Opinion ID: 2616
Heading Depth: 4
Heading Rank: 2

Heading: Best Interests of the Creditor and Good Faith

Text: To avoid the preceding conclusion, Argo asserts that the Bankruptcy Code provides TIA-protected creditors at least two avenues for challenging a . . . debtor's efforts to skirt the mandatory provisions of Section 316(b) of the TIA: the best interests of the creditor analysis, see 11 U.S.C. § 1129(a)(7), and the good-faith requirement, see id. § 1129(a)(3). In essence, Argo suggests that nonconsensual reorganization under U.S. bankruptcy law is permissible notwithstanding TIA § 316(b) because of these protections; in their absence, approval of the reorganization would be improper. Argo then argues that Argentine law does not provide these protections, and therefore the APE is not entitled to comity. Section 1129(a)(7), commonly known as the best interest of creditors requirement, establishes that a creditor must receive no less in a reorganization than it would in liquidation. See Kane v. Johns-Manville Corp., 843 F.2d 636, 649 (2d Cir. 1988). Argo's position is that unless the foreign proceeding provides for an equivalent best interests analysis for non-consenting creditors, the foreign reorganization is not entitled to comity. Comity, however, does not require that foreign proceedings afford a creditor identical protections as under U.S. bankruptcy law. See Allstate Life Ins. Co. v. Linter Group Ltd., 994 F.2d 996, 999 (2d Cir.1993) (explaining that there is no requirement that Australian liquidation proceedings be identical to United States bankruptcy proceedings to afford comity); see also In re Bd. of Dirs. of Multicanal S.A., 314 B.R. 486, 506 (Bankr.S.D.N.Y. 2004) ( Multicanal II ) (There is no requirement that a foreign proceeding incorporate the conditions to confirmation set forth in § 1129 of the U.S. Bankruptcy Code.). Specifically, we agree with the conclusion of the bankruptcy court in In re Garcia Avila, 296 B.R. 95 (Bankr.S.D.N.Y. 2003), that the absence of a best interests test does not prevent recognition of ancillary foreign proceedings under § 304. Id. at 112-13. Argo's argument amounts to a claim that the Court should not grant comity because [creditors] may receive a smaller distribution on their unsecured claim in [the foreign jurisdiction] than they would receive . . . under United States law. Id. at 112. But so long as the other § 304(c) factors are satisfied, the statute does not require that the amount of a distribution in a foreign insolvency proceeding be equal to the hypothetical amount the creditor would have received in a proceeding under U.S. law. [13] In this case, although Telecom was not required to prepare a liquidation analysis, which § 1129(a)(7) requires in a domestic proceeding, the APE provided creditors with options to receive from 80 to 100% of the outstanding principal face amount of their claims, plus an adjustment factor for unpaid interest. Telecom's expert testified that this was the best consideration I have ever seen in an APE. The particular circumstances of this case and the terms of the restructuring plan clearly support the conclusion that the bankruptcy court did not abuse its discretion in rejecting Argo's contention that § 1129(a)(7) should prohibit a grant of comity. Argo's additional contention that the proceedings were not undertaken in good faith and would therefore fail to satisfy one of the prerequisites for confirmation of a Chapter 11 plan, see 11 U.S.C. § 1129(a)(3), likewise fails. Under § 1129(a)(3), a plan will be found in good faith if it was proposed with honesty and good intentions and with a basis for expecting that a reorganization can be effected. In re Koelbl, 751 F.2d 137, 139 (2d Cir.1984) (internal quotations omitted); see also Kane, 843 F.2d at 649 (affirming confirmation of a Chapter 11 plan where the company honestly believed that it was in need of reorganization and that the Plan was negotiated and proposed with the intention of accomplishing a successful reorganization). A finding of good faith will not be overturned unless the opponent of the plan can show that the finding was clearly erroneous. Koelbl, 751 F.2d at 139. Argo claims that Telecom's APE proceeding was conducted in bad faith because Telecom could have paid all of its debts in full, and thus, is using the APE law not to promote a necessary restructuring but, instead, to enrich its shareholders. The bankruptcy court refused to permit Argo to present expert testimony on Telecom's financial health at the time of the APE. It noted that the Argentine court found that Telecom met the financial eligibility requirements to file an APE and that finding was not contested by Argo in the Argentine Court and may not be collaterally attacked by Argo in this Court. We need not decide whether the bankruptcy court correctly held that Argo's objections to the APE based on Telecom's financial health were barred by res judicata because the bankruptcy court nonetheless considered Telecom's financial status at the time of the proposed restructuring, such that it could make a finding of good faith. The court noted that Telecom faced a severe liquidity crisis that triggered the initiation of restructuring efforts, along with the suspension of principal and interest payments, in 2002. The court also found that the Insolvency Law does not require a party to be insolvent before commencing APE proceedings; it is enough that the debtor is experiencing general financial or economic difficulties. [14] The record attests to the financial difficulty that Telecom experienced as the result of the Argentine economic crisis and that prompted its restructuring efforts. [15] The Insolvency Law permits a debtor to restructure its obligations in such circumstances, so long as it receives the requisite consent of its creditors and satisfies the other conditions for APE approval. Tellingly, the APE met with overwhelming approval by Telecom's creditors. Argo has offered no evidence that Telecom abused the APE process or entered it in a bad faith attempt to press a debt restructuring it knew was unnecessary. Accordingly, the bankruptcy court did not abuse its discretion by concluding that Telecom proposed the APE in good faith and that confirmation of Telecom's Petition would not undermine the public policy considerations in § 1129(a)(3). In sum, we conclude, based on the specific facts of this case and in light of all the circumstances, see Treco, 240 F.3d at 156, that the bankruptcy court did not abuse its discretion in confirming Telecom's Petition and recognizing the APE. We reach this conclusion mindful that § 304 review must be guided by what will best assure an economical and expeditious administration of insolvency proceedings. 11 U.S.C. § 304(c). As previously noted, Argo did not attempt to raise any objections to the proposed APE before the Argentine court. Argo's challenge to the APE in the United States, after refusing to participate even by objection in the Argentine proceedings and after Telecom closed on the APE, is contrary to our longstanding recognition that foreign courts have an interest in conducting insolvency proceedings concerning their own domestic business entities, see Cunard S.S. Co. v. Salen Reefer Servs. AB, 773 F.2d 452, 458 (2d Cir.1985), and that creditors of an insolvent foreign corporation may be required to assert their claims against a foreign bankrupt before a duly convened bankruptcy tribunal, id. at 458-59; see also Canada S. Ry. v. Gebhard, 109 U.S. 527, 537, 3 S.Ct. 363, 27 L.Ed. 1020 (1883) ([E]very person who deals with a foreign corporation impliedly subjects himself to such laws of the foreign government, affecting the powers and obligations of the corporation with which he voluntarily contracts.. . .).