On June 13, 2012, the United States Bankruptcy Court for the Northern District of Texas in the Chapter 15 case of Vitro, S.A.B. de C.V. refused to enforce an order entered by a Mexican court approving a reorganization plan under Mexican law. The Bankruptcy Court held that the Mexican plan was “manifestly contrary” to US public policy to the extent that it sought to extinguish the guarantee claims of certain noteholders against US non-debtor subsidiaries. The Bankruptcy Court weighed the principles of comity, which suggests deference to the orders of courts entered in other countries, against its concerns that the Mexican court’s approval order violated a fundamental public policy contained in the Bankruptcy Code. The Bankruptcy Court concluded that enforcement of the releases of the US non-debtor subsidiaries as contemplated by the Mexican court approval order would potentially permit foreign debtors to go down the proverbial slippery slope in proposing restructuring plans that permit broad, non-consensual releases to the disadvantage of creditors “without any seeming bounds.” As a result of the Bankruptcy Court’s decision, the noteholders are permitted to pursue remedies against the non-debtor subsidiaries that guaranteed their debt.
This decision is important to the lending community because, particularly if upheld on appeal and followed in other US jurisdictions, it is less likely that non-US borrowers will be able to use their home forums to restructure debt of US subsidiaries on a non-consensual basis. As we see more non-US borrowers trying to access the US markets to raise capital as a result of economic uncertainty in different regions of the world, this could become an important issue in many future restructuring negotiations.
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