A battle of so-called chapter vacationers has erupted in New York courtroom, with unclear penalties for international firms and their bondholders.
On Thursday, New York chapter Judge Martin Glenn refused to situation a ruling on a request by Ocean Rig UDW Inc. to dam a lawsuit within the Marshall Islands that it mentioned threatens a $three.7 billion restructuring authorised in Cayman Islands Courts. Glenn mentioned he would take into consideration the “extraordinary” points the case raised, presumably ruling later.
“You need me to cease litigation in one other sovereign nation,” Glenn mentioned in courtroom Thursday, including that he had by no means seen such a request and that there was no clear precedent. If Highland Capital Management, which filed the Marshall Islands motion, needed to attempt to get better Ocean Rig’s U.S. property in U.S. courtroom, then the difficulty could be in his jurisdiction, he mentioned.
The twist is available in a authorized battle raging since Ocean Rig’s March chapter. In September, Highland appeared to lose out within the battle to Elliott Management Corp., which had backed the offshore drilling service firm’s chapter plan. Under a plan authorised within the Caymans, a big chunk of Ocean Rig’s inventory ended up with Elliott, and virtually 10% went to Ocean Rig Chairman George Economou. Highland received virtually nothing, it mentioned in courtroom papers.
But Highland had one other card up its sleeve: a declare within the Marshall Islands, the sovereign nation within the Pacific Ocean. There, in a lawsuit filed in August, however not a part of New York courtroom data till October, it revived its central argument.
Highland alleged that Economou, a transport magnate who runs Ocean Rig in addition to its non-bankrupt guardian, DryShips, bilked bondholders out of round $370 million to profit himself and different firms. Under a chapter code provision for fraudulent transfers that applies within the Marshall Islands, however not within the Caymans, Highland mentioned, it ought to be capable of get the cash again.
Any choice within the case might have wider implications for what restructuring consultants name “chapter tourism.” In the previous, chapter members wrangled over the deserves of Delaware versus New York courts, and generally drew criticism about “discussion board procuring” for a venue that favored their case. Now firms and collectors are engaged in worldwide battles over the place they’ll finest win their debt wars.
“This is the following section of the restructuring enterprise,” mentioned William Brandt Jr., chief of a New York-based restructuring advisory agency Development Specialists, talking at an Association of Insolvency and Restructuring Advisors assembly in New York on Monday.”Bankruptcy tourism will come into the fore.”
Brandt didn’t point out the Ocean Rig case, however cited his work as a trustee within the worldwide case of China Fishery Group Ltd., the place he frequently travels from Lima to Hong Kong. Another instance, he mentioned, is Oi SA, a Brazilian telecom firm, during which Aurelius Capital Management is combating a battle that includes jurisdiction of Dutch, U.S. and Brazilian legislation.
Economou couldn’t be reached for remark, and hasn’t addressed the allegations in New York courtroom. Marshall Islands courts didn’t reply to a request for courtroom filings there. A lawyer for Ocean Rig mentioned he wasn’t conscious of any response to the allegations in U.S. courts.
Ocean Rig in courtroom papers mentioned stopping claims like Highland’s towards Economou is “elementary” to its restructuring, calling its new lawsuit an “assault” that violates the Cayman order, and asking Glenn to search out Highland in civil contempt.
Highland, which had Ocean Rig notes with a face worth of $74 million, mentioned in courtroom papers that any allegations that it’s “discussion board procuring” for a venue that can acknowledge its fraudulent switch claims are “absurd” given the corporate and Economou went on a procuring journey themselves.
At the time Highland purchased the corporate’s debt, Ocean Rig was primarily based within the Marshall Islands, and the corporate later moved to the Caymans “after procuring numerous jurisdictions to search out…