Vitro’s Mexican Plan of Reorganization Denied Comity in the U.S.

In a Chapter 15 case presenting interesting considerations for cross border lenders and borrowers, the Bankruptcy Court for the Northern District of Texas declined to implement in the United States the plan of reorganization that had been approved by a Mexican bankruptcy court in Vitro’s Mexican concurso mercantil proceeding, because the plan (i) did not provide for distributions to noteholders consistent with Chapter 11 of the U.S. Bankrutpcy Code, (ii) did not sufficiently protect the interests of U.S. creditors, and (iii) did not protect the noteholders’ third-party claims against non-debtor subsidiaries, instead releasing those claims. The Texas bankruptcy court held that the distributions provided under the Mexican plan were not entitled to comity and the third-party releases were contrary to public policy of the United States. The decision has interesting implications which we discuss in this Client Update.