Court Opinion Review: The Citgo Sale Saga Rolls On, the Fifth Circuit Clears Judge Isgur in Jonesgate and Chapter 15 Nondebtor Releases Approved in Odebrecht

Octus’, formerly Reorg’s, Court Opinion Review provides an update on recent noteworthy bankruptcy and creditors’ rights opinions, decisions and issues across courts. We use this space to comment on and discuss emerging trends in the bankruptcy world. Our opinions are not necessarily those of Octus as a whole. Today, we consider the strange stalking horse bid dispute in the Citgo sale proceeding, Judge Isgur’s post-Jones redemption arc and Judge Glenn’s (very) aggressive Odebrecht chapter 15 decision.

The Trailing Horse

When we last checked in on the Citgo forced sale proceeding in October 2024, it didn’t look good for the special master’s effort to import bankruptcy tactics into a district court foreclosure proceeding overseen by a circuit court judge. The special master was struggling to secure an automatic stay/nondebtor litigation injunction halting Gramercy’s alter ego claims against Citgo owner PDV Holdings under the ancient (and ancient-sounding) All Writs Act, a condition precedent for the highly conditional $7.3 billion bid from Elliott affiliate Amber Energy that literally everyone involved hated.

Amber insisted on the injunction because it was bidding for an asset of Venezuelan state-owned petroleum company PDVSA – its shares in U.S. holding company PDVH. If Gramercy secured a judgment against PDVH, then it could hold a lien on PDVH’s assets, including the Citgo shares – making Gramercy structurally senior to whoever bought PDVSA’s shares in PDVH. Gramercy would be a creditor of PDVH – one step closer to the CITGO operational assets than creditors of PDVSA.

Despite the special master’s dire warnings about the possible loss of the Amber bid and the effect of Gramercy’s claims on other bids, in November U.S. Circuit Judge Leonard Stark – stuck with this eight-year-long dog of a case despite his elevation from the Delaware district court – signaled that he was “inclined” to let the New York court resolve Gramercy’s suit. According to Judge Stark, Gramercy’s claims “can be litigated in the courts in which they are pending (possibly more expeditiously than they can be here), and may be dismissed or otherwise found to lack merit by those courts.”

Former White Plains Bankruptcy Judge Robert Drain, now counsel for Gramercy, must have been surprised. On the basis of his rulings over the years (including his now five-plus-year-old Purdue litigation injunction), Drain might not have predicted that a court overseeing a sale of a debtor’s assets for the benefit of creditors could allow some other court to proceed with anything that could conceivably affect the process – let alone allow a bidder to walk.

In December, Judge Stark made it official with an order formally denying the special master’s motion to halt the Gramercy claims, officially blowing up the Amber Energy bid and starting the process anew. In the same order, the judge made clear the next phase of bidding would be more carefully controlled: he would pre-approve bidding protections for a potential stalking horse, set nonnegotiable terms for a purchase and sale agreement and dictate bid evaluation criteria to the special master.

Specifically, Judge Stark ordered that any bids that did not accept the risks arising from the Gramercy litigation – such as the Amber bid – would be tossed onto the scrap heap. Ditto for the disputed claims of the 2020 PDVSA bondholders, who assert a security interest in 50.1% of PDVH’s shares in Citgo. If they prevail, the bondholders would also be structurally senior to the buyer of the PDVH shares, but bidders would have to price that risk into their offer rather than creating an escrow arrangement or contingency.

The special master was not required to select a stalking horse, but old bankruptcy habits die hard, and the special master is represented by bankruptcy debtors’ counsel. On March 21, the special master recommended that Contrarian affiliate and judgment creditor Red Tree’s $3.7 billion bid serve as stalking horse for the final round of bidding.

You read that right: Red Tree’s bid is for just over one-half of the Amber bid, suggesting that the Gramercy and bondholder litigation risk is worth about $3.6 billion (though a straight comparison is difficult due to other wrinkles in Amber’s bid). Youch. But, hey, when you got $75 million in pre-approved bid protections to throw around, you gotta give them to someone.

