Olinda Star Achieves Broad Intercompany Cross-Border Relief

66 Canal Center Plaza, Suite 600 • Alexandria, VA 22314 • (703) 739-0800 • Fax (703) 739-1060 • www.abi.orgThe Essential Resource for Today’s Busy Insolvency ProfessionalThe Essential Resource for Today’s Busy Insolvency ProfessionalThe International SceneThe International SceneBy GeorGe W. ShuSter, Jr. and BenJamin W. LoveLandOlinda Star Achieves Broad Intercompany Cross-Border ReliefComplex intercorporate structures and related financings pose specific challenges in the cross-border insolvency context. Where a number of affiliates are liable for the debts of a common corporate enterprise, complete insolvency relief requires all of the entities to achieve insol-vency protection in all necessary jurisdictions. These challenges were on display in Hon. Martin Glenn’s recent decision in In re Olinda Star Ltd.1 Not only does this decision demonstrate poten-tial hurdles in achieving broad intercompany insol-vency relief, it also demonstrates that if at first you do not succeed in obtaining that relief, you might be able to try again.Background Olinda Star was a member of the Constellation group of companies, which was involved in oil drill-ing and production, located primarily in Brazil. As a member of the Constellation group, Olinda Star was a guarantor of indebtedness owing by other mem-bers of the group. In December 2018, all of the Constellation group members, including Olinda Star, filed for insolven-cy relief in Brazil. A subset of those same entities whose place of incorporation was the British Virgin Islands (BVI), including Olinda Star, also filed sep-arate insolvency proceedings in the BVI. Olinda Star’s BVI insolvency proceeding was commenced to facilitate the implementation of the Constellation group’s restructuring strategy on a global basis. To that end, the BVI proceeding was intended to be a “soft-touch” proceeding. While the BVI-appointed joint provisional liquidators (JPLs) would oversee Olinda Star’s restructuring and have authority over transactions outside the ordinary course of business, Olinda Star’s existing directors would otherwise retain day-to-day control of the company. It was the inten-tion of all parties that the primary aspects of Olinda Star’s restructuring would be dealt with through the Brazilian proceeding.Strike One: U.S. Court Declines to Grant Recognition to Olinda Star To ensure that their restructuring would be given effect in all relevant jurisdictions, the entire Constellation group, including Olinda Star, sought to have their Brazilian insolvency proceedings recognized in the U.S. through chapter 15 filings in the U.S. Bankruptcy Court for the Southern District of New York. The U.S. granted recogni-tion of the Brazilian insolvency proceedings of most of the Constellation group’s entities as either foreign main or foreign non-main proceedings, depending on the respective entities’ center of main interest (COMI).2 However, the U.S. court declined to recognize the Brazilian insolvency proceeding of Olinda Star, because at the time its recognition petition was heard, the Brazilian court had dismissed...