MatlinPatterson funds and foreign litigants prepare for bankruptcy
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- Judge approves preliminary protection order for bankrupt funds
- Lawyer denies claims bankruptcy is litigation tactic
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(Reuters) – The New York judge overseeing the bankruptcy of two troubled MatlinPatterson Global Advisers investment funds said Thursday he would issue a preliminary order confirming protection of the funds from ongoing foreign litigation.
U.S. bankruptcy judge David Jones in Manhattan said in a virtual hearing that he would provisionally approve the order but give litigants time to object if they challenge the shield. Lawyers for the MatlinPatterson funds at Simpson Thacher & Bartlett said during the hearing that the order is essential to ensure they do not become even more involved in ongoing litigation in Brazil and the Cayman Islands.
MatlinPatterson funds deposited for Chapter 11 protection in New York on Tuesday with plans to liquidate assets and pay off investors. The funds, created in 2003, specialized in struggling investments in several sectors during their early years. The funds had planned to shut down for years before the bankruptcy, as they suffered losses on investments in the Brazilian airline industry. These losses led to litigation, which resulted in claims of $ 423 million from creditors who obtained court judgments against the funds, which the funds say are not enforceable under US law. .
The claims far exceed the assets of the funds, which amount to around $ 142 million in cash, according to court papers. The funds also owe $ 58 million in intercompany debt to non-bankrupt affiliates.
A lawyer for one of the foreign litigants, the predecessor of Brazilian airline GOL Linhas Aereas SA, told Jones on Thursday that he believed the whole bankruptcy was a litigation tactic and that an order reiterating the protections afforded to bankrupt entities was not necessary because US bankruptcy law automatically provides this shield. The attorney, Arthur Steinberg of King & Spalding, accused the MatlinPatterson funds of trying to get “a nudge in the context of a request for a prophylactic order” which could create confusion, rather than clarity, in foreign courts.
Simpson Thacher’s Elisha Graff, representing the funds, denied Steinberg’s claim.
“This is not a litigation ploy,” Graff said.
GOL’s predecessor, known as VRG, claims he owes him $ 60 million under a Cayman Islands court ruling. Steinberg said during the hearing that the funds may have inappropriately moved assets from the Cayman Islands to the United States following the court ruling.
The judge said he believed these types of orders were beneficial in Chapter 11 cases involving foreign legal proceedings, but wanted to ensure that those involved in the litigation had the opportunity to raise objections. .
The case is In re MatlinPatterson Global Opportunities Partners II LP, US Bankruptcy Court, Southern District of New York, No. 21-11255.
For the MatlinPatterson funds: Elisha Graff, Kathrine McLendon, David Zylberberg, Jamie Fell, Tyler Robinson Lauren Brazier and Dov Gottlieb of Simpson Thacher
For non-bankrupt MatlinPatterson entities: David Rosner, Matt Stein and Gavin Schryver of Kasowitz Benson & Torres
For VRG: Arthur Steinberg of King & Spalding
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Reporting by Maria Chutchian