In Re Compañía De Alimentos Fargo, S.A.
2007 Bankr. LEXIS 3445, 58 Collier Bankr. Cas. 2d 1002, 376 B.R. 427 (2007)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
A U.S. court may exercise its discretion under 11 U.S.C. § 305(a)(1) to dismiss an involuntary bankruptcy petition against a foreign debtor when a comprehensive foreign insolvency proceeding is already pending, the debtor's assets and operations are centered abroad, and principles of comity and efficiency dictate that the interests of the debtor and creditors are better served by deferring to the foreign court.
Facts:
- Compañía de Alimentos Fargo, S.A. ('Fargo') is Argentina's largest commercial producer of bread products, with all of its 1,300 employees and the vast majority of its assets, customers, and suppliers located in Argentina.
- In 1998, Fargo issued U.S. dollar-denominated unsecured notes under an indenture agreement governed by United States law.
- Following an economic crisis in Argentina, Fargo defaulted on interest payments to the noteholders in February 2002.
- Fargo's debt is primarily held by creditors in Argentina, but a group of off-shore investors (the 'Petitioners') holds approximately 65% of its public debt.
- Fargo's U.S. assets consist solely of one trademark and three pending trademark applications.
- A competitor, Grupo Bimbo, and an investor, Chico Pardo, allegedly gained control over Fargo by purchasing its senior secured debt and equity.
- The Petitioners purchased substantial amounts of Fargo's notes after the Argentine reorganization had commenced and after an allegedly unfair appellate court ruling limited their voting rights in that proceeding.
Procedural Posture:
- In 2002, Fargo filed for a 'concurso preventivo' (reorganization proceeding) in the National Commercial Court in Buenos Aires, Argentina.
- In 2005, an Argentine appellate court issued a ruling limiting the voting rights of noteholders in the 'concurso'.
- The Indenture Trustee, on behalf of the noteholders, appealed the voting rights decision to the Argentine Supreme Court.
- On September 11, 2006, Argo Capital Investors Fund SPC and other noteholders ('the Petitioners') filed an involuntary Chapter 11 petition against Fargo in the U.S. Bankruptcy Court for the Southern District of New York.
- Fargo filed a motion in the U.S. Bankruptcy Court to dismiss the involuntary petition, including on the grounds of abstention under 11 U.S.C. § 305(a)(1).
- The U.S. Bankruptcy Court converted the § 305(a)(1) portion of the dismissal motion into a motion for summary judgment.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does 11 U.S.C. § 305(a)(1) warrant the dismissal of an involuntary Chapter 11 petition filed in the United States against a foreign debtor when a comprehensive foreign bankruptcy proceeding is already underway and the debtor's assets and operations are almost entirely located in that foreign country?
Opinions:
Majority - Chief Bankruptcy Judge Stuart M. Bernstein
Yes. Dismissal is warranted under 11 U.S.C. § 305(a)(1) because the interests of the creditors and the debtor would be better served by such dismissal. The court reasoned that while § 305 abstention is an extraordinary remedy, the pendency of a foreign insolvency proceeding introduces considerations of comity, which strongly favor deference to the foreign court. The court found that the Argentine 'concurso preventivo' is a sophisticated proceeding similar to Chapter 11, providing for an automatic stay, claims administration, and a reorganization plan process, making it a fair and adequate forum. Although the Petitioners pointed to procedural irregularities and delays in the Argentine case, particularly an appellate ruling on their voting rights, the court concluded that these issues did not render the entire system fundamentally unfair, especially since avenues for appeal to the Argentine Supreme Court existed and were being pursued. Furthermore, a parallel Chapter 11 case in the U.S. would be inefficient, costly, and ultimately futile, as any confirmed plan would have to be enforced in Argentina, an undertaking fraught with legal and practical obstacles. The court also noted that the Petitioners filed the U.S. case primarily to gain leverage and use the U.S. automatic stay to halt actions by a secured creditor, rather than for a genuine reorganization, which further supported dismissal.
Analysis:
This decision reinforces the strong policy of judicial comity in U.S. international insolvency law, demonstrating a high degree of deference to foreign proceedings that are procedurally and substantively fair, even if not identical to U.S. law. It clarifies that mere disagreement with a foreign court's ruling or frustration with delays is insufficient to justify a parallel U.S. bankruptcy case. The ruling signals to foreign investors that they cannot easily use the U.S. bankruptcy system as a tool to bypass or gain leverage in a foreign reorganization where the debtor's center of main interests clearly lies. The case thus strengthens the predictability of cross-border insolvencies by favoring a single, primary proceeding in the debtor's home country.
