Elpida sale of assets in this country must meet U.S. standards: ruling

By Jim Witters

Wilmington, Del., Nov. 16 - Elpida Memory, Inc.'s foreign representatives must meet U.S. standards for the transfer of U.S. assets to Micron Technology, Inc. and to Rambus Inc., even though a Japanese court already approved them, according to an opinion issued Nov. 16 by judge Christopher S. Sontchi in the U.S. Bankruptcy Court for the District of Delaware.

Sontchi said that Elpida's foreign representatives must demonstrate the sales meet the standard of sound business judgment, including showing that:

• A sound business purpose exists for the sale;

• The sale price is fair;

• The debtor has provided adequate and reasonable notice; and

• The purchaser has acted in good faith.

The issue

The question arose when an informal group of Elpida's bondholders objected to the transfer of the U.S. assets under an order from the court in Japan.

The bondholders believe they should be allowed to dispose of the assets to recover their investment.

Bondholders' attorney J. Christopher Shore said Elpida is attempting to sell the assets for far less than they are worth.

Shore said if his clients were allowed to sue, they would win, dispose of Elpida's U.S. assets and "get paid in full." But they are prohibited from filing a lawsuit by the automatic stay of litigation imposed in bankruptcy cases.

The bondholders argued that the U.S. bankruptcy laws should apply to U.S. assets of a debtor whose primary bankruptcy case is in a foreign land.

Elpida has asserted that the principle of "comity" embedded in the U.S. bankruptcy code requires the U.S. court to honor decisions made in Japan, even if those decisions affect U.S. assets.

Comity is the "recognition which one nation allows within its territory to the legislative, executive or judicial acts of another nation, having due regard both to international duty and convenience, and to the rights of its own citizens or of other persons who are under the protections of its laws," according to Sontchi's written opinion.

Transactions in question

In support of four transactions approved in Japan, including the Rambus and Micron sales, Elpida at first justified them to the U.S. court as the result of reasonable business judgment.

The U.S. court was unaware of the transactions until it was informed of a July 2 announcement of a proposed $2.5 billion sale of Elpida's stock to Micron.

In addition to the Micron sale, the Japanese courts approved a patent sale and leaseback deal with Rambus Inc.

When the bondholders sought to question Elpida's fiduciaries about their business decision, Elpida argued that since the court in Japan had already ruled that the business judgment was properly used, the bondholders had no right to question it, and the U.S. court must approve it.

The Micron and Rambus deals are scheduled for a hearing before Sontchi on Dec. 4-5.

Sontchi's ruling

In making his ruling, Sontchi acknowledged that "granting comity to judgments in foreign bankruptcy proceedings is appropriate, as long as U.S. parties are provided the same fundamental protections that litigants in the United States would receive."

He said, though that "the principle of comity has never meant categorical deference to foreign proceedings."

The bankruptcy code provides for the recognition of foreign proceedings, but "expressly imposes the laws of the ancillary forum - not those of the foreign main proceedings - on the debtor with respect to transfers of assets located in such ancillary jurisdiction," Sontchi wrote.

Chapter 15 of the bankruptcy code tasks "the domestic courts with responsibility over and for assets in their jurisdiction. ... The sound exercise of business judgment test is applicable."

"There can be no doubt that promoting comity is a general objective of Chapter 15. But it is not the end all be all of the statute," Sontchi wrote.

And the U.S. law "requires only that a court grant comity to the foreign representative - not to the foreign court or the orders entered by such court," he said.

Elpida, a Tokyo-based manufacturer of DRAM integrated circuits, filed for bankruptcy on March 19, 2012 to gain recognition of its Japanese proceedings. Its Chapter 15 case number is 12-10947.

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