In re China Fishery Awarded ABI Second Annual International Matter Award

In re Modern Land Receives Honorable Mention

The International Committee presented its Second Annual ABI International Matter of the Year Award during ABI’s Cross-Border Insolvency Program, held on Oct. 24, 2023, in New York City. The award is presented to the individuals and firms involved in a matter that (1) results from the completion of a unique, strategic or challenging international transaction or litigation; (2) displays excellence from beginning to end, including a high level of professional expertise, creativity and/or skill necessary for the successful completion of the matter; and (3) is of international legal significance and impact in relation to the distressed/insolvency industry, including how the matter will facilitate or hinder international cooperation on a going-forward basis. The matter must be connected to the U.S. and involve one more outside jurisdictions; for the second annual award, the matter must have occurred between July 1, 2022, and June 30, 2023.

The ABI International Committee received numerous nominations, reflecting the significance and impact of the work that ABI’s members contribute to the international restructuring and insolvency industry. The choice among a broad range of submissions was very close. However, two cases stood out above the pack. As such, the ABI International Committee was pleased to present the Second Annual ABI International Matter Award to In re China Fishery, with In re Modern Land receiving an honorable mention. Below is a summary of each case and the professionals who worked on the case.

China Fishery

The China Fishery Group sources, harvests, processes and delivers high-quality fishmeal and fish oil products from Peruvian anchovies. The commencement of these cases was precipitated by the effects of climate change and the failure by management to secure the confidence of significant stakeholders early on in the restructuring, which resulted in the rare appointment of a chapter 11 trustee and eventually the confirmation of three interrelated plans of reorganization during the end of a six-and-a-half-year period. The actions of one rogue creditor, who chose to pursue collection efforts outside the jurisdictional scope of the U.S. Bankruptcy Court, caused the closings and the effective dates of the three related plans to be delayed until late 2022.

After financial difficulties resulting from a prolonged El Niño event, which had a severe adverse effect on the anchovy fishing catch and led to disputes with creditors, China Fishery Group Limited (CFGL) and certain of its subsidiaries and holding companies filed voluntary petitions for relief under chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of New York. The chapter 11 cases had been pending for more than six years until challenges in Peru could be handled and various disputes could be settled. Once agreements were reached, a chapter 11 plan was approved, which contemplated a comprehensive restructuring and recapitalization transaction, although the stakeholders recognized that both Peruvian law and English law (due to the rule in Gibbs) would not likely recognize a U.S. chapter 11 plan as effective. Accordingly, the chapter 11 plan appointed a plan administrator to achieve implementation of the commercial deal reached by the group’s creditors.

In order to implement the restructuring, an innovative solution was proposed in which the restructuring agreed to in the chapter 11 cases would be implemented through an English law restructuring plan under Part 26A of the Companies Act, as the funded indebtedness of the group became governed by English law. This restructuring plan was the first implemented in parallel with a U.S. chapter 11 plan (which provided for a change to the governing law of the group’s senior notes) and the first restructuring plan of a Peruvian entity (and, when it was launched, the first of a non-English entity), thereby testing the jurisdictional limits of the new Part 26A restructuring plan and confirming that it is available for foreign entities with sufficient connections to England.

After an almost year-long delay caused by hold-out creditors in Peru, the creditors voted to support the restructuring plan. With implementation of a novel “yank a bond” structure that was approved by the U.S. Bankruptcy Court, the plan ultimately got implemented. Following the delay between the plan creditor meetings and sanction hearing, which was unprecedented for a restructuring plan or scheme of arrangement, creditors reconfirmed their support for the restructuring plan, and the English High Court sanctioned the restructuring plan. Ultimately, the restructuring plan brought to conclusion a six-year-long restructuring. The case required documentation and coordination in jurisdictions and with counsel from around the globe, including Peru, Cayman Islands, Portugal, England and Singapore.

Given the global scope and legal impact of the chapter 11 cases of China Fishery Group Ltd. (Cayman), et al., as well as the attention garnered as a cautionary tale of the impact of climate change, and in memory of a noted professional of the bankruptcy bar, the China Fishery case came out on top for this year’s International Matter of the Year.

Honorable Mention: Modern Land

In In re Modern Land, the debtor is a Cayman Islands incorporated entity with shares listed on the Stock Exchange of Hong Kong whose subsidiaries conduct real estate investment and development in China and the U.S. After liquidity pressures led to events of default, as part of its financial restructuring the debtor sought recognition of the approved Cayman Islands scheme of arrangement in the U.S. under chapter 15 of the Bankruptcy Code to effect its New York law-governed notes. The debtor did not intend to seek recognition and enforcement of the scheme in Hong Kong.

The U.S. Bankruptcy Court (S.D.N.Y.) recognized the Cayman Islands scheme of arrangement as a main proceeding under chapter 15 of the U.S. Bankruptcy Code that constituted a substantive discharge of New York law-governed debt, and hence helpfully clarified the proper effect of recognition under chapter 15. This was so notwithstanding the Hong Kong case of Rare Earth a few weeks earlier, in which the Hong Kong court speculated that “recognition under Chapter 15 is limited in territorial effect” — i.e., it would operate procedurally to prevent action by a creditor against a debtor’s property in the U.S., but would not constitute a compromise of debt governed by U.S. law (so as to satisfy the “rule in Gibbs”).

This clarification is a landmark judgment and should also be recognized by other jurisdictions that look to the underlying governing law of the debt in ascertaining whether a compromise is effective (i.e., including those that apply the “rule in Gibbs”). This reduces the risk of a dissenting stakeholder being able to successfully seek enforcement of pre-restructuring New York law-governed debt in other jurisdictions.

Further, the court’s conclusion that the very conduct of restructuring proceedings (and local court supervision) can suffice to establish the location of the center of main interest is notable, and the court’s construction of what constitutes an “establishment” (for the purposes of recognition as a foreign nonmain proceeding) is also an important practical reminder for future cases: Where the restructuring proceeding is outside the jurisdiction of the debtor’s center of main interest, then real, nontransitory economic activity is required for the requisite “establishment” in order for chapter 15 discretionary relief to be available. This requires more than mere bookkeeping activities and the mere conduct of the restructuring proceeding itself.

The International Committee congratulates the following professionals for their work on this case.