Foreign Representative Lacks Standing To Assert State-Law Avoidance Claims In Chapter 15 Case

In Hosking v. TPG Capital Management LP (In re Hellas Telecommunications (Luxemburg) II SCA), 2015 BL 21823 (Bankr. S.D.N.Y. Jan. 29, 2015), the U.S. bankruptcy court presiding over the chapter 15 case of London-based Hellas Telecommunications (Luxemburg) II SCA ("Hellas II"), which formerly owned one of the largest mobile phone operators in Greece, dismissed fraudulent transfer claims asserted by Hellas II's U.K. liquidators against private equity giants TPG Capital Management LP and Apax Partners LLP as well as various affiliates (collectively, the "defendants"). In the avoidance litigation, the liquidators were seeking, among other things, avoidance of €973.7 million in transfers made by Hellas II to the defendants in connection with a 2006 "debt refinancing." The cross-border transactions involved entities in Luxembourg, the U.K., and the U.S. (principally New York) as well as agreements and securities governed by the different laws of these jurisdictions.

The court ruled that a cause of action stated in the complaint under the New York Debtor and Creditor Law (the "NYDCL") alleging constructive fraudulent transfers must be dismissed under choice-of-law principles. According to the court, an actual conflict exists between the NYDCL and the laws of the U.K. and Luxembourg, which do not recognize a constructive fraudulent conveyance cause of action, and the U.K. and Luxembourg have a more significant interest in applying their laws to the dispute. The court also concluded that it need not decide whether the NYDCL may be given extraterritorial effect or whether the liquidators could assert the avoidance claims in light of section 1521(a)(7) of the Bankruptcy Code, which expressly precludes a U.S. bankruptcy court from granting relief that would allow a foreign representative to seek avoidance of transfers under section 544(b) of the Bankruptcy Code (among other Code sections) in a chapter 15 case.

Hellas

In 2005, the defendants acquired the equity of TIM Hellas Telecommunications S.A., a Greek telecommunications service provider, in a leveraged buyout transaction that involved the formation under Luxembourg law of Hellas Telecommunications, S.à.r.l. ("Hellas"); Hellas Telecommunications I, S.à.r.l. ("Hellas I"); Hellas II; and other related acquisition entities. Hellas, the ultimate parent of the newly formed entities, was wholly owned by the defendants.

As part of the LBO transaction, Hellas issued convertible preferred equity certificates (the "certificates") to the defendants. An equivalent number of certificates were issued to Hellas by Hellas I—the direct subsidiary of Hellas and direct parent of Hellas II—and by Hellas II to Hellas I.

Unable to sell Hellas II at an acceptable price, the defendants instead orchestrated a multistep "debt refinancing" transaction in December 2006 that involved the issuance of new debt as well as a series of certificate redemption payments and transfers. Among other things, the transaction involved: (i) the issuance by Hellas II of euro-denominated subordinated notes with a face value of960 million, as well as dollar-denominated subordinated notes with a face value of $275 million; (ii) the transfer by Hellas II of approximately1.57 billion to its parent, Hellas I, of which approximately973.7 million was paid to redeem certificates issued by Hellas II; (iii) a973.7 million payment by Hellas I to Hellas to redeem certificates issued by Hellas I; and (iv) a corresponding973.7 million payment by Hellas to the...