Across the Americas, countries vary in the extent to which a strong statutory insolvency framework has been implemented and how widely it is used, especially in cross-border cases. Despite the differences among jurisdictions, what is common across the Americas is an unmistakable trend to modernising insolvency regimes to facilitate corporate reorganisations.
This volume provides a general overview of domestic insolvency regimes in more than 10 different jurisdictions, and also highlights various interesting recent developments in domestic and cross-border insolvency laws across the Americas. Certain themes emerge from recent cases and legal developments.
Companies continue to explore ways to effectively and efficiently restructure their global businesses
In the United States, Chapter 15 of the US Bankruptcy Code continues to provide a vibrant path to implement and support foreign restructurings. Several articles in this volume highlight the recent trends emerging from the dynamic and still evolving Chapter 15 case law.
Foreign debtors are eager to seek recognition of their local restructurings under Chapter 15 because of its expansive scope and clear standards. As an initial matter, Chapter 15 has minimal property requirement. As ‘US: Dynamic Trends in
Chapter 15’ notes, courts have confirmed that the property requirement to be a debtor under the US Bankruptcy Code and other gating requirements for Chapter 15 are set at a low threshold. In one case before the Bankruptcy Court for the Southern District of New York, a US$1,250 retainer placed in the foreign representative’s US counsel’s account was held to be sufficient to meet the relevant property requirement.1 Additionally, Chapter 15 jurisprudence provides clear guidance on how to obtain recognition, and such recognition has generally been an effective way to enforce a restructuring plan against creditors given the use of NY law-governed debt and US courts’ jurisdiction over most financial creditors in a typical case.
That said, US courts have signalled their willingness to be gatekeepers when necessary, including where violations of public policy occur, or a debtor or its creditors have acted in bad faith. The public policy exception has been construed narrowly, being applied only when ‘the most fundamental’ policies of the United States are at stake.2 As ‘The High Burden to Satisfy Standard of Chapter 15’ notes, only a handful of cases since 2005 successfully invoked this exception. As the volume of Chapter 15 precedents increases and US courts have more opportunities to examine different types of insolvency proceedings and restructuring plans sanctioned by foreign courts, the public policy doctrine is expected to be further refined, and courts may develop further guidance. For example, as ‘US: Dynamic Trends in Chapter 15’ notes, a US bankruptcy court recently noted that it may be possible to limit the scope of Chapter 15 recognition relief if the case is filed in bad faith, although this issue was not specifically ruled upon by the court in that case. Further developments in this area are expected.
Courts in other jurisdictions have shown a similar willingness and ability to handle cross-border and group insolvencies. For example, in the case of SquareTwo, the Canadian court was willing to grant an unprecedented pre-filing stay under seal while SquareTwo was preparing its pre-packaged Chapter 11 filing in the United States to prevent any actions that could disrupt SquareTwo’s business and hinder the insolvency proceedings in the United States and in Canada. Another example is the case of Noble Group Limited in Bermuda, which involved the English and Bermuda schemes of arrangement, recognised in the United States under Chapter 15, pursuant to which certain assets would be transferred to New Noble Group. When the Singaporean authorities blocked the transfer of Noble Group’s listing on the Singapore Exchange to New Noble Group, which threatened the successful implementation of the schemes, upon Noble Group’s request, the Bermuda court appointed a provisional liquidator that was given sufficient latitude to implement the transfer of assets. We expect that courts will continue to develop tools and approve procedures that improve companies’ ability to restructure, especially those companies with a multinational footprint.
