The four-day trial to determine whether a US court will recognize the Dutch bankruptcy proceedings of Oi SA’s financing vehicle concluded today, leaving a New York judge to consider novel questions about how to handle contentious cross-border restructurings.
Lawyers for the Brazilian telecom giant, the Dutch trustee overseeing Oi Brasil Holdings Cooperatief (Coop) in Amsterdam, and various groups of creditors made their closing arguments, following three days of witness testimony over the past two weeks. Each will now be able to submit 75-page closing briefs to the court. US Bankruptcy Judge Sean Lane did not indicate when he expects to issue his ruling.
Oi SA and a steering committee of bondholders are attempting to block the recognition of the Dutch bankruptcy, citing Judge Lane’s existing order granting Chapter 15 recognition of the Brazilian proceedings last year. Coop’s trustee and the so-called International Bondholders Committee (IBC), spearheaded by Aurelius, want the Dutch cases recognized, in an attempt to preserve more than USD 4bn in funds for creditors of Oi’s European entities.
Coop trustee counsel Corinne Ball, of Jones Day, said today that this case gives the court the chance to advance cross-border matters, framing the battle as decision between a global restructuring for a multinational group, or a Brazilian restructuring.
Oi SA counsel Jason Zakia, of White & Case, told Judge Lane that he’s left with two choices in the dispute.
Under the first option, the judge could deny Chapter 15 recognition of the Dutch proceedings and allow the Brazilian recuperação judicial – which Lane has already recognized – to continue. “We don’t know yet what the plan will look like,” Zakia said. “If and when a plan comes out of Brazil, we will have to bring it back to your honor for recognition, and your honor will have to decide whether to recognize it or not.” Oi is planning to release a new version of its debt restructuring proposal on 27 September.
But if the Dutch case is recognized, Zakia said, the trustee “will have the ability to cut off a restructured Oi’s access to capital markets. We can have an orderly process, or we can set up this game of chicken, which sets us up for uncertainty.”
Dechert partner Alan Brilliant, representing the IBC, argued that there were “just really three contested issues here,” all focused on the debtor’s center of main interest (COMI).
At the time Dutch trustee Jasper Berkenbosch filed the Coop Chapter 15, its COMI was in the Netherlands, where it always had been, Brilliant said. Aurelius and the IBC showed no bad faith or COMI manipulation when they orchestrated the Dutch proceedings, and at that point, the grounds for recognition of Coop’s Brazilian case ceased to exist – to the extent it ever had in the first place, he said.
Brilliant argued that Oi SA was guilty of COMI manipulation, attempting to undermine the Dutch trustee’s authority by filing actions in Brazil – where Berkenbosch was slapped with significant fines.
“I understand your point about what they did in Brazil,” Judge Lane said. “But if you’re pointing to the fact that Mr. Berkenbosch’s actions are approved by the Dutch court and you can’t impugn any of them, if things are happening in the Brazilian court, wouldn’t the same principle apply?”
“I’m not looking at what the court did, but what Coop did,” Brilliant replied.
“But you could turn around and say what did Aurelius do?” Judge Lane said. “So if you start separating things that have been ratified by a court in one instance but you don’t do it in another, I have some difficulty with that in terms of consistency.”
‘A good buying opportunity’
Judge Lane went further, recalling testimony from Aurelius Managing Director Dan Gropper on Monday that suggested the bondholder had long ago mapped out the legal strategy leading up to this Chapter 15 fight long before Oi’s bankruptcy proceedings commenced last year, rather than merely reacting to events as they occurred.
“I will tell you I was surprised to hear testimony from the Aurelius witness that while they were here [for Oi SA’s Chapter 15 recognition hearing in 2016] they were going to seek to recognize the Netherlands as COMI and have that seek to control,” the judge said. “I wasn’t sure I was going to hear that testimony, I thought I might hear that well, you know, we might have to be nimble. But it’s quite clear that was the intent. So I am concerned about that.”
Aurelius didn’t challenge Chapter 15 recognition of Oi SA’s proceedings last year. “Why did they decide to sit it out?” the judge asked. “Why didn’t they come to court and say, ‘We’re sophisticated folks, judge, you just shouldn’t recognize Brazil as the COMI for Coop?’”
Brilliant noted that he represents the IBC, not just Aurelius, and attempted to shift the conversation. “Your honor only has to look at the people in the courtroom today to understand how expensive it is to litigate these issues,” he said.
“I have trouble imagining the cost consideration was that significant, given Aurelius’ investment,” Judge Lane replied. “[Aurelius] went out and upped its stake after the Chapter 15 was recognized. That is in the record.”
“I don’t think there’s much to take from that other than that they thought it was a good buying opportunity,” Brilliant said.
Zakia, for Oi SA, argued that the Dutch entities were contemplated in the original Chapter 15 recognition for the Brazilian debtor. “There can only be one foreign main proceeding in this court,” he said. “So unless you terminate your previous order, you cannot contemplate a new order from Mr Berkenbosch.”
Cleary Gottlieb partner Luke Barefoot, representing a steering committee of creditors who support Oi SA’s motion to deny recognition of the Dutch case, spoke briefly today to remind the court where his clients stand.
“From your viewpoint seeing us in the courtroom, Mr Zakia and I walk arm in arm,” Barefoot told Judge Lane. “You may be left with a misimpression about the steering committee’s position. We do not support the current plan in Brazil, we’ve made very clear our view on the plan. But what we do intend to do is continue the dialogue in Brazil.
CLICK HERE to view all Oi Brasil Holdings Cooperatief Chapter 15 filings on Debtwire Dockets.