In re Agrokor d.d., 591 B.R.

163 (2018)

[2] Bankruptcy Cases Ancillary to

KeyCite Yellow Flag - Negative Treatment Foreign Proceedings
Distinguished by Webb Mason, Inc. v. Video Plus Print Solutions,
Deference to foreign bankruptcy
Inc., D.Md., December 7, 2018
proceedings is appropriate so long as the
591 B.R. 163
foreign proceedings are procedurally fair
United States Bankruptcy Court, S.D. New York.
and do not contravene the laws or public
policy of the United States.
IN RE: AGROKOR D.D.,
et. al., Foreign Debtors.
[3] Bankruptcy Cases Ancillary to
Case No. 18-12104 Foreign Proceedings
|
Bankruptcy court, in the exercise of
Signed October 24, 2018
comity, would recognize and enforce
Synopsis restructuring plan reached in Croatian
Background: Foreign representative of debtor proceeding with respect to foreign debtors
companies that were the subject of restructuring within the territorial jurisdiction of
procedure pending in Croatia sought recognition of the United States, if the approval of
Croatian proceeding as foreign main proceeding, as the Croatian court became final; the
well as related relief. Croatian proceeding was procedurally
fair, provided proper notice to all creditors
and, through settlement agreement, which
was approved by over two-thirds of non-
[Holding:] The Bankruptcy Court, Martin Glenn, insider creditors, determined the rights of
J., held that bankruptcy court, in the exercise of all creditors to property that was subject
comity, would recognize and enforce restructuring to the jurisdiction of the Croatian court. 11
plan reached in Croatian proceeding with respect to U.S.C.A. §§ 1507, 1520, 1521.
foreign debtors within the territorial jurisdiction of the
United States, if the approval of the Croatian court 2 Cases that cite this headnote
became final.

[4] Courts Comity between courts of

Ordered accordingly. different countries
Federal courts generally extend comity
when the foreign court had proper
jurisdiction and enforcement does not
West Headnotes (11)
prejudice the rights of United States
citizens or violate domestic public policy.
[1] Bankruptcy Cases Ancillary to
Foreign Proceedings
Because the equitable and orderly [5] Courts Comity between courts of
distribution of a debtor's property different countries
requires assembling all claims against Comity to determination of foreign court
the limited assets in a single proceeding, takes into account the interests of the
American courts regularly defer to foreign United States, the interests of the foreign
bankruptcy proceedings. state or states involved, and the mutual
interests of the family of nations in
just and efficiently functioning rules of
international law.

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In re Agrokor d.d., 591 B.R. 163 (2018)

of the United States” must be consistent

with principles of comity, and must satisfy
[6] Bankruptcy Cases Ancillary to fairness considerations as set forth in this
Foreign Proceedings provision. 11 U.S.C.A. § 1507.
Grant of relief post-recognition of 1 Case that cites this headnote
foreign insolvency proceeding is largely
discretionary and turns on subjective
factors that embody principles of comity. [11] Bankruptcy Cases Ancillary to
Foreign Proceedings
4 Cases that cite this headnote In determining whether to grant comity
to a foreign court's action, nonexclusive
[7] Bankruptcy Cases Ancillary to factors the court considers in analyzing
Foreign Proceedings procedural fairness of the foreign
proceeding include: (1) whether creditors
Once a case is recognized as a foreign
of the same class are treated equally in
main proceeding, the court will exercise
the distribution of assets; (2) whether the
its discretion consistent with principles of
liquidators are considered fiduciaries and
comity.
are held accountable to the court; (3)
6 Cases that cite this headnote whether creditors have the rights to submit
claims which, if denied, can be submitted
to a bankruptcy court for adjudication;
[8] Bankruptcy Cases Ancillary to
(4) whether the liquidators are required
Foreign Proceedings
to give notice to potential claimants; (5)
Bankruptcy court should be guided by whether there are provisions for creditors
principles of comity and cooperation with meetings; (6) whether a foreign country's
foreign courts in deciding whether to grant insolvency laws favor its own citizens; (7)
the foreign representative additional post- whether all assets are marshalled before
recognition relief. one body for centralized distribution; and
(8) whether there are provisions for an
7 Cases that cite this headnote
automatic stay and for the lifting of such
stays to facilitate the centralization of
[9] Bankruptcy Cases Ancillary to claims.
Foreign Proceedings
Automatic effect of recognition of a
foreign main proceeding is an imposition
of an automatic stay on any action
regarding the debtor's property located in Attorneys and Law Firms
the United States. 11 U.S.C.A. § 1520(a).
*165 KIRKLAND & ELLIS LLP, Counsel to the
3 Cases that cite this headnote Foreign Representative, 601 Lexington Avenue, New
York, New York 10022, By: James H.M. Sprayregen,
Esq., Daniel Rudewicz, Esq.
[10] Bankruptcy Cases Ancillary to
Foreign Proceedings KIRKLAND & ELLIS LLP, Counsel to the Foreign
Relief granted to foreign representative Representative, 300 North LaSalle, Chicago, Illinois
under provision of Chapter 15 60654, By: Adam C. Paul, Esq., Brad Weiland, Esq.,
authorizing court to provide any Whitney Fogelberg, Esq.
“additional assistance” available under
the Bankruptcy Code or under “other laws

