Ad Hoc Group of Vitro Noteholders et al v. Vitro
Filing
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Memorandum Opinion and Order: The appeal of the bankruptcy court's order on petition for recognition of a foreign main proceeding is AFFIRMED. (Ordered by Senior Judge A. Joe Fish on 5/1/2012) (ctf)
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
IN RE:
VITRO, S.A.B. de C.V.,
Debtor.
-------------------------------------------------------AD HOC GROUP OF VITRO
NOTEHOLDERS,
Appellant,
VS.
VITRO, S.A.B. de C.V.,
Appellee.
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BANKRUPTCY CASE NO.
11-33335-HDH-15
CIVIL ACTION NO.
3:11-CV-2888-G
MEMORANDUM OPINION AND ORDER
Before the court is an appeal from the bankruptcy court’s order granting
recognition of a foreign main proceeding. For the reasons set forth below, the
bankruptcy court’s order is affirmed.
I. BACKGROUND
This bankruptcy appeal deals with recognition of a foreign bankruptcy
proceeding under Chapter 15 of the Bankruptcy Code. The appellee, Vitro, S.A.B. de
C.V. (“Vitro”), is a Mexican holding company; its subsidiaries jointly constitute one
of the largest glass manufacturers in the world. Brief of Appellant the Ad Hoc Group
of Vitro Noteholders (“Appellant’s Brief”) at 2, 4 (docket entry 18). The appellant,
the Ad Hoc Group of Vitro Noteholders (“the Noteholders”), consists of entities
which have beneficial interests in certain debt instruments issued by Vitro and
guaranteed by its subsidiaries. Id. at 2.
At a board meeting on October 29, 2010, Vitro appointed Alejandro SanchezMujica (“Sanchez-Mujica”) to be its “foreign representative” in its anticipated
bankruptcy filing. Id. at 6. On December 13, 2010, Vitro filed a voluntary petition
for reorganization -- known as a “concurso mercantil” petition -- in a Mexican court. Id.
at 7. Vitro subsequently filed a petition under Chapter 15 in the United States to
recognize the Mexican proceeding. Id. at 8.
The Noteholders objected to Vitro’s petition on a number of grounds,
including on the basis that Sanchez-Mujica could not be a foreign representative
because he was not allowed to leave Mexico. Id. at 9. In response, Vitro appointed
Javier Arechavaleta Santos (“Arechavaleta”) to be, with Sanchez-Mujica, a “co-foreign
representative” of Vitro. Id.
On July 14, 2011, the bankruptcy court held an evidentiary hearing in this
case. Id. at 9. On July 21, 2011, the bankruptcy court filed an order recognizing the
Vitro foreign main proceeding. Order on Petition for Recognition of Foreign Main
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Proceeding (“Bankruptcy Order”) at 1-4 (bankruptcy docket entry 137). The
Noteholders then filed the instant appeal.
II. ANALYSIS
A. Legal Standard
Under Chapter 15 of the Bankruptcy Code, a debtor in a foreign bankruptcy
proceeding may petition a court for “recognition” of the foreign proceeding. See
generally 11 U.S.C. § 1501 et seq. Under 11 U.S.C. § 1515, this petition is filed by a
foreign representative. If the petition is not accompanied by certain documents, it
must contain “evidence acceptable to the court of the existence of such foreign
proceeding and of the appointment of the foreign representative.” 11 U.S.C.
§ 1515(b)(3). A court shall enter an order recognizing a foreign proceeding only if
three requirements are met. First, “such foreign proceeding for which recognition is
sought is a foreign main proceeding or foreign nonmain proceeding within the
meaning of section 1502.” Id. § 1517(a)(1). Second, “the foreign representative
applying for recognition is a person or body.”* Id. § 1517(a)(2). Third, the petition
must fulfill all the requirements of Section 1515. Id. § 1517(a)(3).
The crucial party in a Chapter 15 proceeding is the “foreign representative” of
the debtor. If a court grants recognition, then the foreign representative is entitled to
*
In this case, Vitro urges that Sanchez-Mujica and Arechavaleta, as “coforeign representatives,” constitute “a person or body” under 11 U.S.C. §§ 101(24)
and 1517(a)(2). While the court views this argument with skepticism, it is not a
basis for reversal as neither the parties nor the bankruptcy court made an issue of it.
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certain rights and privileges in a U.S. bankruptcy court. See, e.g., 11 U.S.C.
§ 1509(b)(1) (foreign representative may sue or be sued); 11 U.S.C. § 1521 (foreign
representative may ask the bankruptcy court for relief if it is “necessary to effectuate
the purpose of this chapter and to protect the assets of the debtor or the interest of
the creditors”); 11 U.S.C. § 1524 (foreign representative may intervene in a state or
federal court proceeding where the debtor is a party).
11 U.S.C. § 101(24) defines the term “foreign representative” as
“a person or body, including a person or body appointed
on an interim basis, authorized in a foreign proceeding to
administer the reorganization or the liquidation of the
debtor’s assets or affairs or to act as a representative of
such foreign proceeding.”
