In the Chapter 15 proceedings of Energy Coal S.p.A., the Delaware Bankruptcy Court required a U.S. creditor to recover its claim in Italy.
Because there is no uniform global insolvency law, and every country has its own insolvency law, The United Nations Commission on International Trade Law (UNCITRAL) developed the UNCITRAL Model Law on Cross-Border Insolvency (1997) to facilitate cooperation and uniform outcome in cross-border insolvencies. 43 countries have adopted the model law, and the U.S. version is Chapter 15, which is similar to the "foreign main" proceedings in Italy. Founded on principles of comity, the U.S. courts assist the foreign insolvency court in cross-border insolvencies. A key benefit of Chapter 15 to foreign debtors is the use of the "automatic stay" which enjoins creditor action against U.S. assets. Another important benefit is the foreign debtor's ability to obtain discovery and assert claims against U.S. companies.
MacEachern Energy LLC ("U.S. Vendor") was a vendor owed at the level of 2.2 million euros by Energy Coal S.p.A. ("Energy Coal"), an Italian company doing business in the U.S. U.S. Vendor also owed money to Energy Coal, creating a right of set off of mutual debts. In April, 2015, Energy Coal filed for insolvency protection in Italy, under the Italian Insolvency Law, the Concordato Preventivo. In October, 2015, Energy Coal also filed for Chapter 15 proceedings in the U.S. in order to obtain the U.S. "automatic stay", aiming to forbid U.S. creditors to pursue its U.S. assets.
In the Italian proceedings, Energy Coal submitted a restructuring plan for approval by the court in September, 2016. The Italian plan provided that unsecured creditors would receive 7% or less as a dividend. In the Chapter 15 case, Energy Coal moved to have its Italian plan enforced in the U.S., by order of the Delaware Bankruptcy Court. Specifically, the claims of U.S. creditors were subject to the Italian plan, and creditors were enjoined from seeking judgments in the U.S.
U.S. Vendor objected to the Italian plan, particularly against the injunction preventing it from recovering 100% from Energy Coal in the U.S. and the effective elimination of its set off rights. Energy Coal could recover 100% of its claims from U.S. Vendor, while U.S. Vendor would have received 7% or less on its claims. In support of its objection, U.S. Vendor cited its contract with Energy Coal, which provided for the Florida law and venue to be applied to any contract disputes.
In light of U.S. Vendor's objection, Energy Coal agreed that U.S. Vendor could reduce its claims to a judgment in Florida courts. However, Energy Coal's position remained that any judgment would be subject to the Italian plan and could only be paid pursuant to the Italian proceedings, meaning that U.S. Vendor must litigate in Italy.
The Delaware Bankruptcy Court ruled that comity and the need for cooperation and assistance in cross-border insolvencies outweighed the parties' contractual choice of law and choice of forum provisions. U.S. Vendor was thus left to litigate in Italy regarding the enforcement of its judgment and distribution on its claim. A piece of good news for U.S. Vendor is that the Delaware Court acknowledged the loss of U.S. Vendor's set off rights and hinted that if Energy Coal sought recovery of claims owed by U.S. Vendor, the Court would allow U.S. Vendor to assert set off of its entire claim as a defense.
Originally published by eurofenix, Summer 2018.
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