So the special master picked the highest and best bid, and now we go into the topping period with a clear bidding floor and a chance to drum up a more reasonable price, right? Well, not exactly. First, the special master also received a $7.1 billion bid from a consortium of judgment creditors Gold Reserve, Rusoro Mining and Koch Industries. Yes – the special master picked a stalking horse bid that is more than $3 billion less than the highest bid.

Por que? According to the special master, the Red Tree bid is more likely to spark bidding in the final 30-day topping period because it includes a settlement resolving the PDVSA bondholders’ disputed claims via a non-pro-rata exchange for new debt in post-acquisition Citgo.

Wait a sec, you might be saying: Didn’t the judge say the special master could not pick a bid contingent on the resolution of the Gramercy alter ego or PDVSA bondholder claims? Wasn’t that the whole problem with the Amber Energy bid? According to the special master, the issue is not conditionality but certainty of closing.

Recall that in 2020, Friend of the Show Judge Katherine Failla (of pre-Jones Serta fame) found the bondholders’ claims and pledge valid under New York law and awarded a $1.9 billion judgment to the trustees. On appeal, the Second Circuit certified the choice of law issue to the New York Court of Appeals, which held that Venezuelan law governs. In July 2024, the Second Circuit vacated the 2020 judgment and remanded back to Judge Failla to determine the validity of the bonds under Venezuelan law.

The special master, Red Tree and senior judgment creditors assert that the bondholders present an existential threat to the closing of any bid that does not resolve the bondholders’ claims. The proponents of the Red Tree bid point out that all three remaining bidders (we don’t know who the third bidder is, only that they’re being awfully quiet) intend to fund the cash portion of the acquisition with financing secured by CITGO’s assets, which makes sense – no lender wants to be secured only by liens on equity in holding company PDVH.

If the bondholders’ pledge of PDVH assets is valid, the stalking horse bid’s proponents say, the bondholders would control 50.1% of PDVH’s shares in Citgo – allowing them to block the attachment of any liens on Citgo’s assets to secure the purchase price. Even if the validity of the pledge remains unresolved at closing, the Red Tree gang adds, the bondholders could ask Judge Failla for an injunction blocking the sale to preserve the status quo. In either case, a bidder that does not have a deal with the bondholders would lose its financing – meaning the sale could not close.

It makes sense that Red Tree believes the bondholders are a mortal threat to closing – it is the only bidder with a bondholder settlement to address the closing risk. Oh, and one other little wrinkle: Red Tree parent Contrarian holds 14% of the bonds and sits on the ad hoc bondholder group. Hmm, maybe that has something to do with only Red Tree securing a settlement to staple to its bid? A settlement requires two-thirds’ bondholder consent, and the ad hoc group does not have two-thirds without Contrarian’s 14%.

The senior judgment creditors’ support for the Red Tree bid also seems like a foregone conclusion. Those at the top of the priority list, such as No. 1 Crystallex, would get paid in full under either bid, so why not push for the one that resolves the bondholder issue? Can’t blame them.

But the special master’s support for the Red Tree bid as stalking horse is a bit more curious. The special master insists that the best way to spark bidding in the topping period is to select a stalking horse with the highest likelihood of closing. The implication of his recommendation is that the settlement with the bondholders and removal of the potential roadblock to closing is worth at least as much as the $3.3 billion difference between the Red Tree and Gold Reserve consortium bids.

Except: The special master makes clear in his defense of the Red Tree bid that he has made no effort at all to quantify the value of the settlement or the risk to closing presented by the bondholders. According to the special master, he “rigorously assessed both price and certainty of closing” but “did not apply a mathematical formula or ascribe percentages to various contingencies to assess certainty of closing.”

“There is no reliable way for the Special Master to predict to the percentage point how Judge Failla will rule in the PDVSA 2020 Bondholder litigation, whether that decision will be upheld on appeal, or whether the PDVSA 2020 Bondholders will be able to prevent the sale from closing,” the special master insists.