Moreover, 11 U.S.C. § 101(23) defines the term “foreign proceeding” as
“a collective judicial or administrative proceeding in a
foreign country, including an interim proceeding, under a
law relating to insolvency or adjustment of debt in which
proceeding the assets and affairs of the debtor are subject
to control or supervision by a foreign court, for the purpose
of reorganization or liquidation.”
It is important to note that Chapter 15 recognition is not a “rubber stamp
exercise,” and the “burden of proof on the requirements of recognition is on the
foreign representative.” Lavie v. Ran, 607 F.3d 1017, 1021 (5th Cir. 2010).
Moreover, courts have recognized that the “recognition regime under chapter 15 is
quite rigid.” In re Basis Yield Alpha Fund (Master), 381 B.R. 37, 46 (Bankr. S.D.N.Y.
2008).
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B. Application
This court will “generally review factual findings for clear error and conclusions
of law de novo.” Lavie, 607 F.3d at 1020.
1. Whether Foreign Representatives Need
to be Approved by Foreign Courts
In this case, the Noteholders argue that the bankruptcy court was wrong to
recognize the Mexican foreign proceeding under Chapter 15. Appellant’s Brief at 2.
In particular, the Noteholders insist that Sanchez-Mujica and Arechavaleta are not
foreign representatives under Section 101(24) because they were not directly
approved by the Mexican bankruptcy court. Id. at 16. If Vitro did not have a valid
foreign representative, then a U.S. bankruptcy court could not have recognized the
Mexican bankruptcy proceeding under Chapter 15. Because the court concludes,
however, that Sanchez-Mujica and Arechavaleta should be considered Vitro’s foreign
representative under Section 101(24), the decision of the bankruptcy court is
affirmed.
In their appeal, the Noteholders point to the language of Section 101(24),
which states that a foreign representative must be “authorized in a foreign
proceeding.” Id. at 18. The phrase “foreign proceeding” is itself defined in Section
101(23) as “a collective judicial or administrative proceeding.” Id. at 19. According
to the Noteholders, Vitro has violated the “express and unambiguous terms of the
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Bankruptcy Code” because the Mexican bankruptcy court did not itself approve
Sanchez-Mujica and Arechavaleta’s appointment as co-foreign representatives. Id.
The court disagrees with the Noteholder’s characterization of the phrase
“foreign proceeding” as “express and unambiguous.” See id. at 19. The Noteholders
submit that the phrase “authorized in a foreign proceeding” includes direct
authorization by a foreign court or administrative body, and nothing else. However,
the court believes it is reasonable to understand the phrase “authorized in a foreign
proceeding” more broadly, i.e., to mean authorized in the context of a foreign
bankruptcy proceeding. If the latter interpretation is correct, then a foreign
representative who was appointed by a corporation engaged in a foreign bankruptcy
proceeding could be considered “authorized in a foreign proceeding.” In the face of
this apparent uncertainty, the court will look beyond the statutory language in
interpreting the requirement that a foreign representative be “authorized in a foreign
proceeding.”
While the case law on this issue is sparse, every case cited by the parties
suggests that a debtor is allowed to appoint its own foreign representative. As Judge
Hale recognized, “U.S. bankruptcy courts have granted recognition of concurso
proceedings every single time they have been asked to do so by a petitioner who was
appointed by the Mexican debtor, without exception.” Bankruptcy Order at 3 & n.2
(citing In re Compania Mexicana de Aviacion, S.A. de C.V., No. 14182 (MG) (Bankr.
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S.D.N.Y. Nov. 8, 2010); In re Cozumel Caribe, S.A. de C.V., No. 10-13913 (MG)
(Bankr. S.D.N.Y. Oct. 20, 2010); In re Metrofinanciera, S.A.P.I. de C.V., No. 10-20666
(Bankr. S.D. Tex. Sept. 24, 2010); In re Controladora Comercial Mexicana, S.A.B. de
C.V, No. 10-13750 (SMB) (Bankr. S.D.N.Y. Aug. 19, 2010); In re Corporacion
Durango, S.A.B. de C.V., No. 08-13911 (ALG) (Bankr. S.D.N.Y. Dec. 11, 2008)).
The Noteholders accurately point out that none of these decisions are binding on this
court, and most of them did not consider whether the foreign representative was
appropriate. Appellant’s Brief at 17.
The only case that appears to have directly addressed the issue of whether the
appointment of Vitro’s foreign representative was proper is In re Compania Mexicana de
Aviacion. In that case, the bankruptcy court ruled from the bench that the board of
directors of a Mexican corporation could authorize a person to act as the
corporation’s foreign representative in a Chapter 15 proceeding. Id. at 26. The court
based its decision on the fact that, under Mexican bankruptcy law, the debtor is
allowed to remain in possession and manage its affairs. Id. at 27. Because the debtor
in a Mexican bankruptcy is essentially a debtor in possession, the court held that it
may authorize its own foreign representative under Section 101(24). Id.