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In re Agrokor d.d., 591 B.R. 163 (2018)

One of the more controversial aspects of the EA Law

is that its provisions for reorganization and adjustment
MEMORANDUM OPINION GRANTING of debts apply to enterprise groups of companies that
RECOGNITION AND ENFORCEMENT have a principal place of business in Croatia and exist
OF FOREIGN DEBTORS' SETTLEMENT under Croatian law, though they may operate both in
AGREEMENT WITHIN THE TERRITORIAL and outside of Croatia. In this case, while 77 companies
JURISDICTION OF THE UNITED STATES of the group are based in Croatia, they are part of
a larger group of approximately 155 companies that
MARTIN GLENN, UNITED STATES operate outside of Croatia as well. How to deal with
BANKRUPTCY JUDGE the cross-border insolvency of enterprise groups raises
some of the most important issues in evolving cross-
Agrokor d.d. (“Agrokor”) and eight debtor affiliates
border insolvency law and practice.2
filed these Chapter 15 cases.1 They are a small part
of a larger group of 77 companies headquartered The Agrokor Group was, and remains, the largest
in the Republic of Croatia that are the subject private company by revenue in Croatia. It was
of an extraordinary administration proceeding in a insolvent and qualified by amount of debt and
Croatian court under a new Croatian law applicable number of employees for eligibility to file under
to systemically important business entities or groups. the EA Law. Once a company qualifies for an
The foreign representative appointed by the Croatian
extraordinary administration proceeding, the Croatian
court (the “Foreign Representative” or “Extraordinary statute includes provisions for the negotiation,
Administrator”) asks this Court to recognize the acceptance by creditors and approval by the Croatian
Croatian proceeding as a foreign main proceeding, court of a settlement agreement—essentially a
to recognize him as the foreign representative and to plan of reorganization that adjusts the debt and
recognize and enforce the restructuring plan reached in ownership interests of distressed companies. In
the Croatian proceeding (the “Settlement Agreement”) accordance with the law's provisions, the Settlement
within the territorial jurisdiction of the United States. Agreement was successfully negotiated, approved by
the requisite vote of creditors and then approved
The proceeding in Croatia (the “Croatian Proceeding”) by the Commercial Court of Zagreb in Croatia.
was filed under Croatia's “Act on the Extraordinary Final approval of the Settlement Agreement is
Administration Proceedings in Companies of Systemic pending in the High Commercial Court, where 92
Importance of the Republic of Croatia” (the “EA appeals were lodged against the ruling confirming
Law”). The statute's purpose is the “protection of the Settlement Agreement. According to counsel to
sustainability of operations of the companies of
the Foreign Representative's Brief in Further Support,
systemic importance for the Republic of Croatia
the decisions of the High Commercial Court are not
which with its operations individually or together
expected before the end of November 2018. (“Brief in
with its controlled or affiliated companies affect the
Further Support,” ECF Doc. # 24 ¶ 45.) The Foreign
entire economic, social, and financial stability of the
Representative asks that, in addition to recognizing
Republic of Croatia.” The *166 law was adopted on
him as the “foreign representative” within the meaning
April 7, 2017, shortly before Agrokor and its debtor
of the Bankruptcy Code and recognizing the Croatian
affiliates commenced the proceeding in the Croatian
Proceeding as a foreign main proceeding within the
court. The new law will be available to all companies
meaning of the Bankruptcy Code, this Court should
that are determined to be systemically important to
also recognize and enforce the Settlement Agreement
the Republic of Croatia; it is not a specialized law
within the territorial jurisdiction of the United States.
only applicable to Agrokor. That said, Agrokor and
its debtor affiliates' (the “Agrokor Group”) financial
The requests to recognize the Foreign Representative
distress and the resulting threat of systemic impact
as the “foreign representative,” and the Croatian
upon the Croatian economy was, no doubt, the impetus
Proceeding as a foreign main proceeding, present
for the creation of the new law.
relatively straightforward questions of the application
of Chapter 15; both requests were approved by this