To which we say: balderdash.

As the objectors (primarily the Gold Reserve consortium, PDVSA and PDVH) argued at the stalking horse hearing on April 17, bidders quantify litigation risks all the time. Every time one company tries to acquire another company, the bidder must diligence any litigation risks, consider the acquired’s likelihood of success and apply those considerations to the purchase price. The seller must consider whether the purchase price is reasonable in light of the litigation risks. The idea that this simply can’t be done is dubious.

There is one big exception, which just might have some relevance here: Buyers don’t have to value litigation risks in bankruptcy. Thanks to section 363(f) of the Bankruptcy Code, buyers acquire assets from a bankruptcy estate free and clear of liens, claims and encumbrances, which stay behind at the debtor.

Even if section 363(f) didn’t exist, buyers have less litigation risk to worry about than outside bankruptcy because the automatic stay ensures all creditors and claimants are right there, just waiting to get crushed by a credit bid or fast-tracked sale that cannot be prolonged even by a few weeks without ice cube remnant sticking up the floor.

But as Judge Stark’s injunction decision made absolutely clear, this isn’t bankruptcy court, it’s the real world: There are rules. Section 363(f) doesn’t apply, and Gramercy and the bondholders are free to litigate in another court and appeal as long as they like. So bidders and the seller (here, the special master) have a duty to quantify the Gramercy and bondholder litigation risks – but the special master refuses to do so.

The big question is why. The special master didn’t need to select a stalking horse at all, or he could have picked the Gold Reserve bid and let Red Tree/Contrarian try to raise their purchase price to create a more precise valuation of the bondholder settlement. Instead, by selecting Red Tree as the stalking horse at a much lower price, the special master is actually forcing other bidders to increase the value they will give to the bondholders.

The message seems to be that bidders should hit that $3.7 billion purchase price for the assets – putting a ceiling, not a floor, on the amount for judgment creditors – and throw anything above that at bondholders in the hopes of securing unaffiliated bondholder consents to overcome Contrarian’s presumed 14% no vote.

The objectors also point out that if the special master picks Red Tree as the winning bid and the bondholders subsequently lose in New York, the purchase price does not change – and $3.3 billion in value will have been transferred away from judgment creditors to bondholders with invalid claims. Red Tree in particular would end up owning Citgo free and clear of the bondholders’ claims for just $3.7 billion while also funneling new debt to parent Contrarian – a staggering windfall.

Yes, the Red Tree/bondholder settlement requires the bondholders to ask for a stay from Judge Failla to avoid an adverse ruling, but the defendants in that litigation – PDVSA and PDVH – will no doubt object, and there are no guarantees Judge Failla would overrule that objection.

Few bankruptcy judges would deny a stay requested by the debtor to allow a settlement to play out – bravo to Friend of the Show Judge Craig T. Goldblatt for doing exactly that in the Yellow case recently – but, again, Judge Failla is not a bankruptcy judge. She may, like Judge Goldblatt, decide PDVSA and PDVH are entitled to a decision on their claims.

The special master counters that if he selects a bid that might get blocked before closing, then potential bidders might sit back and wait to see if that happens, swoop in and pick up the pieces with a real lowball offer. But he has already given bidding protections to a lowball offer. Why not let Red Tree/Contrarian swoop in if Gold Reserve’s financing falls down? Is it really possible that a bidder would pass on the chance to snag Citgo, a real, profitable company with actual assets, at a substantial discount when someone just agreed to pay $6.5 billion for Skechers?

That leaves us with a whole bunch of suppositions as to why the special master really picked Red Tree as stalking horse. Our guess: The special master wanted to get the bondholder settlement on the record so other bidders would know what they need to do – basically, find more bondholders to support their proposed settlement so Contrarian can’t block a deal with its own affiliate.

Surely this could have been done more easily than taking the Red Tree offer to Judge Stark as highest and best and giving Red Tree $75 million in bid protections? This smacks to us of getting a bit too fancy with the sale process instead of just doing the simple, defensible thing and not designating a stalking horse or picking the bid with the highest price.

