Vol 10 (2013) - Issue 5

Article preview

Sales of Foreign Debtors’ Assets: Approval is not to be ‘Rubber Stamped’ by US Courts in Chapter 15

In the chapter 15 case of Elpida Memory, the United States Bankruptcy Court for the District of Delaware (the 'Bankruptcy Court') considered the standard of review applicable to a sale of a foreign debtor’s assets previously approved in its main insolvency proceeding: should courts approve such sales based on comity principles or conduct a plenary review under Bankruptcy Code section 363? Based on its interpretation of the statute, the Bankruptcy Court ruled that sales of assets located in the United States must be reviewed pursuant to the standards of sound business purpose, fair price, adequate notice and good faith required to approve a section 363 sale.

Background
Elpida Memory, Inc., a Japanese corporation that develops, designs, manufactures and sells dynamic random- access memory ('DRAM') products, commenced reorganisation proceedings under the Japan Corporate Reorganization Act in the Tokyo District Court on 27 February 2012. The Tokyo District Court appointed two trustees and an examiner.
On 19 March 2012, one of the trustees filed a chapter 15 petition pursuant to Bankruptcy Code sections 1504 and 1515. On 24 April 2012, the Bankruptcy Court recognised the Japanese reorganisation proceedings as foreign main proceeding and the Japanese trustees as foreign representatives. Notably, due to concerns raised by US creditors, the Bankruptcy Court modified the recognition order and explicitly prohibited the foreign representatives from selling 'Elpida’s U.S. assets or interests without first … obtaining approval of [the Bankruptcy Court].'
In September 2012, the foreign representatives filed four motions (the '363 Motions') under Bankruptcy Code section 363 seeking Bankruptcy Court authorisation to enter into four related transactions, which were previously approved in the Japanese reorganisation proceedings: (i) the pledge of certain US registered patents to Apple Inc. (the 'Apple Motion'), (ii) a security agreement related to post-petition financing (the 'DIP Motion'), (iii) the sale of certain patents to Rambus Inc. (the 'Rambus Motion'), and (iv) the patent license agreement and technology transfer and license agreement with Micron Technology Inc. ('Micron’ and the ‘Micron Motion'). The trustees also filed motions under Bankruptcy Code section 15075 to redact confidential information contained in the 363 Motions.
The Steering Committee of the Ad Hoc Group of Bondholders (the 'Bondholders') objected to all four 363 Motions, including the motion to seal certain confidential information related to the Micron Motion. The Bondholders later withdrew their objection to the Apple Motion and the DIP Motion, and the Bankruptcy Court entered orders approving these motions on 31 October 2012.