Vol 13 (2016) - Issue 2

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New York Choice of Law and Forum Selection in an Indenture is ‘Property’ Making a Debtor Eligible for Relief Under the US Bankruptcy Code

The United States Bankruptcy Court for the Southern District of New York (the 'Bankruptcy Court') held that the presence of a New York choice of law and forum selection in an indenture satisfied the US Bankruptcy Code eligibility requirement of 'property in the US'. The decision should reassure foreign debtors without another presence in the US that chapter 15 protection is still available in New York and other courts within the Second Circuit, which is, so far, the only Circuit that has restricted a foreign debtor’s access to chapter 15 by requiring property in the US.

Background
Berau Capital Resources PTE Ltd. ('Berau'), a Singapore company, was incorporated in 2010 as a special purpose vehicle to raise funds for BCE Group, the fifth largest coal producer in Indonesia. In 2010, Berau entered into an indenture and a supplemental indenture (collectively, 'Indenture'), pursuant to which it issued USD 450 million senior secured notes due in 2015 ('2015 Notes'), which were guaranteed by certain subsidiaries of BCE Group incorporated in various jurisdictions. The Indenture provided for New York choice of law and jurisdiction.
BCE Group’s performance deteriorated due to lower coal prices and management disputes. As a result, Berau was unable to pay the USD 450 million principal due under the 2015 Notes. To prevent noteholders from collecting on the notes, Berau commenced proceedings in the High Court of the Republic of Singapore, which imposed a 6-month moratorium on collection activity against Berau and an injunction protecting the guarantors from collection efforts ('Singapore Order'). Berau and noteholders holding a substantial amount under the 2015 Notes then entered into a restructuring support agreement, pursuant to which the supporting noteholders agreed to refrain from taking any unilateral action against any member of the BCE Group and to support its restructuring efforts.
Shortly thereafter, Berau filed a verified petition in the US for recognition of the Singapore proceeding as a foreign main proceeding and sought to extend the automatic stay under the US Bankruptcy Code to protect the guarantors of its obligations. According to Berau, the main reason for filing chapter 15 was to prevent creditors from commencing actions within the US in contravention of the order issued by the Singapore court. Berau argued it would be irreparably harmed if creditors were allowed to commence actions in the US because it would frustrate BCE Group’s restructuring efforts and would prevent all claims from being orderly administered in the Singapore proceeding.