As you might expect, none of this was lost on Judge Stark. At the April 17 hearing, he suggested that Red Tree’s bid might actually be worse than the Amber Energy bid in some respects, which: you generally don’t want to hear from a judge that your new favorite bid might be worse than the one everybody hated. The judge pointed out that the Amber bid merely escrowed funds to pay the bondholders should they win, whereas the Red Tree bid allocates more than $3 billion in value to the bondholders win or lose.

The judge also accused the special master of “grossly overvaluing” the bondholder litigation closing risk, which doesn’t seem fair to us because the special master admittedly didn’t value it at all. “I’m persuaded it’s a risk,” Judge Stark admitted, but “I’m having a hard time seeing how this risk is worth anything near $3 billion.”

The objectors also pointed out there is actually a substantial risk to the Red Tree bid closing: The bondholder settlement is not exactly a done deal. As noted above, the settlement provides for a non-pro-rata exchange: Members of the ad hoc group (including Contrarian) would receive about $1.20 in new Citgo debt for every dollar in PDVSA bonds, while other bondholders would get around $1.10.

That sound you hear is Gold Reserve and its consortium partners buying PDVSA bonds so they can sue to block the exchange, putting a litigation roadblock in front of Red Tree. Is it likely a court would halt the exchange while majority and minority fight over its validity under the indenture? Probably not. Although minority groups have done well pursuing damages claims related to uptier exchanges, including in Serta, they failed to stop the Serta exchange before it happened, and most LME challengers don’t even try to prevent closing.

But is that less likely to happen than Judge Failla enjoining the sale closing because it would allow the purchaser to lien up Citgo’s assets for financing at the expense of the structurally senior bondholders – itself a sort of LME, as the Red Tree proponents suggest? Maybe, maybe not. The point is that the special master didn’t even do the analysis and expected a nonbankruptcy judge to swallow the idea that the bondholder sale closing risk is worth more than $3 billion, without any justification, while the bondholder settlement closing risk is negligible.

Yet swallow it he did – with some serious reservations. On April 21, Judge Stark approved Red Tree as stalking horse, while warning the special master that his final recommendation, due in early June, had better put a bit more emphasis on price and a lot less emphasis on closing certainty. The judge said he has “serious reservations about the price of the Red Tree bid” and the special master’s “implicit overvaluation” of the bondholder settlement, but the selection of a stalking horse is the beginning, not end, of the final bidding process.

Maybe we are being too hard on the special master here. That kind of ruling – “I don’t like this, this is probably a bad idea, but I’m going to approve it because, reasons” – is pretty typical bankruptcy judge stuff. Maybe the special master knows Judge Stark better than we do.

Judge A Catches a Break

On May 1, the Judicial Council for the U.S. Court of Appeals for the Fifth Circuit issued an opinion rejecting a pro se ethics complaint against an unnamed “Judge A” for failing to report his good friend “Judge B’s” “romantic relationship with an attorney.” Hmmm, who could they possibly be talking about?

According to the opinion, the complaint offered no evidence that Judge Isgur – sorry, “Judge A” – had “‘reliable information’” about Judge B’s relationship before it became public and Judge B resigned. Instead, the complaint alleges only that Judge A “developed a close professional and personal relationship with Judge B and that Judge A may have attended events hosted by the local bankruptcy legal community at which Judge B and the attorney may also have been present.” According to the Fifth Circuit, that kind of circumstantial evidence is not enough for discipline.

We’re not sure exactly how one might secure noncircumstantial evidence that Judge A knew about the secret romantic relationship between Judge B and a partner with a prominent firm that appeared before both judges in many large bankruptcy cases in Houston – ummm, whatever court the Fifth Circuit might be talking about.

We doubt the judges would talk to each other about the relationship on their uscourts.gov email addresses; they certainly aren’t dumb enough to copy a reporter from Octus on their Signal chats. And according to an amended complaint filed by the J.C. Penney wind-down estates against Jackson Walker on May 1, a whole lot of potential evidence related to the relationship – including text messages – seems to have grown legs and walked itself to the trash (and would have been lost, absent one party forgetting to scrub an iPad).

