvency proceeding in U.S. courts. Bahraini authorities placed Awal in administration in July 2009. An attorney representing Awal in the U.S. refuted HSBC's claims and said the bank "will comply with all obligations" of its bankruptcy filing. David Molton said Friday that the bank filed for Chapter 11 "in accordance to specific provisions of Chapter 15," which restricts the effect of the Chapter 11 to Awal's U.S. assets. "Awal is investigating its rights and remedies under the code to seek recovery of any such asset here in the U.S.," said Molton, a partner with Brown Rudnick LLP. Awal's U.K.-based administrator has said that it doesn't intend to file a plan of reorganization for the bank in the U.S., as is typical in Chapter 11 cases. Rather, any payments would be made to creditors through an insolvency case in Bahrain. Following the protocol of reorganizations in Bahrain, the administrator has asked the U.S. court to allow Awal to withhold details of its creditors' claims. That runs counter to U.S. laws requiring a company in Chapter 11 to name its largest creditors and the amounts they are owed.

Compania Mexicana de Aviacion SA, Mexico’s biggest airline by passengers, won its request for bankruptcy protection from U.S. creditors, after disputes were resolved with a bank and a group of airports, Bloomberg reported. U.S. Bankruptcy Judge Martin Glenn in Manhattan court today approved Mexicana’s request for protection under Chapter 15 of the U.S. bankruptcy code. The ruling will help the 87-year-old company reorganize in its main bankruptcy in Mexico by giving it a legal shield from U.S. creditors. “All objections have been resolved,” allowing the company to use cash collateral of its bank lender, and resolving amounts the airline owes to U.S. airports, Mexicana lawyer William Heuer told Glenn today. Heuer also told Glenn that the airline, which had grounded flights, plans to fly again. Mexicana filed for protection from creditors in Mexico in August, and also sought protection under Chapter 15 in New York. A group of investors, Tendora K, bought 95 percent of the company on Aug. 20, and are seeking to turn it around after disputes with labor unions and a rise in jet fuel prices drove the company to bankruptcy. Read more.

Mexican glass maker Vitro SAB said Monday it has launched two offers--a proposed swap and partial buyback--of three series of defaulted notes for $1.22 billion as it seeks to restructure its debt, Dow Jones reported.In a filing with the Mexican stock exchange, Vitro said the offers are aimed as a step toward achieving a debt restructuring which would be carried out under the Mexican equivalent of Chapter 11. Vitro, which has seen several previous restructuring offers rejected by creditors, said its largest single creditor, Fintech Advisory Ltd., has agreed to support the latest proposal. However, a group of holders of more than $500 million in Vitro notes has said since late September that they oppose the anticipated offer and consent solicitation. Claudio del Valle, Vitro's head of restructuring, said in a conference call with reporters that the company hopes the bankruptcy filing, which will be accompanied by a Chapter 15 filing in the U.S., will be with a pre-arranged restructuring. He said bondholders opposed to the deal could choose not to participate, but couldn't block the process, which needs a simple majority of creditors on board to go ahead. He estimated that Fintech has about $230 million to $240 million in Vitro debt, including about $177 million in derivatives debt recently recognized by the company. Read more. (Subscription required.)

The London-based administrator for Bahrain's Awal Bank BSC said it needs more time to talk with creditors before determining whether to continue the Chapter 11 case it filed last month with the U.S. Bankruptcy Court in Manhattan, Dow Jones Daily Bankruptcy Review reported. In court papers filed in New York Thursday, Awal asked Judge Allan L. Gropper for an extension to file financial statements required under the U.S. bankruptcy law. The bank has so far been hesitant to publicly disclose specifics on its finances. Law firm Charles Russell LLP, Awal's administrator and foreign representative appointed by Bahraini authorities, said it needs to verify the creditor's view on the Chapter 11 case before moving forward. Awal filed for Chapter 11 on Oct. 21 for the limited purpose of attempting to wrest back payments made to its creditors in the U.S. before regulators seized the bank. The Chapter 11 filing came more than a year after the bank sought Chapter 15 bankruptcy protection to gain recognition of its foreign insolvency proceeding in U.S. courts. Bahraini authorities placed the bank in administration in July 2009. Awal's case is peculiar because it has the potential to pit foreign insolvency laws against the U.S. Bankruptcy Code, particularly when it comes to exposing details of creditors' claims. The bank's administrator has said creditors' claims are treated as "highly confidential" in Bahrain. Creditors have already filed their claims in foreign cases with the expectation that they will kept out of public view. Exposing those records now could be detrimental to the creditors, the administrator said.