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Independent Examiner in FTX Bankruptcy Case
Firm Serves as Counsel to the Examiner
SDNY Bankruptcy Court Reaffirms the Low Bar of the Property Requirement for Filing a Chapter 15 Case
May 30, 2019
Last year, we discussed a decision by Judge Sean Lane of the United States Bankruptcy Court for the Southern District of New York concerning section 109(a) of the Bankruptcy Code.[1] In a recent cross-border case, In re PT Bakrie Telecom Tbk,[2] Judge Lane again addressed section 109(a) and held that an obligor on an indenture that contains New York governing law and forum selection clauses satisfies the eligibility requirement for filing a chapter 15 case in New York.
The debtor PT Bakrie Telecom Tbk (“Debtor”) was a radio cellular network provider in Indonesia. A subsidiary of the Debtor issued notes that were guaranteed by the Debtor. The indenture was governed by New York law and had a New York forum selection clause. In late 2013, the issuer and the Debtor defaulted on interest payments. In September 2014, certain noteholders sued the Debtor in New York state court for enforcement of their rights under the indenture. In October 2014, other creditors started a restructuring proceeding in Indonesia. The Indonesian court approved a restructuring plan in December 2014. An appeal by the Indonesian Minister of Communication and Informatics was denied by the Supreme Court of Indonesia.
The noteholders that brought the first lawsuit in New York started a second suit there, asserting various claims including a contract claim based on the indenture and fraud claims in connection with the notes offering. The state trial court dismissed the fraud claims, but the Appellate Division reinstated them. In December 2017, the trial court ordered the parties to proceed with discovery. Then, in January 2018, the Debtor and its subsidiaries (“Debtors”) filed a chapter 15 case in New York and sought recognition of the Indonesian restructuring proceeding as a foreign main proceeding.
Noteholders argued in opposition to the recognition request that that the Debtors could not satisfy the property requirement of Bankruptcy Code §109(a). Section 109(a) provides that, “Notwithstanding any other provision in this section, only a person that resides or has a domicile, a place of business, or property in the United States, or a municipality, may be a debtor under this title.” The issue was whether the Debtors had “property” in the United States. The Court concluded that the contractual rights under the indenture constituted sufficient “property” for the purpose of section 109(a).
The Court relied on the rationale of In re Berau Capital Res. PTE Ltd. [3] That decision, by SDNY Bankruptcy Judge Martin Glenn, held that even though an attorney’s retainer deposited with the debtor’s New York counsel alone would have been sufficient to satisfy section 109(a), another “substantial basis” for jurisdiction was that the dollar-denominated debt indenture was governed by New York law.[4] The Court’s decision in PT Bakrie found that the section 109(a) property requirement was satisfied based solely on provisions in the indenture. In finding so, the Court noted that the indenture included both a New York choice of law clause and a forum selection clause. Whether an indenture with just one of those clauses would also suffice was not addressed.
[1] https://www.pbwt.com/bankruptcy-update-blog/chapter-15-decision-reviews-jurisdictional-issues-and-bankruptcy-code-section-109/
[2] No. 18-10200, 2019 Bankr. LEXIS 1496 (Bankr. S.D.N.Y. May 13, 2019).
[3] 540 B.R. 80 (Bankr. S.D.N.Y. 2015).
[4] Id. at 82.