At first we were pretty skeptical that someone as close to Jones and live-in girlfriend/former law clerk/Jackson Walker partner Elizabeth Freeman as Judge Isgur might not know what was going on. But we have come around to believing that maybe Judge Isgur was actually the victim of a scheme to get big cases filed in Houston by Jackson Walker and assigned to Jones so he could feather his love nest via Freeman.

Take the evidence that the J.C. Penney successor entities were able to surface in their suit against Jackson Walker – allegedly from an old iPad belonging to Jackson Walker attorney (and former Jones law clerk) Veronica Polnick that escaped the text purge. This exchange between Polnick and Freeman is our personal favorite:
 

That exchange took place three days before J.C. Penney filed chapter 11 on May 18, 2020, and, you guessed it, J.C. Penney was assigned to Jones, exactly as Freeman predicted. The exchange also suggests that at some point (please, don’t make us imagine the circumstances), Freeman spoke to Jones ex parte about the J.C. Penney case before it was filed.

But honestly, we don’t care about that. We have a bridge in Brooklyn for anyone who thought Houston complex cases were actually randomly assigned to Jones or Isgur upon filing without this kind of horse trading – the May 15 Ultra Petroleum filing did “go to Isgur,” with hilarious results.

What interests us is the “shitty Mexican food” comment, for two reasons. First, if you live in Houston, there is absolutely zero excuse to settle for shitty Mexican food. Second, the notion that Judge Isgur needed to be “softened up” to go along with these shenanigans suggests he might have had some qualms about what was going on – qualms that would take more than subpar queso to squash if he knew Freeman and Jones were living together.

Exhibit B in defense of Judge A: As we have documented, Judge Isgur has been on an absolute rampage since he was forced to return to the complex panel when Jones resigned. Perhaps the most notable case he inherited was Incora/Wesco, which one has to guess filed in Houston to snag Jones and get a repeat of his hilariously silly Serta uptier summary judgment opinion. Jones heard oral argument on the Incora/Wesco uptier just a few days before the Freeman affair blew up.

Did Judge Isgur follow Jones’ Serta decision and put the kibosh on the Incora/Wesco uptier claims tout suite? Brother, he did not. Judge Isgur denied the summary judgment motions and held a six-month trial before hammering the uptier participants in a surprise decision tossed off the cuff at closing arguments. The ruling legitimately shocked most LME watchers and bankruptcy wonks, because Judge Isgur wasn’t exactly known for blowing up tidy plans and sending debtors back to square one.

Maybe we are just bending over backward to justify our bromance with Judge Isgur in his new post-Jones persona, but it sure feels like he has been working out his feelings about Jones dragging him into this mess from the bench. Want another example? On April 11, Judge Isgur rejected a settlement between the GWG Holdings litigation trust and former shareholders, directors and officers, finding that the trustee’s notice to creditors was “completely deficient” because it did not include a description of “the potential recoveries and ramifications of the settlement.”

The judge said it was “absurd” that the trustee disclosed projected distributions from the settlement on the trust’s website only three days before the hearing. To normal human beings with friends, loved ones and nonwork interests, this might seem perfectly reasonable – the folks who stand to benefit from a lawsuit probably should get actual information about a proposed settlement on a timely basis so they can object if they think the trust is getting less than it should.

But to us bankruptcy folks, this is completely absurd – the standard for approving bankruptcy settlements is lower than the Colorado Rockies’ chances to make the playoffs, and debtors often file crucial information hours before hearings on important issues like DIP financing and confirmation.

So, why the angst from Judge Isgur over the trust’s relatively generous notice to beneficiaries in GWG? Maybe it has something to do with Jackson Walker serving as local counsel for the debtors in the bankruptcy case?

All we know is that if we were dragged into a nasty ethics complaint over a former colleague’s secret affair with an attorney that we knew nothing about, we might be just a bit cranky, and shitty Mexican food would not satisfy us. We would want blood.

