(Bloomberg) -- Hedge fund Aurelius Capital Management’s bid to use Dutch law to benefit certain bonds in the restructuring of Brazilian telecom company Oi SA was denied in New York federal court Monday.
The ruling clears what has been a major roadblock for the $19 billion debt restructuring and lays out a precedent for how global courts interact in international restructuring cases. It also weighs in on the actions of Aurelius, which the judge said hadn’t been forthright with the New York court.
“The evidence here presents a disturbing picture," U.S. Bankruptcy Judge Sean Lane said in the 120-page opinion in Manhattan bankruptcy court. "A creditor unhappy with Brazilian insolvency proceedings decided to strategically remain silent through a Chapter 15 recognition of those proceedings by this court while planning -- and eventually executing -- a strategy designed to reverse that recognition and block any restructuring in the Brazilian proceeding.”
An Aurelius spokeswoman declined to comment.
Lane denied a petition for Dutch bankruptcy that had been filed by Jasper R. Berkenbosch, a trustee for Oi’s bankrupt dutch unit. Aurelius had supported that petition and sought to claw back billions for itself and other holders of Dutch notes using a provision of Dutch law. It had sought a ruling that echoed one already made in Dutch courts.
The ruling comes after a trial where lawyers battled over whether a company’s activities in one country ties it to that nation for other legal matters. There, Aurelius was accused of manipulating the case by other creditors. The hedge fund said that wasn’t the case, and argued that Dutch unit and its Brazilian parent chose to access international debt markets via the Netherlands to gain tax advantages, and should restructure there, along with a group of other creditors who called themselves an international bondholder group.
Lane agreed with Aurelius’s statements at the trial that creditors don’t have the same power as companies to manipulate international legal filings, but said Aurelius “initiated a campaign of frequent and aggressive contact with Mr. Berkenbosch” to initiate a Dutch bankruptcy. Meanwhile, it wasn’t forthright in his own court, Lane said. “Aurelius’ actions also reflect a lack of candor before the court,” according to court papers.
Oi and another group of bondholders that holds $1.2 billion in bonds, including $242 million of the Dutch unit’s debt, had opposed Aurelius in U.S. court.
The case is Oi SA, 17-11791, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
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