Judge Rules for Vitro Bondholders in Bankruptcy Case

A U.S. federal judge refused Wednesday to enforce Mexican glass maker Vitro SAB's controversial debt restructuring in a closely watched bankruptcy case that threatened to sever the cross-border business cooperation between the two nation's legal systems, The Wall Street Journal reported. Judge Harlin D. "Cooter" Hale of the U.S. Bankruptcy Court in Dallas sided with bondholders in rejecting Vitro's bid, in what has been called one of the most important cases decided under Chapter 15, the section of the U.S. Bankruptcy Code governing international insolvencies. Judge Hale said in a 29-page opinion that Vitro's Mexican restructuring plan, which extinguishes guarantee claims of the U.S. bondholders, "manifestly contravenes the public policy of the United States and is also precluded from enforcement under...the Bankruptcy Code." Vitro thinks Judge Hale's ruling concerning the third-party releases of the guarantees involves a narrow issue of U.S. law and intends to appeal the ruling, according to a person familiar with the company's thinking. The bondholder group's lawyer, Allan Brilliant of the Dechert law firm, declined to comment. A Mexican court in February approved Vitro's $3.4 billion restructuring plan, and Vitro had asked Judge Hale to enforce the decision under Chapter 15. Chapter 15, which was added to the Bankruptcy Code in 2005, was designed to bring a measure of harmony and cooperation to cross-border bankruptcies. Those elements have been noticeably lacking since Vitro launched its restructuring efforts nearly two years ago. The U.S. law is based on the United Nations' "Model Law on Cross-Border Insolvency," which has been adopted by a number other countries, including the U.K. and Japan as well as Mexico. Under the law, U.S. judges should give consideration to foreign decisions unless those rulings are "manifestly contrary" to the public policy of U.S. While Judge Hale acknowledged that Mexican bankruptcy decisions in general are "worthy of respect," signing off on Vitro's plan, which allows shareholders to retain some $500 million in value without paying higher-ranking creditors in full, "would create precedent without any seeming bounds." Read more. (Subscription required.)