It’s too bad that Judge Isgur left the complex panel for good when Judge Alfredo Perez took his place, meaning his supply of besuited whipping boys and girls will soon dwindle to nothing as legacy cases burn off. We have thoroughly enjoyed Complex Isgur II – The Reckoning, but he could have done a lot more if he had decided to stay on and ensured no debtor with a principal place of business in a Sugarland P.O. box was safe from his wrath.

Odebrecht Overbreadth

Speaking of venue shopping, remember back in December 2024 when we suggested that foreign debtors might be better off filing chapter 11 in Houston than pursuing a foreign proceeding and getting it rubber-stamped in New York under chapter 15? As we put it, “Why bother with a foreign proceeding in a pro-debtor jurisdiction and the extra costs and risks of a chapter 15 recognition fight when you can just form a Texas entity and file chapter 11 in Houston? Is there a jurisdiction in the world more mega-case debtor-friendly than the Southern District of Texas?”

Judge Martin Glenn in New York, Grand Poobah of the chapter 15, must have an Octus subscription, because on April 21 he decided to head off that line of thinking with an absolute head-scratcher of a decision in the Odebrecht Engenharia chapter 15 case. According to Judge Glenn, bankruptcy courts can impose nonconsensual nondebtor releases in chapter 15 recognition orders notwithstanding Purdue – even if the foreign plan to be recognized did not include any nondebtor releases.

Recall that in Purdue, the U.S. Supreme Court – you know, the Supreme Court – held the Bankruptcy Code “does not authorize a release and injunction that, as part of a plan of reorganization under Chapter 11, effectively seeks to discharge claims against a nondebtor without the consent of affected claimants.” Seems like a pretty strong statement, but we know bankruptcy judges sometimes treat appellate rulings as inconvenient barriers to be circumvented rather than commands from on high.

So it has been with Purdue. Our favorite Purdue revisionism (until recently) was the Bird Global weak-sauce full-pay “exception,” but on April 1 Judge Thomas Horan in Delaware took it upon himself to also carve chapter 15 cases out of the Supreme Court’s mandate. Judge Horan found that he could approve the nonconsensual nondebtor releases in Crédito Real’s Mexican insolvency plan under chapter 15 without running afoul of Purdue, pointing to that “as part of a plan of reorganization under Chapter 11” language from the majority.

Chapter 15 provides that a U.S. bankruptcy court cannot recognize a foreign insolvency plan that includes provisions “manifestly contrary to the public policy of the United States,” but Judge Horan reasoned that “[t]he simple fact that a U.S. court could not grant such releases in a typical chapter 11 plan” under Purdue “does not make them manifestly contrary to U.S. public policy.”

Judge Horan’s Crédito Real ruling is at least defensible. It is true that in Purdue, the Supreme Court only rejected nonconsensual nondebtor releases in chapter 11 plans, most likely because the case before the Court was a chapter 11 case. It is also true that the Supreme Court took some pains to note that the ruling didn’t apply to consensual releases (whatever that means).

And you can reasonably argue that “manifestly contrary to public policy” is a higher standard than “stuff bankruptcy courts don’t have statutory authority to do in this particular context.” As Judge Horan pointed out, Congress has given bankruptcy courts authority to impose nonconsensual nondebtor releases in asbestos cases under section 524(g) – so they can’t be that bad, right?

In Crédito Real, Judge Horan was asked to enter an order approving a foreign plan that itself included nonconsensual nondebtor releases – presumably entered after creditors and shareholders were afforded due process as required by local law and in accordance with local law. Parties were able to appeal the foreign court’s approval of that plan, including the releases.

Judge Horan was asked to extend comity – the key principal underlying chapter 15 – to a foreign court’s duly-entered judgment, notwithstanding that judgment included provisions he could not approve in a chapter 11.

