NFE Global has garnered attention on the international stage by fixing the spotlight firmly on the boundaries of forum shopping, despite being a straightforward and uncontroversial restructuring plan from an English law perspective.
New Fortress Energy is a U.S. group that is headquartered in New York and listed on the Nasdaq. It is the latest U.S. group to successfully restructure its liabilities by way of an English law Part 26A restructuring plan, by using two English group subsidiaries (one of which was newly incorporated solely for this purpose) to propose two inter-conditional plans. The High Court had little difficulty in sanctioning the plans on June 18, given the overwhelming level of creditor support and absence of any opposition. What has piqued the international market's attention, however, is the plan companies' application for recognition and enforcement in the United States pursuant to Chapter 15 of the U.S. Bankruptcy Code.
The plan companies' Chapter 15 order was granted on June 26, and a written opinion by Judge Martin Glenn subsequently followed. The opinion aims to address the somewhat more controversial issues arising out of the fact that the group chose to pursue a restructuring in England and Wales, notwithstanding its New York headquarters and the availability of a domestic Chapter 11 process. Such issues—arising out of what Judge Glenn terms "bankruptcy tourism"—have recently been brought to the fore in cases such as Fossil (in which a U.S.-headquartered group incorporated an English subsidiary to propose a Part 26A plan and subsequently obtained U.S. Chapter 15 recognition) and Mega Newco Ltd (in which a Mexican group incorporated an English subsidiary to restructure its New York debt through an English scheme of arrangement before similarly applying for U.S. Chapter 15 recognition).
Although it acknowledges that Chapter 15 does not preclude recognition and enforcement of cases such as Fossil, Mega Newco, or NFE Global, the opinion observes that the U.S. Chapter 15 courts are particularly sensitive to bankruptcy tourism and the potential for its abuse through manipulation of a company's center of main interests (COMI). As such, it offers a helpful clarification of the "cautionary principles" that a U.S. court will consider when faced with a similar Chapter 15 petition.
What considerations are relevant to potential bankruptcy tourism?
Where a debtor has selected a non-U.S. forum for its restructuring despite the availability of a U.S. Chapter 11 process, the U.S. court will scrutinize the case for indications of “bankruptcy tourism” or artificial manipulation of the debtor’s COMI. Relevant considerations for the U.S. court include whether:
- The foreign proceeding has a genuine restructuring purpose;
- The debtor has a sufficient connection with the foreign jurisdiction;
- The process was transparent and supported by affected creditors; and
- Recognition would produce a fair and orderly restructuring outcome rather than an abusive circumvention of U.S. bankruptcy protections
In the case of NFE Global, these concerns were mitigated by the overwhelming creditor support for the plans, the absence of opposition, and the lengthy creditor engagement process preceding the Chapter 15 recognition proceeding (see below for the key features of the English plans). This supported the conclusion that the English plans were not merely a tactical forum-shopping device, but formed part of a negotiated restructuring intended to separate the group’s core and Brazilian businesses, extinguish significant debt, and deliver a projected uplift against the relevant alternative.
What can we learn from the Chapter 15 recognition opinion?
NFE Global is best understood as a clarification of tone and scrutiny, rather than a complete departure from typical Chapter 15 recognition principles. Given the petitioner was a U.S.-headquartered, Nasdaq-listed group that used English subsidiaries to access the English courts and approve a Part 26A plan notwithstanding the availability of Chapter 11, it was not a routine Chapter 15 case. Nevertheless (and in light of the increasing number of this NFE Global-style recognition case in the U.S. courts), Judge Glenn's opinion distinguishes such cases to highlight the U.S. court's caution around bankruptcy tourism, COMI manipulation, and any relief that is "manifestly contrary to the public policy of the United States."
For example, the use of bad faith COMI manipulation to achieve "insider exploitation, untoward manipulation and overt thwarting of third-party expectations" may result in the U.S. court refusing to recognize and enforce a foreign scheme or plan, and a low level of creditor support for a restructuring is one indicator of bad faith COMI manipulation for the U.S. court. The overwhelming level of creditor support and notably high voting turnout for the NFE Global plans allayed any concerns in this regard. The inclusion of third-party releases was also addressed, given that such nonconsensual releases are not permitted in Chapter 11 proceedings following Purdue. Their incorporation in this case was held not to contravene U.S. public policy due to the fact that (1) the disclosure, voting, and confirmation framework under Part 26A is "broadly analogous" to Chapter 11 plans (suggesting that the U.S. court took comfort from the fact that the releases had been disclosed and discussed during the English proceedings, and sophisticated creditors had had the opportunity to challenge); and (2) the Supreme Court of the United States in Purdue expressly acknowledged that Congress may authorize such releases, indicating that they are not manifestly contrary to fundamental U.S. policy.
In short, a U.S. bankruptcy court will likely focus on any evidence that a debtor has used a foreign restructuring proceeding to circumvent the requirements of the U.S. Bankruptcy Code to unfairly disadvantage creditors. The recognition outcome in NFE Global was supported by the fact that the plans themselves did not push the boundaries of what is permitted under Part 26A. What this opinion makes clear, however, is that increased scrutiny will be applied to those cases that are perhaps not so straightforward.
Key features of the NFE Global plans
- Objective: (1) Formally separate the group's "core" and Brazilian businesses; (2) extinguish $9.6 billion total debt, including $6.5 billion owed to plan creditors; and (3) issue equity and new debt instruments to the plan creditors in consideration for the extinguishment of their claims. The plan was projected to produce an uplift of $1.44 billion in comparison to the relevant alternative (which, for one of the plan companies, was a Chapter 11 process).
- Third-party releases: The plans provided for (1) the release of the claims of plan creditors against all obligors in respect of the plan debt, including the plan companies; and (2) the release of professional advisers and other persons involved in the negotiation of the restructuring (including the plan creditors themselves) from any liability arising out of the negotiation and implementation of the restructuring. This is significant: Whilst such releases comply with English Part 26A authorities (notably the Thames Water Court of Appeal decision), the incorporation of nonconsensual third-party releases is not permitted in U.S. Chapter 11 proceedings following Purdue.
- Approval: Approved unanimously by six out of seven classes of creditors and by 99.84% of the other creditor class, with a notably high turnout for all creditor meetings. Overwhelming creditor support meant that the court was not required to engage the cross-class cram down power in order to sanction the plan.
- Engagement with plan creditors: An extensive eight-month negotiation period between the plan companies and creditors demonstrated a genuine attempt to formulate and negotiate a reasonable compromise between all stakeholders (following the requirement established in Petrofac).
Other key contacts: Charlotte Evans, Senior Expertise Lawyer and Inga West, Counsel.
