Fifth Circuit Rules Against Vitro Appeal
November 29, 2012
by Casey Neeley, firstname.lastname@example.org
The Fifth Circuit Court of Appeals in New Orleans handed down an opinion yesterday
affirming the original ruling denying Vitro SAB's use of a Mexican
bankruptcy restructuring plan.
"We observe that many of the factors that might sway us in favor
of granting comity and reversing the bankruptcy court to that end
are absent here," reads the court document. "Vitro has not shown
that there existed truly unusual circumstances necessitating the
release. To the contrary, the evidence shows that equity retained
In the document, the court affirms the original ruling based on
what it says was a lack of substantial argument in favor of Vitro.
"Vitro cannot rely on the fact that a substantial majority of unsecured
creditors voted in favor of the Plan," says the court in the document.
"Vitro's majority depends on votes by insiders. To allow it to use
this as a ground to support enforcement would amount to letting
one discrepancy between our law and that of Mexico (approval of
a reorganization plan by insider votes over the objections of creditors)
make up for another (the discharge of non-debtor guarantors)."
Court officials further write, "Vitro argues that there would be
financial chaos as a result of the Plan not being enforced. We are
aware of the adverse consequences that may ensue from the decision
not to enforce the Plan. But Vitro's reasoning seeks to justify
a prior bad decision on the basis that not enforcing it now would
lead to further negative consequences. Worse, the harm from those
consequences would predominantly affect Vitro, the party responsible
for bringing about this state of affairs in the first place. Vitro
cannot propose a plan that fails to substantially comply with our
order of distribution and then defend such a plan by arguing that
it would suffer were it not enforced. Vitro's two-wrongs-make-a-right
reasoning is unpersuasive."
"We are disappointed by the Fifth Circuit Court's decision in this
matter," says Claudio Del Valle, Vitro's chief restructuring officer.
"The refusal to reverse the Bankruptcy Court's decision and enforce
Vitro's Mexican restructuring in the U.S. is contrary to prior Mexican
restructurings, which have been recognized and enforced in the U.S.
without exception, including several restructurings which were very
similar to Vitro's in their treatment of intercompany claims and
modification of non-debtor subsidiary guarantees."
"While we analyze the circuit court's ruling and consider our possible
legal next steps in order to have our restructuring plan enforced
in the U.S. as it has been in Mexico, we are also prepared to continue
serving our U.S. customers due to the fact that our main subsidiary
is protected by a separate and distinct Concurso proceeding," adds
A statement released by Vitro says, "Vitro's financial restructuring
was fully consistent with Mexican law, which has been consistently
recognized and respected in the U.S. legal system. The dissident
funds' attack on the use of intercompany debt in Vitro's financial
restructuring is simply an attempt to create an appearance of impropriety
using baseless accusations."
In February 2009, the Mexico-based manufacturer defaulted
on more than $1 billion in bonds. Vitro completed a Mexican court
restructuring plan this past February. A Texas court ruled
against enforcement of the reorganization in the U.S. in June
which led to the appeal
decided on yesterday. Mexican officials showed their support of
the appeal by filing Amicus
Curiae with the Fifth Circuit. Additionally, Mexico's Second
Circuit Court in Monterrey ruled
in favor of Vitro this past Friday, upholding the legitimacy
of the company's restructuring under Mexican law.
According to its statement, Vitro is "reviewing legal alternatives
in response to [the] ruling."
Donald Cutler, spokesperson for the bondholders represented in
the case, had not responded to request for comment at press time.
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