501 B.R. 655
Bankr. S.D.N.Y.2013Background
- Ernst & Young (E&Y) moved under chapter 15 to recognize and enforce an Ontario Superior Court order (Settlement Order) approving a CAD $117 million global settlement and third-party release for E&Y in the Sino‑Forest CCAA restructuring.
- The Ontario Court approved the E&Y Settlement as part of Sino‑Forest’s Plan; Article 11.1 conditioned the global release and injunctions on recognition/enforcement in the U.S. and other conditions.
- The Court of Appeal for Ontario dismissed appeals seeking leave to challenge the Plan Sanction Order and Settlement Order; objectors were minority shareholders (~1.62%) and the only parties opposing in Canada.
- The chapter 15 foreign representative (FTI) and Canadian and U.S. class plaintiffs support recognition; notice was given and no objections were filed in this Court.
- The U.S. bankruptcy court compared this matter to In re Metcalfe (Bankr. S.D.N.Y. 2010) and addressed whether comity under chapter 15 permits enforcement of a foreign order approving a non‑debtor third‑party release in light of the Fifth Circuit’s Vitro decision.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a U.S. court should recognize and enforce a Canadian court order approving a third‑party (non‑debtor) release under chapter 15 | E&Y/foreign rep: comity and §1507 allow “additional assistance” to enforce the Ontario Settlement Order; Canadian process was fair and met CCAA standards (ATB Financial nexus test) | Objectors: (in Canada) challenged fairness and release scope; (no U.S.) argued enforcement would improperly discharge non‑debtors | Court granted recognition and enforcement — comity and §1507 support enforcement where foreign process was fair and factors are satisfied |
| Whether Vitro compels refusal to grant comity/enforcement here | E&Y: Metcalfe and Canadian precedents distinguish Vitro; facts show strong creditor support and alignment with §1507 factors | Objectors (invoked via Vitro): argued Vitro supports denying comity when release alters U.S. distribution priorities | Court held Vitro does not require a different result — factual differences (support, nexus, priorities) justify recognition |
| Whether the enforcement would be manifestly contrary to U.S. public policy (11 U.S.C. §1506) | E&Y: public policy exception is narrow; third‑party releases are not categorically prohibited in this Circuit | Objectors: enforcement would prejudice U.S. creditors / contravene U.S. bankruptcy norms | Court found no manifest conflict with U.S. public policy; narrow §1506 exception not triggered |
| Whether relief is proper under §1507 as additional assistance (and related §1521) | E&Y: §1507 discretionary factors (treatment of creditors, protection of U.S. claimants, distribution priorities) are satisfied; enforcement is appropriate assistance | Objectors: enforcement would impair distribution priorities and creditor protections (invoking Vitro reasoning) | Court exercised §1507 discretion and granted relief, concluding §1507 factors do not preclude enforcement |
Key Cases Cited
- In re Metcalfe & Mansfield Alternative Investments, 421 B.R. 685 (Bankr. S.D.N.Y. 2010) (recognized/enforced Canadian third‑party releases under chapter 15 using comity and §1507)
- Vitro S.A.B. de C.V. v. Greenberg Traurig, 701 F.3d 1031 (5th Cir. 2012) (affirmed refusal to grant comity for Mexican plan releasing non‑debtor guarantors; analyzed §1507(b)(4) distribution priorities)
- In re Metromedia Fiber Network, Inc., 416 F.3d 136 (2d Cir. 2005) (explained that non‑debtor releases in chapter 11 are allowed only in rare circumstances)
- Atlas Shipping A/S, 404 B.R. 726 (Bankr. S.D.N.Y. 2009) (discussed comity and principles for granting recognition under chapter 15)
- Johns‑Manville Corp. v. Chubb Corp., 517 F.3d 52 (2d Cir. 2008) (addressed limits on bankruptcy court jurisdiction to approve third‑party releases in plenary chapter 11 proceedings)