On September 14, 2020, the US Bankruptcy Court for the Southern District of New York recognized the Indonesian court-supervised restructuring plan for the Indonesian Duniatex textiles group ("Duniatex Group") under Chapter 151. Chapter 15 is a powerful and accessible tool for protection under the US Bankruptcy Code for non-US debtors facing litigation claims in the US. Non-US debtors subject to restructuring or liquidation cases outside the US may obtain protections from creditor action in the US by commencing a Chapter 15 case, thereby facilitating the debtor's ability to restructure.
Recognition of foreign proceedings under Chapter 15
A Chapter 15 case is ancillary to a primary restructuring proceeding brought outside the US. Chapter 15 governs the provision of relief under US bankruptcy law to non-US companies and individuals in "foreign proceedings"2 that seek to protect their US-located assets from enforcement proceedings or direct appropriation by individual creditors. Chapter 15 largely adopted the UNCITRAL Model Law on Cross-Border Insolvency and divides foreign insolvency proceedings into two categories: main proceedings and non-main proceedings. Main proceedings are cases pending in the country where the debtor has its centre of main interest. If a US bankruptcy court recognizes a case as a foreign main proceeding, Chapter 15 provides an automatic stay within the territory of the US which is subject only to a limited public policy exception.3 In addition, Chapter 15 provides discretionary relief for non-main proceedings which may also include an automatic stay,4 subject to the requirement that all creditors be "sufficiently protected".5
Requirements and process under Chapter 15
Filing a Chapter 15 case requires that:
(1) a debtor is subject to a foreign proceeding;6
(2) a "foreign representative"7 files a Chapter 15 petition; and
(3) certain English-translated documents accompany the petition.8
In addition, the US bankruptcy court will also likely require the debtor to show some connection to the US in the form of a residence, domicile, place of business or assets in the US.9 However, the US Bankruptcy Court for the Southern District of New York ("SDNY bankruptcy court") has clarified that these requirements should not be prohibitive or onerous. For example, in Berau Capital10 the SDNY bankruptcy court held that an attorney retainer held by the foreign representative's New York counsel and intangible property such as the debtor's contractual rights under a NY law governed indenture was sufficient to provide a basis for Chapter 15 eligibility. Similarly, in BCI Finance11, a minimal retainer placed in the trust account of the foreign liquidator's US counsel and a claim of the debtor in respect of a breach of fiduciary duties by a former director was sufficient. In PT Bakrie Telecom12, a debtor's contractual rights under an indenture containing both a New York choice of law and forum selection clause was sufficient.
The various SDNY bankruptcy court decisions indicate that even foreign debtors with no substantial property, and only litigation claims against parties in the US, are able to seek Chapter 15 protection.
Automatic stay under Chapter 15
The court will typically grant provisional or interim relief to the debtor following the filing of a Chapter 15 petition and grant permanent relief once the petition is recognized.13 This relief will typically include an automatic stay within the territorial jurisdiction of the US.
The automatic stay operates as a stay applicable to all entities of, among others:
(1) the commencement or continuation of any judicial, administrative or other action or proceeding against the debtor that was or could have been commenced prior to the petition date; and
(2) any act to obtain possession of property of the debtor's bankruptcy estate or to exercise control over property of the estate.14
In addition to staying creditor action, a foreign representative can ask for "additional assistance" from the bankruptcy court once a foreign case has been recognized as a foreign main proceeding. Additional assistance may include enforcing the terms of a plan of reorganization or scheme of arrangement confirmed by a foreign court in the United States. It could also include turning over a debtor's US assets to the foreign representative and providing for the examination of witnesses and the preservation of debtor assets in the US. The type of additional relief can prove crucial, especially if US securities are involved in a foreign proceeding. Indenture trustees based in the US often will not participate in exchange offers and other debt restructurings approved by foreign courts without a US court order.