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In re Agrokor d.d., 591 B.R. 163 (2018)

Court in an Order entered on September 21, 2018. standards? Of course, such a decision by this Court
(ECF Doc. # 30.) That Order reserved decision on recognizing and enforcing the Settlement Agreement
the request to recognize and enforce the Settlement would not mean that the Settlement Agreement would
Agreement, as it raised more challenging issues. be recognized and enforced in other countries. So,
the Foreign Debtors might well be wise either to
Recognition and enforcement of the Settlement seek recognition and enforcement of the Settlement
Agreement within the territorial jurisdiction of the Agreement in the courts of England and Wales, or
United States require this Court to determine whether to commence an insolvency proceeding or scheme of
it may and should enforce provisions of the Settlement arrangement in England, if either of those things can
Agreement that modify English law governed debt. be done, even if it requires costly and duplicative
While the Croatian *167 Proceeding of Agrokor has proceedings in England.
been recognized as a foreign main proceeding in the
High Court of England and Wales, that court has not so The difficulties here arise because the courts in
far been asked to recognize and enforce the Settlement England and Wales still apply the so-called “Gibbs
Agreement. English case law may not permit a court ” rule, based on an 1890 decision of the Court
outside of England and Wales (such as the Croatian of Appeal in Antony Gibbs & Sons v. La Societe
court that approved the Settlement Agreement) to Industrielle et Commerciale des Metaux (1890) 25
approve a discharge or modification of English law QBD 399 (hereinafter, “Gibbs ”). While Gibbs is
governed debt so that recognition and enforcement of discussed further below, the essence of the decision is
the Settlement Agreement by that court might not be that where a debtor, in that case domiciled in France,
granted. For the reasons explained below, however, made a contract governed by English law and to be
the Court resolves this challenging issue, recognizing performed in England, was declared a bankrupt and
and enforcing the Settlement Agreement, including the its debts discharged under foreign law in a foreign
provisions modifying the English law governed debt, proceeding (there, French law in a French proceeding),
within the territorial jurisdiction of the United States.3 the plaintiff was not bound by the discharge and could
maintain an action on *168 the contract and recover
This case presents challenging issues with very damages in an English court. Id. at 406. So, then, can
practical consequences. The Foreign Debtors (with Agrokor's creditors holding English law governed debt
their COMI in Croatia) presently have over €1,660 (or, at least, those creditors who did not approve of
million of debt governed by English law (English the Settlement Agreement or did not submit to the
Law Governed Loans, defined below) and over €925 jurisdiction of the court in Croatia) bring an action
million of debt governed by New York law (New in the courts of England to recover damages on the
York Law Governed Notes, defined below); thus, the old English law governed debt? And, even if the
majority (about 64%) of the debt to be restructured creditors can do so in the courts in England, should
under the Settlement Agreement is governed by that prevent this Court from recognizing and enforcing
English law. Can it really be that a court in Croatia the Settlement Agreement and barring any efforts by
that properly has jurisdiction over the Foreign Debtors' creditors to enforce the original debt obligations within
insolvency proceeding cannot oversee and approve the territorial jurisdiction of the United States? While
the Foreign Debtors' reorganization, and the resolution not determinative of the outcome, it should not be lost
of all claims against the Foreign Debtors, under a on anyone that this Court, based on comity principles,
national insolvency law and court procedures that has recognized and enforced an English court decision
satisfy widely recognized standards of fairness and modifying New York law debt in an English scheme
due process? More directly to the point, should a of arrangement proceeding. See In re Avanti Commc'n
U.S. Bankruptcy Court decline to extend comity to Grp. PLC, 582 B.R. 603 (Bankr. S.D.N.Y. 2018).
the decision of the court in Croatia to recognize and
enforce within the territorial jurisdiction of the United Whether the Gibbs rule as written still applies more
States the Settlement Agreement that was approved than 120 years after the decision was rendered remains
by the required vote of creditors and by the court an important issue in cross-border insolvency cases,
in Croatia in a proceeding that satisfied due process particularly because of the substantial changes that