The reasoning in Compania Mexicana is supported by the text of Section
101(24). Under this provision, a foreign representative is a person or body
authorized in a foreign proceeding (1) “to administer the reorganization or the
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liquidation of the debtor’s assets or affairs,” or (2) “to act as a representative of such
foreign proceeding.” 11 U.S.C. § 101(24). This second prong of Section 101(24)
provides that a person authorized to act as a foreign representative of a foreign
proceeding may act as one in a Chapter 15 case in a U.S. bankruptcy court. This
would include individuals who are directly appointed by foreign courts.
However, under the first prong of Section 101(24), those authorized “to
administer the reorganization or the liquidation of the debtor’s assets or affiliates” are
also permitted to be a foreign representative. Under Mexican law, a debtor is
generally authorized to manage its business enterprise during the conciliation phase
of a concurso proceeding. Appellee’s Brief at 29 (docket entry 24). This is similar to
the concept of the “debtor in possession” in U.S. bankruptcy law. Id. at 30. While
the Noteholders maintain that there are differences between the U.S. and the
Mexican conceptions of a debtor in possession, Appellant’s Brief at 21-22, the court is
not persuaded that they are of sufficient magnitude to warrant the conclusion that
Vitro cannot appoint its own foreign representative under the first prong of Section
101(24).
2. The Applicability of Mexican law
The Noteholders also contend that Article 282 of the Ley de Concursos
Mercantiles, the relevant Mexican law, prohibits a debtor in possession like Vitro from
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appointing its own foreign representatives. Appellant’s Brief at 27-29. Article 282
states that:
“[1] the visitador, [2] the conciliador or [3] the sindico shall
be empowered to act in a foreign State, to the extent
permitted by the applicable foreign law, on behalf of a
concurso mercantil which has been initiated in the
Republic of Mexico pursuant to this Law.”
Id. at 11.
The Noteholder’s legal expert testified that Article 282 is the only provision
that identifies who may serve as a foreign representative. Appellant’s Brief at 11. As
a result, under canons of Mexican statutory construction, the Noteholders urge,
Article 282 is an exclusive list of those individuals who may serve as a foreign
representative. Id.
The individuals listed in Article 282 are empowered to act on behalf of the
debtor at different points of the concurso proceeding. The visitador, or the “examiner,”
is appointed after the filing to determine whether a debtor qualifies for a concurso
reorganization. Appellant’s Brief at 10. The conciliador is responsible for “supervising
the conduct of the debtor’s business, administering its bankruptcy case, and
formulating a creditor repayment plan.” Id. The sindico, or “liquidator,” is appointed
to liquidate the business if a creditor repayment plan is not reached within a specified
period of time. Id.
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However, the matter of whether Sanchez-Mujica and Arechavaleta are proper
foreign representatives is a matter of United States -- not Mexican -- law. The
Noteholder’s legal expert admitted this at the hearing in front of Judge Hale.
Appellee’s Brief at 39 (“[W]hy these United States Courts decided to allow [an
officer or director of a Mexican debtor] to serve as foreign representative is beyond
my knowledge, because it’s a matter of United States law.”). Moreover, a Mexican
court refused to issue a decree stating that the conciliador is the only proper foreign
representative. Appellant’s Brief at 23. As the Noteholders themselves concede, the
court “held it had ‘no competence or sanction’ to rule on the question whether
Sanchez-Mujica or Arechavaleta were eligible under United States law to serve as
foreign representatives.” Id. (emphasis in original).
Moreover, even if Article 282 did apply, there is reason to believe that it is not
an exclusive list of the parties who can act as a foreign representative. Vitro’s legal
expert testified at the hearing in the bankruptcy court that Article 282 did not
prevent other individuals, such as those appointed by the debtor’s board, from acting
as foreign representatives. Appellant’s Brief at 12. And a decision by a Mexican
court in this case held that “although the conciliador is authorized by Article 282 of
the LCM to serve as the foreign representative, ‘it does not mean that he is the only
one that can act on behalf of this bankruptcy proceeding.’” Id. at 29. Instead,
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“another person [may] be[] authorized to act as a representative of the proceeding.”
Id.
C. Bankruptcy Court’s Judicial Notice
of Materials from Other Cases
The Noteholders also object to the bankruptcy court’s decision to take judicial
notice of materials from other bankruptcy cases. Appellant’s Brief at 1. If it was an
error for the bankruptcy court to take judicial notice of these materials, then it was
harmless error. There is no reason to believe that the bankruptcy court improperly
relied on this material. Moreover, this court’s decision to affirm the bankruptcy
court’s decision to recognize the foreign proceeding is not affected by this alleged
error.
III. CONCLUSION
For the reasons stated above, the appeal of the bankruptcy court’s order on
petition for recognition of a foreign main proceeding is AFFIRMED.
SO ORDERED.
May 1, 2012.
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A. JOE FISH
Senior United States District Judge
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