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July 6, 2021 – MatlinPatterson Global Opportunities Partners II L.P. and six affiliated Debtors (“MPII” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Southern District of New York, lead case number 21-11255 (Judge Jones). The Debtors, private investment funds with a focus on distressed investing, are represented by Elisha D. Graff of Simpson Thacher & Bartlett LLP. Further board-authorized engagements include (i) Schulte Roth & Zabel, LLP as conflicts counsel, (ii) Altemis Capital Management LLC (to provide a chief financial officer and accounting personnel), (iii) North Country Capital, LLC (to provide a chief restructuring officer) and (iv) Kurtzman Carson Consultants LLC as claims agent.
The Debtors’ lead petition notes between 1 and 50 creditors; estimated assets between $100.0mn and $500.0mn ("comprised principally of $142 million in cash, all of which is held in bank accounts in the United States); and estimated liabilities between $50.0mn and $100.0mn (although contingent liabilities raise this number to $481.0mn, see chart below). Documents filed with the Court list the Debtors’ three largest unsecured creditors (only three are listed) as (i) GOL Linhas Aereas S.A. (formerly VRG LinhasAereas S.A. ($60.0mn disputed, contingent litigation claim), (ii) Varig Logistica S.A. ($unliquidated, disputed, contingent litigation claim) and (iii) HJDK Aeroespacial S/A ($unliquidated, disputed, contingent litigation claim). The Debtors also have $58.0mn of secured intercompany notes in respect of debt owed to non-Debtor MP II Preferred Partners L.P.
The Debtors have requested Court authority to redact the names of 10% (and above) equity holders of each of Debtors (i) MatlinPatterson Global Opportunities Partners II L.P., (ii) MatlinPatterson Global Opportunities Partners (Cayman) II L.P. and (iii) MatlinPatterson Global Opportunities Partners (SUB) II L.P.; with the Debtors noting in respect of the three debtors that: "each of (i) a subsidiary of a state-owned corporation and (ii) a foreign pension company owns ten percent (10%) or more of the equity interests of [the Debtor]." The three entities listed above are together the "MP Funds." Moving up the corporate structure chart:
- Non-debtor MatlinPatterson LLC owns 100% of
- MatlinPatterson PE Holdings LLC which owns 100% of
- MatlinPatterson Global Advisers LLC AND MatlinPatterson Global Partners II LLC with the latter owning a partnership interest in, and is the general partner of the MP Funds.
A seventh Debtor, Volo Logistics LLC, is directly owned by Oskars Investments Ltd., a non-debtor affiliate of the Debtors. Volo Logistics LLC and Oskars Investments Ltd. are indirectly owned by Debtor entities MatlinPatterson Global Opportunities Partners II L.P. and MatlinPatterson Global Opportunities Partners (Cayman) II L.P.
Goals of the Chapter 11 Filings
The Doheny Declaration (defined below) provides: "The Debtors have filed the Chapter 11 Cases to prevent these meritless foreign litigations from undermining U.S. law in respect of the Debtors’ U.S. assets, and to effect an orderly, consolidated dissolution and distribution of those U.S. assets to their legitimate stakeholders. Because the Debtors face litigation in multiple fora seeking recourse to the same assets, a centralized forum is necessary to fairly and expeditiously resolve any potential liabilities and to ensure that the Debtors’ assets are liquidated and distributed in an efficient and equitable manner. This Court can manage the litigation in a singular, centralized forum to unshackle the Debtors and their stakeholders from foreign proceedings, the outcomes of which are not enforceable against the Debtors’ U.S. assets as a matter of U.S. law, regardless of what the foreign courts may decide, so that the Debtors can finally wind up and rightfully distribute their U.S. assets to U.S. creditors and investors after so many years of delay."
Events Leading to the Chapter 11 Filing
In a declaration in support of the Chapter 11 filing (the “Doheny Declaration”), Matthew Doheny, the Debtors’ Chief Restructuring Officer, detailed the events leading to MPII’s Chapter 11 filing. The Doheny Declaration provides: “…The Debtors are investment funds and affiliated entities that have been ready to wind up and pay out their remaining assets to their limited partners for many years. The Debtors’efforts have been hamstrung by several litigations filed abroad that seek to recover assets in the United States, held almost exclusively by entities formed in the United States, under legal theories that run counter either to prior res judicata determinations by U.S. courts or settled U.S. law. The sum total of these speculative claims exceed the Debtors’ assets and have thus far prevented the Debtors from distributing assets to their stakeholders. The Debtors face three primary fronts of litigation, all of which are counter to established U.S. law and cannot result in a judgment enforceable in the United States against the Debtors and their assets.
