CHAPTER 3, D. Foreign Company Restructurings: There's No Place Like Home

• Jurisdiction: United States

D. Foreign Company Restructurings: There's No Place Like Home

ABI Journal

February 2019

Tally M. Wiener¹

Law Offices of Tally M. Wiener, Esq.

New York, N.Y.

The 1989 Woody Allen movie Crimes and Misdemeanors includes the observation by a character named Lester (played by Alan Alda): "If it bends, it's funny. If it breaks, it isn't." The same can be said about the situation of overleveraged foreign companies that try to restructure their debt outside of their home courts.

Some of these companies will pursue a counterintuitive strategy that works out remarkably well and others will follow a counterintuitive strategy that fails miserably. Consider the Mongolian Mining Corporation's tour of courthouses. As the name suggests, the company is based in Mongolia.² The company "owns and operates two open-pit coking coal mines — Ukhaa Khudag and Baruun Naran, both located in the Umnugobi aimag of Mongolia."³ It trades on the Hong Kong Stock Exchange.⁴

Following an "enforcement action by one of its creditors and failure to achieve consensus among stakeholders,"⁵ it restructured its debt via a scheme of arrangement sanctioned (i.e., approved) in the Cayman Islands and Hong Kong. The company also obtained chapter 15 recognition in the Southern District of New York.⁶

If you were to ask a person on the street about foreign company restructurings, "How does a Mongolian mining corporation restructure its debts?," the person would likely say something like, "I don't know," laugh and ask, "Restructuring proceedings in Mongolia?" If you were to complicate the question with, "Say there are no restructuring laws where the Mongolian company's business operations or management are, or there are but the Mongolian company chooses to restructure elsewhere; what happens then?" The person would probably say something like, "Well, the company can't do that, right?" The short answer is, "It can try."

The Mongolian Mining Corporation appears to have successfully restructured. That it bent common sense assumptions about where a restructuring can take place is, in hindsight, funny — because things worked out.

Why Discuss Where and How Companies Can Restructure Now?

Bloomberg described what is going on with some "corporate giants" weighed down with debt after a decade of "rock-bottom interest rates" as: "In fact, a lot of these companies might be rated junk already if not for leniency from credit raters. To avoid tipping over the edge now, they will have to deliver on lofty promises to cut costs and pay down borrowings quickly, before the easy money ends."⁷ Easy money came to companies not only through borrowing money, but also through private-equity placements or making their equity available for purchase on public stock exchanges. In addition to equity trading on exchanges, there is also a lot of debt trading on exchanges, including bonds and instruments with comparable payouts.

Companies will either find a way to get out from under their excessive debt load or be crushed by it. A domestic example is the iconic American brand Sears. As of the time of this article, there was only one bid to try to rescue the company from liquidation: its chairman's.⁸

Exposure in Offshore Jurisdictions Presents Challenges and Creates Opportunities for Restructuring

Offshore registration can be an attractive choice to companies as part of a tax-reduction strategy. It is among alternatives to Delaware registration,⁹ and it comes with exposure. Companies registered...