Calls for legislative reforms on insolvency laws continue in countries where the domestic bankruptcy regime is underutilised
A number of insolvency regimes across the Americas are currently in their nascent stage. For example, the Dominican Republic’s Insolvency Law was enacted less than five years ago and became effective in 2017. Practitioners and governments in other countries also continue their effort to develop the current regimes by proposing amendments to existing law and taking steps to get such changes approved. For example, Mexico enacted its Concurso Law in 2000 and more amendments followed in 2007, 2014 and 2019. Practitioners here point out various areas that can be further improved to make the Concurso regime even more effective, including methods to deal with challenges to the Concurso-related decisions; development of clear and uniform jurisprudence and perhaps specialised courts; and minimisation of statutory hurdles that make debtor-in-possession financing difficult to obtain. Practitioners are hopeful that a Concurso reform may be possible given the recent change in the government resulting in one party having the majority control and the appointment of a new director of the Federal Institute of Specialists for Insolvency Procedures (IFECOM), an institute that serves as a quasi-judicial officer with certain responsibilities in the Concurso proceedings.
In Brazil, a major legislative reform is in progress and expected to be approved by the Brazilian Congress in the near future, driven by certain inefficiencies in the current insolvency regime that some say result in lower creditor recoveries and longer cases. The authors of the ‘Brazil’ chapter provide an overview of the key proposals included in the new reform bill. The new amendment aims to provide clearer rules for the sale of assets, to stimulate debt financing, and to provide somewhat more flexibility in the treatment of groups of companies as well as adoption and incorporation of the Model Law for Cross-Border Insolvencies. The proposed amendments include certain controversial provisions such as the one giving significant power to the treasury, even allowing it to file for liquidation of a restructured debtor if the tax claims are not dealt with in reorganisation. It will be interesting to see the final form of this legislation and whether it will lead to noticeable changes in practice.
Sovereign debt restructuring continues to present various legal, geopolitical and social challenges
In recent years, the world has witnessed a series of sovereign debt crises around the globe. These historical examples have demonstrated the potential additional complexities to debt holders recovering against a sovereign, given the foreign policy overlays and other potential hurdles in enforcing judgments against a sovereign government. However, such wrinkles have not prevented parties from finding creative and effective ways to deal with sovereign debts.
‘Sovereign Debt Restructuring: A Latin American Perspective’ provides an overview of various issues related to sovereign debts in Latin America, and highlights certain ways to increase creditor participation in sovereign debt restructuring that have been used, including voluntary exchange offers, exit consents and collective action clauses that discourage hold outs. The article presents a number of successful sovereign debt restructurings, including Uruguay’s debt reprofiling via an exchange offer, and explains various mechanisms that Uruguay used in that transaction.
While market participants have turned their immediate attention to Argentina’s liquidity problems and possible sovereign default, practitioners and academics have offered varying solutions to address Venezuela’s existing default. Venezuela and its government-owned entities (including Petróleos de Venezuela, SA (PDVSA)) have outstanding debt claims of an estimated US$150 billion. Parties and advisers have developed creative and noteworthy proposals to tackle external debts of the government and its entities. They include:
- adopting a local reorganisation law for PDVSA and other state entities modelled on Chapter 9 of the US Bankruptcy Code (governing insolvency of municipalities) that would be supported by Chapter 15 proceedings in the United States or similar proceedings in other jurisdictions; and
- simultaneously negotiating a restructuring agreement with creditors holding sovereign claims using various contractual mechanisms to encourage creditor participation.
‘Debt-Equity Conversion in Venezuela’ explores a specific type of restructuring initiative that could be deployed in Venezuela: debt-to-equity conversions. The authors present debt-to-equity conversion options through which Venezuela’s creditors can acquire debt claims against the country or its instrumentalities and exchange them for other assets such as equity interest in state-owned companies, including oil and gas joint ventures, and discuss potential challenges and issues that need to be considered.
Successful implementation of any of the proposed frameworks to restructure the country’s debts will require significant political buy-in as it will depend on Venezuela’s willingness to enact necessary amendments to its insolvency and restructuring regime, privatisations law or regulatory schemes for oil and gas joint ventures and other public sector entities.
The editors hope that this volume will provide a useful overview of recent developments and trends in insolvency laws across the Americas both in commercial and public spheres. As you will discover, this is an interesting time and many areas of insolvency-related laws are expected to be further refined and enhanced to meet the needs of debtors, creditors and other constituents.