In re OI Brasil Holdings Coöperatief U.A.

• Decision Date: 04 December 2017
• Docket Number: Case No. 17–11888 (SHL), Case No. 16–11794 (SHL), Case No. 16–11791 (SHL) (Jointly Administered)
• Citation: 578 B.R. 169
• Parties: IN RE: OI BRASIL HOLDINGS COÖPERATIEF U.A., Debtor in a Foreign Proceeding. In re: Oi Brasil Holdings Coöperatief U.A., Debtor in a Foreign Proceeding. In re: Oi S.A., et al., Debtors in a Foreign Proceeding.
• Court: U.S. Bankruptcy Court — Southern District of New York

578 B.R. 169

IN RE: OI BRASIL HOLDINGS COÖPERATIEF U.A., Debtor in a Foreign Proceeding.

In re: Oi Brasil Holdings Coöperatief U.A., Debtor in a Foreign Proceeding.

In re: Oi S.A., et al., Debtors in a Foreign Proceeding.

Case No. 17–11888 (SHL)

Case No. 16–11794 (SHL)

Case No. 16–11791 (SHL) (Jointly Administered)

United States Bankruptcy Court, S.D. New York.

Signed December 4, 2017

JONES DAY, Counsel for Jasper R. Berkenbosch, Solely in His Capacity as Insolvency Trustee of Oi Brasil Holdings Coöperatief U.A., 250 Vesey Street, New York, New York 10281, By: Corinne Ball, Esq., Stephen Pearson, Esq., Lauri W. Sawyer, Esq., Bryan M. Kotliar, Esq., Anna Kordas, Esq., -and-, 51 Louisiana Avenue, N.W., Washington, D.C. 20001, By: Geoffrey Irwin, Esq.

DECHERT LLP, Counsel for the International Bondholder Committee, 1095 Avenue of the Americas, New York, New York 10036–6797, By: Allan S. Brilliant, Esq., Shmuel Vasser, Esq., Benjamin E. Rosenberg, Esq.

WHITE & CASE LLP, Counsel for Oi S.A. and Antonio Reinaldo Rabelo Filho as Petitioner and Foreign Representative of the RJ Proceeding of Each of Oi S.A., Telemar Norte Leste S.A., Oi Brasil Holdings Coöperatief U.A., and Oi Móvel S.A., 1221 Avenue of the Americas, New York, New York 10020–1095, By: J. Christopher Shore, Esq., John K. Cunningham, Esq., Mark P. Franke, Esq., -and-, Southeast Financial Center, 200 South Biscayne Blvd., Suite 4900, Miami, Florida 33131, By: Richard S. Kebrdle, Esq., Jason N. Zakia, Esq., Laura L. Femino, Esq.

CLEARY GOTTLIEB STEEN & HAMILTON LLP, Counsel for the Steering Committee of the Ad Hoc Group of Bondholders, One Liberty Plaza, New York, New York 10006, By: Richard J. Cooper, Esq., Luke A. Barefoot, Esq., Samuel Hershey, Esq.

POST–TRIAL MEMORANDUM OF DECISION

SEAN H. LANE, UNITED STATES BANKRUPTCY JUDGE

Before the Court is the Verified Petition and Motion seeking an Order (I) Recognizing the Dutch Bankruptcy Proceeding as the Foreign Main Proceeding for Oi Brasil Holdings Coöperatief U.A. ("Coop" or the "Debtor"); (II) Recognizing the Insolvency Trustee as the Foreign Repre sentative; (III) Modifying the Prior Recognition Order; (IV) Modifying the Prior Joint Administration Order and (V) Granting Certain Related Relief, dated July 7, 2017 (as later supplemented and modified, the "Dutch Petition") [ECF Nos. 2, 23].¹ The Dutch Petition was filed by Jasper R. Berkenbosch, solely in his capacity as Insolvency Trustee of Debtor Coop (the "Insolvency Trustee").

The Dutch Petition presents the Court with a complex factual and procedural history. Coop is a Dutch entity that is part of a family of Brazilian telecommunications companies (the "Oi Group") that initiated bankruptcy proceedings in Brazil in the summer of 2016. In July 2016, several of these Oi Group entities—including Coop—sought and received recognition in this Court of the Brazilian bankruptcy proceedings as a foreign main proceeding under Chapter 15 of the United States Bankruptcy Code. As a basis for that recognition, the Court found Coop's center of main interests ("COMI") to be in Brazil given Coop's status as a special purpose financing vehicle for the Oi Group.

Around the same time, a number of Coop's creditors began to take action against Coop in the Netherlands, which culminated in a Dutch bankruptcy proceeding for Coop. After months of litigation in the Dutch court system, the highest national court in the Netherlands upheld the jurisdiction and propriety of Coop's bankruptcy proceedings under Dutch law. In July 2017, the Insolvency Trustee appointed in the Netherlands filed the Dutch Petition now before this Court. Contending that Coop's COMI is in the Netherlands, the Dutch Petition seeks to have the Court recognize Coop's Dutch bankruptcy proceedings as a foreign main proceeding under Chapter 15 and also to overturn the prior recognition by this Court of Coop's Brazilian bankruptcy proceedings. The Insolvency Trustee's Dutch Petition is supported by Aurelius Capital Management, LP ("Aurelius") and other like-minded creditors who make up the International Bondholder Committee (the "IBC," and together with the Insolvency Trustee, the "Movants"). The relief requested by the Movants is opposed by the debtors that previously received recognition of the Brazilian bankruptcy proceedings in this Court. These debtors are joined by a separate group of Oi Group creditors (the "Steering Committee," and, together with the debtors in the prior case, the "Objectors").