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In re Agrokor d.d., 591 B.R. 163 (2018)

have taken place across the globe in insolvency laws

and recognition and enforcement of decisions of other A. The Agrokor Group
courts. Courts in England and Wales, and elsewhere, Agrokor is the parent company of more than 155 direct
still grapple with the Gibbs rule and the issue is and indirect subsidiaries, including not fully owned
currently on appeal in the Court of Appeal of England subsidiaries. (“Settlement Agreement,” ECF Doc. # 4
and Wales. Whatever the outcome of that decision, the Exhibit C § 3.1.2.) It is a joint stock company under
matter remains to be decided by this Court whether the laws of the Republic of Croatia and has registered
to recognize and enforce the Settlement Agreement share capital amounting to HRK 180.1 million. (Id.
approved by the court in Croatia within the territorial § 3.1.1.) The shares are divided into 360,246 regular
registered shares (which are designated AGKR-R-A),
jurisdiction of the United States.4
each of which hold a nominal value of HRK 500.00
per share. (Id.)
In deciding whether to recognize and enforce the
Settlement Agreement, the Court will also discuss
According to the Verified Petition for (I) Recognition
the outcomes in recognition proceedings the Foreign
of Foreign Main Proceedings, (II) Recognition of
Debtors filed in other jurisdictions. Those proceedings
Foreign Representative, and (III) Related Relief
resulted in a patchwork of decisions, recognizing the
Under Chapter 15 of the Bankruptcy Code (“Verified
Croatian Proceeding in cross-border cases in England
Petition,” ECF Doc. # 4), Agrokor and its subsidiaries
and Switzerland and denying recognition in cross-
that have at least 25% of their shares held by Agrokor
border cases in Bosnia-Herzegovina, Montenegro,
are subject to the Croatian Proceeding and are referred
Serbia and Slovenia. As already stated, this Court
to as the EA Group, as set forth in article 5, paragraph 2
has already entered an order recognizing the Croatian
of the EA Law, described below. There are currently 77
Proceeding as a foreign main proceeding. The
Agrokor Group entities that are parties in the Croatian
Court will discuss the rationale of the courts that
Proceeding, although as already indicated, only nine of
have either recognized or refused to recognize the
those companies filed the Chapter 15 petitions in these
Croatian Proceeding. But recognition of the Croatian
cases. (Verified Petition at 1.) Approximately 80 direct
Proceeding as a *169 foreign main proceeding in this
and indirect affiliates of Agrokor that are part of the
Court is determined by the relevant provisions of the
Agrokor Group are not based in Croatia and are not
Bankruptcy Code and not by the decisions of the other
parties to the extraordinary administration proceeding
courts.
in Croatia. Those companies predominately operate in

Additionally, the Settlement Agreement releases and Slovenia, Serbia and Bosnia-Herzegovina.5
discharges written guarantees by non-debtor affiliates
of both the English law and New York law debt.
B. Business of the Agrokor Group
In appropriate circumstances in Chapter 15 cases,
The Agrokor Group has been in operation since
this Court has recognized and enforced such releases.
1989 and, today, is one of the largest companies
The Court concludes here that those provisions in
in Croatia. (“Declaration of Foreign Representative,”
the Settlement Agreement should be recognized and
ECF Doc. # 5 ¶ 4.) The Agrokor Group's primary
enforced in these Chapter 15 cases with respect to the
businesses include Croatia's largest supermarket chain
nine Foreign Debtors that filed these Chapter 15 cases.
(Konzum d.d.), producer of mineral and spring water
(Jamnica d.d.), and producer and distributor of ice
Based upon the analysis that follows, the Court
cream and frozen foods (Ledo d.d.). In addition, the
believes that recognition and enforcement of the
Agrokor Group contains businesses related to food,
Settlement Agreement within the United States with
agriculture and other sectors. (Declaration of Foreign
respect to the nine Foreign Debtors is an appropriate
Representative ¶ 4.)
exercise of comity and application of U.S. law.