Chapter 15 recognition of Indonesian plan
In recent years, Indonesian companies have shown a greater willingness to use foreign processes, as well as a greater need to do so given the increasingly sophisticated financing structures and investor bases seen for Indonesian businesses. Some of the notable Chapter 15 protection cases include those involving PT Bakrie Telecom Tbk in 2018, PT Bumi Resources Tbk in 2017, and Berau Capital Resources Pte Ltd (a Singapore SPV of PT Berau Coal Energy Tbk) in 2015. Likewise, Indonesian debtors have also begun to avail themselves to protections under the Singapore restructuring regime, as seen in the case involving PT MNC Investama Tbk earlier this year.15
The Duniatex Group is the latest Indonesian debtor group to have been granted Chapter 15 protection by the US bankruptcy courts, concurrently with ancillary proceedings for protection in Singapore.16 The group entered into an Indonesian court-supervised debt restructuring process (a PKPU) on September 30, 2019 and filed a Chapter 15 petition with the SDNY bankruptcy court on October 8, 2019. The Duniatex Group established a connection to the US by showing that it had deposited a retainer with its lawyers in the US and because PT Delta Merlin Dunia Textile is a party to an indenture governed by New York law as the issuer of USD-bonds.
Within the same month, the SDNY bankruptcy court extended provisional relief in the form of an automatic stay over the group members' assets and any litigation within the territory of the US. Subsequently, on February 4, 2020, the SDNY bankruptcy court recognized the Indonesian proceedings as foreign main proceedings and extended the automatic stay.
On June 26, 2020, the Indonesian court approved the Duniatex Group's reorganization plan prepared in the course of the Indonesian proceedings (the "Plan"), and the SDNY bankruptcy court granted full force and effect in the US to the order of the Indonesian court approving the Plan on September 14, 2020. The SDNY bankruptcy court also permanently enjoined all parties affected or bound by the Plan from commencing or taking any action inconsistent with the Plan, or order of the Indonesian court approving the Plan, within the territorial jurisdiction of the US with respect to claims or interests treated under the Plan.
As a result, the protection afforded to the Duniatex Group under Chapter 15 now include, within the territorial jurisdiction of the US, an automatic stay and an injunction against all actions inconsistent with the Plan.
1 Chapter 15 under the US Bankruptcy Code, 11 U.S.C. Ch. 15 ("Chapter 15").
2 A "foreign proceeding" is a "judicial or administrative proceeding in a foreign country ... under a law relating to insolvency or adjustment of debt in which proceeding the assets and affairs of the debtor are subject to control or supervision by a foreign court for the purpose of reorganization or liquidation." 11 U.S.C. § 101(23).
3 11 U.S.C. §§ 1506 and 1520.
4 11 U.S.C. § 1521.
5 11 U.S.C. § 1521(b).
6 11 U.S.C. § 1502(1).
7 A "foreign representative" is the person or entity authorized in the foreign proceeding "to administer the reorganization or liquidation of the debtor's assets or affairs or to act as a representative of such foreign proceeding." 11 U.S.C. § 101(24).
8 The petition must include the below documents translated into English.
(1) Certified copy of a decision commencing the foreign proceeding and appointing the foreign representative. 11 U.S.C. § 1515(b)(1).
(2) Certificate from the foreign court affirming the existence of the foreign proceeding and the appointment of the foreign representative, or in the absence of a certificate, any other evidence acceptable to the court affirming the proceeding's existence. 11 U.S.C. § 1515(b)(2) and (3).
(3) Statement identifying all foreign proceedings concerning the debtor. 11 U.S.C. § 1515(c).
9 The US Court of Appeals for the Second Circuit held that the eligibility requirements set forth in section 109(a) of the US Bankruptcy Code apply to those seeking recognition of a foreign insolvency proceeding under Chapter 15. Drawbridge Special Opportunities Fund LP v. Barnet (In re Barnet), 737 F.3d 238 (2d Cir. 2013).
10 In re Berau Capital Res. Pte Ltd 540 B.R. 80 (Bankr. S.D.N.Y. 2015).
11 In re BCI Finances Pty. Ltd., 583 B.R. 288 (Bankr. S.D.N.Y. 2018).
12 In re PT Bakrie Telecom Tbk, 601 B.R. 707 (Bankr. S.D.N.Y. 2019).
13 11 U.S.C. §§105(a), 1509, 1519-1521.
14 11 U.S.C. § 362.
15 See our client alert on this: Singapore restructuring regime: foreign companies establishing eligibility for moratorium protection.
16 In re PT Delta Merlin Dunia Textile, et al., Case No. 19-13214 (Bankr. S.D.N.Y. Sep. 14, 2020).
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