chapter 15 answers that my bankruptcy teacher never … bankruptcy institute 249 3/2/15 3 equity...

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Ronald J. Silverman, ModeratorHogan Lovells; New York

Hon. Leif M. Clark (ret.)San Antonio

Hon. Mr. Justice Geoffrey B. MorawetzSuperior Court of Justice - Toronto Region; Toronto

R. Adam SwickReid Collins & Tsai LLP; Austin, Texas

Claudia R. ToblerPaul, Weiss, Rifkind, Wharton & Garrison LLP; Washington, D.C.

Chapter 15 Answers that My Bankruptcy Teacher Never Told Me

Chapter 15 Answers that My Bankruptcy Teacher Never Told Me

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AMERICAN BANKRUPTCY INSTITUTE

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Washington, DC

April 2015

SINO-FOREST CORPORATION (SFC): ¨  Canadian public holding company ¨  Subsidiaries owned forestry assets mainly located in China ¨  Common shares listed on Toronto Stock Exchange ¨  $1.8 billion unsecured notes.

ANNUAL SPRING MEETING 2015

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INSOLVENCY ¨  Muddy Waters Report: June 2011 – SFC is a “near total fraud”

and a “Ponzi scheme” ¨  SFC obtains Initial Order under CCAA, which includes stay

of proceedings against SFC and subsidiaries

The black vertical line indicates the date Muddy Waters publicised its report and short position

CLASS ACTIONS

¨  $9.2 billion in damages sought by shareholders and noteholders in proposed class action against SFC, underwriters and auditors

¨  Underwriters and auditors claim they are indemnified by SFC


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EQUITY CLAIMS ¨  Subordinate to debt claims under CCAA

¨  SFC sought declaration that: •  shareholder claims are equity claims •  auditor and underwriter indemnity claims against

SFC, stemming from the shareholder claims, are equity claims

EQUITY CLAIMS – AS DEFINED IN S.2 OF THE CCAA ¨  “equity claim” means a claim that is in respect of an equity

interest, including a claim for, among others, … d)  a monetary loss resulting from the ownership, purchase or sale of

an equity interest or from the rescission… of a purchase or sale of an equity interest, or

e)  contribution or indemnity in respect of a claim referred to in … paragraphs (a) to (d);

¨  “equity interest” means

… a share in the company …


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THIRD PARTY RELEASE & RECOGNITION

¨  $117 million settlement proposed between Ernst & Young and class action claimants

¨  Conditional on: •  Third-party releases which preclude any right to contribution or

indemnity against E&Y. ú  Granted in Ontario

•  Chapter 15 recognition order in United States ú  Granted in United Sates Bankruptcy Court for the Southern District of

New York,

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Context •  Recogni.on and Relief Automa.cally Available upon Recogni.on •  Sec.on 1520(a): “Upon recogni.on of a foreign proceeding that is a foreign main proceeding…” •  361 and 362 •  363, 549, and 552

SCOPE OF SECTION 1521(a)(7)

Addi+onal Relief •  Sec.on 1521(a):

•  “Upon recogni.on of a foreign proceeding, whether main or nonmain . . . ” •  “The court may, at the request of the foreign representa4ve, grant appropriate relief, including— •  (1)-‐(3) stays •  (4) discovery •  (5) entrus.ng the administra.on or realiza.on of US assets •  (6) extending provisional relief . . . AND

SCOPE OF SECTION 1517(A)(7)

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(7) “gran.ng any addi.onal relief that may be available to a trustee, except for relief available under sec.ons 522, 544,

545, 547, 548, 550, and 724(a)”

• Does “any” really mean any? •  Sec.on 103’s impact


Case Law Examples •  In re Condor, 601 F.3d 319 (5th Cir. 2010) •  Foreign avoidance law

•  In re AJW Offshore, Ltd., 488 B.R. 551 (Bankr. E.D.N.Y. 2013) •  Turnover under Sec.on 542(e)

•  In re Fairfield Sentry Ltd., 452 B.R. 52 (Bankr. S.D.N.Y. 2011) •  Sec.on 108 (not really addi.onal relief)


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Limita+ons •  Statutory

•  Sec.on 1521(a): relief may be granted “where necessary to effectuate the purpose of this chapter and to protect the assets of the debtor or the interests of the creditors”

•  Sec.on 1522(a): relief under Sec.on 1521 may be granted, modified, or terminated “only if the interests of the creditors and other interested en..es . . . are sufficiently protected”

•  Sec.on 1522(b): “The court may subject relief granted under sec.on . . . 1521 . . . To condi.ons it considers appropriate, including the giving of security or filing of a bond.”

•  Court’s power is broad and discre.onary, as opposed to with recogni.on



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chapter 15 answers that my bankruptcy teacher never … bankruptcy institute 249 3/2/15 3 equity...

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