To address the numerous issues presented by the parties, this Decision is divided into sections. The first section sets forth a detailed statement of facts based on the evidence presented in the case, including at trial. The remaining sections are the Court's conclusions of law based on these facts and applicable law. They open with a brief primer on Chapter 15 of the Bankruptcy Code, focusing on recognition and the crucial concept of a debtor's COMI. The Court next turns to the parties' competing views of the applicable legal standard for evaluating the Dutch Petition and Coop's COMI. On the one hand, the Movants urge the Court to conduct a de novo review of Coop's COMI under Section 1517(a) as of the date the Dutch Petition was filed. On the other hand, the Objectors advocate reviewing this case under Section 1517(d), which looks at whether a prior COMI determination should be terminated or modified because it was incorrect in the first instance or based on events after recognition. For the reasons explained below, the Court finds that Section 1517(d) provides the appropriate standard.

After addressing the applicable legal standard, the Court considers whether the doctrines of judicial estoppel and comity apply in this case. More specifically, the Court evaluates whether this Court should conduct its own determination of COMI under Chapter 15 or whether it should defer to prior rulings made by the Dutch courts. The Court ultimately concludes that judicial estoppel and comity should not apply here for a variety of reasons, including, but not limited to, the differences between the legal question now before this Court and the one decided by the Dutch courts.

Finally, the Court evaluates the two prongs of Section 1517(d) for terminating or modifying a prior recognition. The first of these prongs directs the Court to determine whether the grounds for granting recognition were lacking. This requires the Court to examine the record before the Court at the time it recognized Coop's COMI as Brazil. After determining that the Court should not modify or terminate recognition under the first prong in Section 1517(d), the Court turns to the second prong in Section 1517(d). This second prong examines whether the grounds of recognition have ceased to exist. It requires the Court to examine whether events after the prior recognition have changed Coop's COMI from Brazil to the Netherlands. In concluding that this second prong has not been met, the Court considers the economic reality of the special purpose nature of Coop, the expectations of creditors, the limitations on the Dutch Insolvency Trustee presented by the proceedings in Brazil, and allegations of impropriety against creditor Aurelius.

After a trial and extensive submissions by the parties, the Court denies the Dutch Petition for the reasons set forth below. This decision constitutes the Court's findings of fact and conclusions of law.²

FINDINGS OF FACT

A. The Oi Group's Background and Structure

Incorporated under the laws of Brazil, Oi S.A. ("Oi") is the parent company of a large telecommunications conglomerate. Proposed Joint Pre–Trial Order, Ex. A Statement of Stipulated Facts (the "Stip. Facts") ¶ 1 [ECF No. 87]; Declaration of Antonio Reinaldo Rabelo Filho ("Rabelo Decl.") ¶ 6 [ECF No. 59]. The Oi Group has 140,000 direct and indirect employees in Brazil, including 45,125 full-time employees, as of December 31, 2015. Rabelo Decl. ¶ 5. The Oi Group reports significant operations and market share in a range of telecommunications-related services in Brazil, including (i) operation of 651,000 public telephones, more than one million public Wi–Fi hotspots in locations such as airports and shopping malls, and 330,000 kilometers of fiber optic cables; (ii) a 34.5% market share of fixed-line services including network usage, television and data transmission; and (iii) an 18.6% national market share in mobile telecommunications with 48.1 million mobile subscribers as of December 31, 2015, and network coverage of approximately 93.0% of the urban population of Brazil. Rabelo Decl.¶ 5. Moreover, as part of its mobile business, Oi and/or its affiliates are parties to various roaming and similar contractual arrangements with other global telecommunications companies outside of Brazil. Stip. Facts ¶ 4; Declaration of Ojas N. Shah ("Shah Decl.") ¶ 11 [Case No. 16–11791, ECF No. 4]. Specifically, Oi Móvel S.A. ("Oi Móvel") is a party to roaming agreements with approximately 352 operators in over 140 countries, including in the U.S. TX 63 ¶ 33; TX 284 ¶¶ 18, 21; Trial Tr. 289:22–290:6, Sept. 18, 2017 (Rabelo).

Coop is a subsidiary of Oi. Stip. Facts ¶ 1. Oi has other direct and indirect subsidiaries, including (i) Telemar Norte Leste S.A. ("Telemar"), a wholly-owned subsidiary of Oi that operates a legacy landline telecommunications business; (ii) Oi Móvel, a wholly-owned subsidiary of Telemar that operates the Oi Group's personal mobile and cable television services; and (iii) Portugal Telecom International Finance B.V. ("PTIF"), a wholly-owned financing subsidiary of Oi. Stip. Facts ¶¶ 1, 3; Rabelo Decl.¶ 6.

B. Coop's Background and Structure

Coop was incorporated on April 20, 2011 as a Dutch financing entity with excluded liability (coöperatie met uitgesloten aansprakelijkheid ). Stip. Facts ¶ 5; Shah Decl. ¶ 30; Trial Tr. 226:11–226:14, Sept. 18, 2017 (Rabelo). Coop maintains its registered address at Strawinskylaan 3127, 1077 ZX, Amsterdam, Netherlands, which is the shared office of a...