First, as described in detail below, the Debtors were subjected to an arbitration award in Brazil in 2010.The United States Court of Appeals for the Second Circuit has since determined fully and finally that the arbitration award was rendered against the Debtors without jurisdiction over them, because the Debtors never consented to arbitration in Brazil, and thus the award is unenforceable in the United States as a matter of U.S. public policy and the fundamental interests of the United States.The award creditor, having lost its effort to enforce the award in the United States, then sought a second bite at the apple by pursuing enforcement of the same award in the Cayman Islands, the only other jurisdiction in which one of the Debtors is organized.The Cayman trial court determined that the award was also unenforceable in the Cayman Islands, but an intermediate appellate court reversed the trial court and upheld the award in 2020. A further appeal of that decision is now pending, but regardless of the outcome, a Cayman judgment enforcing an arbitration award that the U.S. courts have already determined, res judicata, is not enforceable in the United States cannot be satisfied by assets located in the United States.The filing of the Chapter 11 Cases would appropriately place before this Court any dispute over the enforceability against U.S. assets of a Cayman judgment upholding a Brazilian arbitration award that U.S. courts have already determined is unenforceable in the United States.
Second, the Debtors have been targeted in litigation in Brazil by the bankruptcy administrator of the estate of their former Brazilian investment vehicle, for claims that are based on factual allegations dating from more than a decade ago, and which were expressly released and indemnified under the terms of two New York law and jurisdiction-governed contracts. Although the Debtors are of the firm position that these claims, in addition to being meritless, have already been fully released in accordance with U.S. law, even speculative actions caught in Brazil’s legal system drag on, and this action is not anticipated to be finally resolved for a decade or more.
Finally, certain Debtors were joined in an enforcement proceeding in a Brazilian court for their portfolio company’s failure to repay certain loans. The Debtors were not served until five and a half years after the court, ex parte, permitted them to be added to the action on an alter ego theory of liability. The joinder of the Debtors was premised on the baseless allegation that the Debtors were responsible for the ‘disappearance of approximately R$24 million from the bank account of the portfolio company’s bankruptcy counsel. In fact, the funds were used to pay prepetition claims and were fully accounted for in the bankruptcy proceeding. Nonetheless, the claimant was able to exploit the ex parte nature of the enforcement proceeding and present unchallenged ‘evidence’ to falsely suggest to the Brazilian court that the Debtors had acted improperly. The ex parte proceedings and extensive delay have prejudiced the Debtors. But fundamentally, any resultant judgment against the Debtors in Brazil will have been procured by fraud and cannot be enforced in a U.S. court. A special appeal and full merits defense are pending in Brazil, but this action may also take many years to resolve.”
The following table depicts the Debtors’material assets and the asserted liabilities:
The Three Litigations
The Doheny Declaration provides the following overview of the three outstanding legal disputes:
- "a disputed claim asserted by GOL Linhas Aéreas S.A. (formerly VRG Linhas Aéreas S.A.) (‘VRG’) against certain of the Debtors on account of a decision of the Cayman Court of Appeal upholding the enforceability of a Brazilian arbitration award, further described below, in the approximate amount of R$93 million Brazilian Reais plus interest (which, including interest and costs, is approximately $60.0million U.S. dollars based on the exchange rate as of the Petition Date), (the ‘Brazilian Arbitral Award’, and the Cayman proceedings collectively, the ‘CaymanProceedings’);
- a contingent, disputed liability with respect to proceedings (the ‘BrazilianAction’) brought against each of the Debtors (other thanSUB II) (together, the ‘MP Parties’) in the Bankruptcy First Court of the City of São Paulo, State of São Paulo (‘Brazilian Bankruptcy Court’) by the Bankrupt Estate of Varig Logistica S.A. (‘VarigLog’), seeking to pierce the corporate veil of a portfolio company and various other entities within the investment structure, or otherwise on the basis of undue shareholder control, to hold certain of the Debtors accountable for approximately R$1.76 billion Brazilian Reais (which is approximately $345.6 million U.S. dollars based on the exchange rate as of the Petition Date); and
- the disputed claim held by HJDK Aerospacial S/A (‘HJDK) seeking to pierce the corporate veil of a portfolio company to hold certain of the Debtors accountable for approximately R$89 million Brazilian Reais (which is approximately $17.5 million U.S. dollars based on the exchange rate as of the Petition Date) for the failure of the portfolio company to repay certain loans.”
Corporate Structure Chart
About the Debtors
The Doheny Declaration provides: "Debtors Matlin Patterson Global Opportunities Partners II L.P. ('MP Delaware') and Matlin Patterson Global Opportunities Partners (Cayman) II L.P. ('MP Cayman' and together with MP Delaware, the 'MP Funds'), are private investment funds structured as limited partnership entities organized in the State of Delaware and the Cayman Islands, respectively, which together comprise Matlin Patterson Global Opportunities Fund II. The MP Funds (along with the other Debtors) are headquartered in New York. While one of the Debtors is a Cayman Islands exempted limited partnership and another Debtor is a foreign registered company in the Cayman Islands, none of the Debtors has a substantial connection to the Cayman Islands. All of the Debtors have their principal place of business in New York, all of the Debtors’ management is based in New York and all of the Debtors’ material assets, namely the cash in their bank accounts, are held in the United States at banks in New York branches.
The MP Funds were formed in 2003 and together closed their capital raising in 2004 with $1.65 billion in capital commitments.
The MP Funds specialize in distressed investing."
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