But Judge Glenn’s Odebrecht ruling goes much, much further. The foreign representative in Odebrecht asked Judge Glenn to enter an order featuring nonconsensual nondebtor releases meant to enforce a foreign plan that did not have such releases.

Section 1501 of the Bankruptcy Code provides that the purpose of chapter 15 is “to provide effective mechanisms for dealing with cases of cross-border insolvency,” including cooperation between U.S. courts and foreign courts. The idea is that if U.S. courts extend recognition to the orders of foreign insolvency courts, even if those orders include provisions not available under U.S. law, then foreign courts will extend recognition to the orders of U.S. courts, even if those orders include provisions not available under foreign law – and that will benefit everyone.

But, to us at least, the concept of comity – the respect for the duly-rendered orders of foreign courts with appropriate jurisdiction that is the basis of chapter 15 – requires the foreign court to actually enter an order. There must be something to extend comity to.

“Comity” is not a free-ranging power to do whatever might be helpful to ensure foreign court orders are fully adhered to, any more than “equity” is a free-ranging power to do whatever might be helpful in a chapter 11 case (for example, grant nonconsensual nondebtor releases). There is no comity interest here – the foreign court didn’t actually do anything requiring reciprocity.

But Judge Glenn found the U.S. bankruptcy court can supplement the foreign plan with release provisions he absolutely could not approve in a chapter 11 plan under Purdue – or even under the local law governing the foreign insolvency proceeding – based solely on the principle of comity.

According to Judge Glenn, U.S. bankruptcy courts “are not hamstrung by the operations of foreign courts and law when determining what relief to grant to the foreign representative” under chapter 15. The drafters of chapter 15 “referenced principles of comity as limiting factors, rather than foreign rulings or even the availability of relief under foreign law,” according to the judge.

So, Judge Glenn believes that a U.S. bankruptcy judge can do basically anything to enforce a foreign plan, even if he could not do it in a chapter 11 plan, and the foreign court could not do it in the foreign proceeding. That is … bold.

Judge Glenn maintains “there is no meaningful difference between enforcing, via order, a foreign plan with a third-party release provision, and issuing an order enforcing a foreign plan, which order contains a third-party release which itself is not in the foreign plan” (emphasis in original). “The practical effect is the same,” the judge explains: “[A] U.S. court issues an order, which takes effect in the United States, which releases claims over which the U.S. court has jurisdiction.”

Excuse our French, but: What the actual fudge? There is a massive difference between enforcing a foreign plan with nondebtor releases under chapter 15, which exists to allow U.S. courts to enforce foreign plans, and entering an order enforcing a foreign plan that adds nondebtor releases.

In the former, a foreign court entered an order with releases in it, presumably after providing due process and following the requirements of local law, and subject to appeal. In the latter, the U.S. bankruptcy court is adding releases without the foreign court doing so.

Putting this aside, what sense does it make to allow U.S. courts to add releases in chapter 15 when they can’t do so under chapter 11? To get a chapter 11 plan confirmed, a debtor must jump through a lot of hoops, even in Houston: The debtor must file a petition, provide information regarding assets and liabilities, subject its operations to court supervision, open itself to intrusive discovery, provide elaborate disclosures of its plan, solicit for votes and satisfy the requirements for confirmation.

And even if a debtor does all of this to confirm a chapter 11 plan, under Purdue it absolutely cannot impose nondebtor releases on unwilling creditors. But, according to Judge Glenn, a foreign debtor can impose nondebtor releases on unwilling creditors without jumping through any of those hoops either in the foreign proceeding or in the U.S., just by including them in a chapter 15 recognition order. To us, that is complete malarkey.

But it must be music to the ears of any foreign entity deciding between an insolvency proceeding in a “local” venue (which can also be manipulated, according to Judge Michael Wiles) or a U.S. chapter 11. Just go to the most convenient available foreign jurisdiction (there are COMI rules that have to be addressed to qualify for chapter 15), get a basic order approving a simple plan, and then file a chapter 15 in New York and ask Judge Glenn to give you whatever you couldn’t get abroad or under chapter 11, all in the name of “comity.”