*170 In April 2017, at the start of the Croatian

Proceeding, Agrokor employed more than 60,000
I. BACKGROUND people across Croatia, Slovenia, Serbia and Bosnia-
Herzegovina. Its annual revenue was approximately

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In re Agrokor d.d., 591 B.R. 163 (2018)

€6.5 billion, which represents approximately 15 Loan springing maturity clauses and the information
percent of the gross domestic product of Croatia. provided in Agrokor's accounting records. (Id. ¶ 8.)
Suppliers and other businesses that are dependent on
the Agrokor Group's operations represent a significant In response to these liquidity concerns, Agrokor sought
further proportion of Croatia's gross domestic product. new financing and ultimately entered the €100 million
(Declaration of Foreign Representative ¶ 5.) loan with Sberbank (“Sberbank Loan”) in early 2017.
(Id. ¶ 9.) The Sberbank Loan proved insufficient to
Agrokor is structured as a holding company and avoid an insolvency proceeding. (Id.) As a result, on
has historically overseen M & A transactions on April 7, 2017, Agrokor filed for the commencement
behalf of the Agrokor Group. It also sought to of the Croatian Proceeding under the EA Law. The
provide group-wide: (1) financial reporting, (2) Croatian Proceeding was commenced by order of the
management of capital markets financing and (3) Commercial Court of Zagreb (the “Croatian Court”)
facilitation of operational synergies following M on April 10, 2017, supplemented on April 21, 2017,
& A transactions. Agrokor's main assets from a July 5, 2017 and July 13, 2017 (the “Commencement
macroeconomic perspective are shareholdings in and Order”). (Id.)
loans to its operating subsidiaries. Additionally, these
subsidiaries pay management fees to cover the costs The valuation of the assets of the Agrokor Group
of central management. (Settlement Agreement § 3.4.) took a substantial blow after the commencement
In more concrete terms, Agrokor owns the following of the Croatian Proceeding. Agrokor announced
key assets, allowing it to perform the above operations, on April 27, 2017 that there were potential
collectively forming the Agrokor Group: (1) shares in irregularities in its 2016 financial statements which
its subsidiaries and minority shareholdings in certain would result in a delay of the publication of its
other entities; (2) loans, deposits and other receivables financials. Following this announcement, in May
due to the debtor; and (3) certain directly owned of 2017, PricewaterhouseCoopers *171 (“PWC”)
real estate (including buildings, tools, plants and was appointed as auditor of the Agrokor Group's
machinery). (Id.) Croatia-based companies. In accordance with audit
requirements, PwC undertook an audit of twenty-
seven of the Agrokor Group's companies in the
C. Capital Structure Republic of Croatia, three companies in Serbia and
In late 2016, Agrokor undertook a substantial three companies in Bosnia-Herzegovina. (Settlement
refinancing of its existing unsecured debt. (Declaration Agreement § 3.7.) The consolidated changes in equity
of Foreign Representative ¶ 6.) Lenders were granted in the period from December 31, 2015 to December
springing maturity clauses in new and amended 31, 2016 resulted in a total equity reduction of
facilities. (Id.) The terms of these new and amended approximately €2.9 billion. Overall, this meant that
facilities were structured such that each facility would liabilities exceeded total assets by HRK 14.5 billion
mature early if Agrokor failed to refinance a PIK (€1.9 billion) for that period. (Id.) On December 31,
loan issued by its non-debtor parent company, Adria 2017, liabilities exceeded total assets by HRK 23.3
Group Holding BV (the “PIK Loan”) by March 8, billion, a reduction of approximately HRK 9 billion
2018. (Id.) The PIK Loan was, in turn, secured by from the preceding year.
a pledge granted by Adria Group Holding BV of
all shares it held in Agrokor. (Id.) As part of this The financial results for 2017, published by the
refinancing, Agrokor also sought a syndicated facility Extraordinary Administrator on May 14, 2018, showed
(the “F2 Club Loan”) to refinance its existing bonds. that liabilities exceeded assets for that period as well.
(Id. ¶ 7.) The F2 Club Loan was entered and the This financial statement described a consolidation
syndication process began in September 2016. (Id.) of 105 companies over which the Foreign Debtors
However, the syndication process failed approximately exercised control, 52 of which are in the Republic of
half a year later, in January 2017. (Id.) Agrokor began Croatia (the consolidated group as described in the
to experience liquidity strains because of, among 2017 Annual Report, “Consolidated Group”). (Id.)
other things, concerns arising from the failure of the
F2 Club Loan syndication, the impact of the PIK

