MatlinPatterson files Chapter 11 bankruptcy with plans to liquidate

By Sarah Lizee

Olympia, Wash., July 7 – MatlinPatterson Global Opportunities Partners II LP filed Chapter 11 bankruptcy on Tuesday in the U.S. Bankruptcy Court for the Southern District of New York to implement a pre-packaged plan of liquidation.

“The debtors are investment funds and affiliated entities that have been ready to wind up and pay out their remaining assets to their limited partners for many years,” chief restructuring officer Matthew A. Doheny said in a declaration.

“The debtors’ efforts have been hamstrung by several litigations filed abroad that seek to recover assets in the United States, held almost exclusively by entities formed in the United States, under legal theories that run counter either to prior res judicata determinations by U.S. courts or settled U.S. law.”

Doheny said the sum total of the speculative claims exceed the debtors’ assets and have thus far prevented the debtors from distributing assets to their stakeholders.

Litigation

The debtors face three primary fronts of litigation.

First, as they were subjected to an arbitration award in Brazil in 2010. The U.S. Court of Appeals for the Second Circuit determined that the arbitration award was rendered against the debtors without jurisdiction over them, because the debtors never consented to arbitration in Brazil, and thus the award is unenforceable in the United States as a matter of U.S. public policy and the fundamental interests of the United States.

The award creditor then sought jurisdiction in which one of the debtors is organized. The Cayman trial court determined that the award was also unenforceable in the Cayman Islands, but an intermediate appellate court reversed the trial court and upheld the award in 2020. A further appeal of that decision is now pending.

Second, the debtors have been targeted in litigation in Brazil by the bankruptcy administrator of the estate of their former Brazilian investment vehicle, for claims that are based on factual allegations dating from more than a decade ago, and which were expressly released and indemnified under the terms of two New York law and jurisdiction-governed contracts, Doheny said.

“Although the debtors are of the firm position that these claims, in addition to being meritless, have already been fully released in accordance with U.S. law, even speculative actions caught in Brazil’s legal system drag on, and this action is not anticipated to be finally resolved for a decade or more,” Doheny added.

Also, some debtors were joined in an enforcement proceeding in a Brazilian court for their portfolio company’s failure to repay certain loans. The debtors were not served until five and a half years after the court permitted them to be added to the action on an alter ego theory of liability.

“The joinder of the debtors was premised on the baseless allegation that the debtors were responsible for the ‘disappearance’ of approximately R$24 million from the bank account of the portfolio company’s bankruptcy counsel,” Doheny said.

“In fact, the funds were used to pay pre-petition claims and were fully accounted for in the bankruptcy proceeding.

“Nonetheless, the claimant was able to exploit the ex parte nature of the enforcement proceeding and present unchallenged ‘evidence’ to falsely suggest to the Brazilian court that the debtors had acted improperly.”

Doheny said the debtors have filed the Chapter 11 cases to prevent the “meritless” foreign litigations from undermining U.S. law in respect of the debtors’ U.S. assets, and to effect an orderly, consolidated dissolution and distribution of those U.S. assets to their legitimate stakeholders.

“Because the debtors face litigation in multiple fora seeking recourse to the same assets, a centralized forum is necessary to fairly and expeditiously resolve any potential liabilities and to ensure that the debtors’ assets are liquidated and distributed in an efficient and equitable manner,” Doheny said.

Plan of liquidation

According to the disclosure statement, the administration and execution of the plan will be managed and overseen by the plan administrator. They will be responsible for taking the steps to administer and distribute the remaining assets of the debtors and the wind down estates.

Holders of other priority claims will receive payment in full in cash.

Holders of general unsecured claims and promissory note claims will receive payment in full in cash or other treatment that leaves their claims unimpaired.

Holders of partnership interests will receive an allocation of any surplus cash in the distributions reserve, as determined by the plan administrator.

Holders of affiliate equity interests and intercompany claims will not receive any distribution.

Debt details

As of the petition date, the debtor’s only funded debt consists of three intercompany promissory notes in an aggregate principal amount outstanding, together with accrued interest, of about $58 million.

The company listed $142 million in material assets and $481 million in asserted liabilities.

The company’s larges unsecured creditor is GOL Linhas Aereas SA, based in Rio de Janeiro, with a $60 million litigation claim.

MatlinPatterson is a New York-based distressed debt and credit opportunities fund. The company filed bankruptcy under Chapter 11 case number 21-11255.

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