582 B.R. 603
Bankr. S.D.N.Y.2018Background
- Avanti Communications Group plc (UK-incorporated satellite operator) pursued a UK scheme of arrangement to restructure approximately $557M of 2023 notes by exchanging those notes for ~92.5% of enlarged equity. The scheme included broad releases, notably releases of guarantees by non‑debtor subsidiary guarantors.
- UK Court issued a Convening Order, a Scheme Meeting (held March 20, 2018) where 98.3% by value of the affected 2023 noteholders voted in favor, and a Sanction Order approving the Scheme on March 26, 2018.
- Foreign representative Patrick Willcocks filed a Chapter 15 petition in SDNY seeking recognition of the UK proceeding as a foreign main proceeding and enforcement of the Scheme and its non‑debtor releases in the U.S.
- Avanti had sufficient U.S. contacts for Chapter 15 eligibility: counsel’s $100,000 retainer held in New York and the 2023 Indenture governed by New York law (constituting “property in the United States”).
- The Bankruptcy Court recognized the UK proceeding as a foreign main proceeding and exercised its discretionary Chapter 15 powers (sections 1507, 1521) to enforce the Scheme and the guarantor releases based on comity and the fairness of the UK process.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Avanti is eligible to file Chapter 15 (§109(a)) | Avanti has "property" in the U.S.: counsel’s retainer and New York‑governed indenture. | (Implicit) Eligibility should be narrowly construed (per Barnet). | Court: Eligibility satisfied by retainer and New York‑law indenture (property in U.S.). |
| Whether the UK proceeding is a foreign main proceeding | UK is center of main interests (incorporation, headquarters, assets); UK Court supervised Scheme. | (No opposing proof) | Court: UK Proceeding is a foreign main proceeding under §1517/§1502. |
| Whether to recognize/enforce the UK Sanction Order and Scheme (including third‑party guarantor releases) | Enforce under comity and §1521/§1507 because UK process was full and fair; creditor vote overwhelmingly approved releases; UK law permits such releases. | Third‑party releases are controversial in U.S. bankruptcy law; some Circuits forbid non‑debtor releases absent consent (risk to U.S. creditors). | Court: Exercising discretion, recognized and enforced the Scheme and releases as comity‑based relief; UK process and creditor consent (98% approval) sufficed. |
| Whether third‑party releases (non‑debtor guarantor releases) can be enforced in Chapter 15 | UK law routinely authorizes such releases; Scheme creditors had full notice and vote. | Some U.S. authority (e.g., Fifth Circuit in Vitro) refused enforcement where plan process or votes were suspect (insider voting, unfairness). | Court: Allowed enforcement here—distinguished Vitro; no insider voting problem and UK scheme afforded due process. |
Key Cases Cited
- Hilton v. Guyot, 159 U.S. 113 (recognition of foreign judgments requires a fair forum and competent jurisdiction)
- In re Vitro S.A.B. de C.V., 701 F.3d 1031 (5th Cir.) (upholding refusal to enforce foreign reorganization releasing third‑party guarantees where voting was tainted by insider votes)
- In re Metromedia Fiber Network, Inc., 416 F.3d 136 (2d Cir.) (permitting third‑party releases in limited circumstances)
- Victrix S.S. Co. v. Salen Dry Cargo A.B., 825 F.2d 709 (2d Cir.) (courts extend comity when foreign court had proper jurisdiction and enforcement does not violate U.S. public policy)