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In re Agrokor d.d., 591 B.R. 163 (2018)

(4) EUR 100 million English law governed term

1. U.S. Debt loan facility agreement dated 21st February 2017, as
amended from time to time, between, among others,
As of the opening of the EA Proceeding, the Settlement
Agrokor and Sberbank of Russia (the “EUR 100m
Agreement described the total amount of third-party
Sberbank Loan”);
financial liabilities of Agrokor and some of its
subsidiaries at HRK 31.5 billion. One large chunk of (5) EUR 100 million English law governed loan
this debt is comprised of unsecured notes governed facility agreement dated 14th September 2016, as
by New York law. According to the Settlement amended from time to time, between, among others,
Agreement, the Agrokor Group issued the following Agrokor and a group of lenders;
unsecured notes (the “New York Law Governed
Notes” or “Notes”): (6) EUR 100 million English law governed
syndicated loan facility agreement *172 dated 14th
(1) EUR 325 million 9.125% New York law September 2016, as amended from time to time,
governed senior notes due to mature in 2020 and between, among others, Agrokor and a group of
USD 300 million 8.875% New York law governed lenders (the F2 Club Loan); and
senior notes due to mature in 2020 issued by the
Debtor pursuant to an indenture dated as of 10 (7) EUR 360 million English law governed loan
October 2012; and facility agreement dated 21st June 2014, and as
amended by way of an amendment agreement
(2) EUR 300 million 9.875% New York law dated 28th October 2016, between, among others,
governed senior notes due to mature in 2019 issued Agrokor and VTB Bank (Austria) AG.
by the Debtor pursuant to an indenture dated as of (Settlement Agreement § 3.5.1.2; see also Brief in
25 April 2012. Further Support ¶ 12.)
(Settlement Agreement § 3.5.1.1; see also Brief in
Further Support, ECF Doc. # 24 ¶ 12.)

3. Third Party Releases

2. English Debt There are two forms of third-party releases

contemplated by the Settlement Agreement. The
The Agrokor Group has substantial additional Verified Petition of the Foreign Debtors argues that
liabilities governed by English law. The Settlement this Court should enforce the Settlement Agreement
Agreement lists the following unsecured bank debt and the third-party releases contemplated therein.
obligations (the “English Law Governed Loans”): The Verified Petition provides, in relevant part:
“The Settlement Agreement contains the Trustee
(1) EUR 600 million English law governed loan
Release and the Bosnian-Herzegovinian Guarantor
facility agreement dated 14th March 2014, as
Release. The Trustee Release Parties and the Bosnian-
amended from time to time, between, among others,
Herzegovinian Guarantors are not debtors in the
Agrokor and Sberbank of Russia and Sberbank
Croatian Proceeding. As explained below, this Court
Europe AG;
may nevertheless adhere to principles of comity
(2) EUR 50 million English law governed loan and enforce the Trustee Release and the Bosnian-
facility agreement dated 16th July 2015, as amended Herzegovinian Guarantor Release.” (Verified Petition
from time to time, between, among others, Agrokor ¶ 70.)
and Sberbank Europe AG;
The English Law Governed Loans and New York Law
(3) EUR 350 million English law governed loan Governed Notes both benefit from guarantees granted
facility agreement dated 28th April 2016, as by the following entities: Agrokor Trgovina d.o.o.;
amended from time to time, between, among others, Ledo d.d.; Jamnica d.d.; Konzum d.d.; PIK-Vinkovci
Agrokor and Sberbank of Russia; d.d.; Zvijezda d.d.; Belje d.d.; Vupik d.d.; Ledo d.o.o.

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In re Agrokor d.d., 591 B.R. 163 (2018)

Čitluk; Sarajevski kiseljak d.d.; and Konzum d.o.o. Cir. 2012), affirmed a bankruptcy court's decision in
Sarajevo. (Verified Petition ¶ 20.) Of the guarantors, a Chapter 15 case declining to grant comity and to
the following are Foreign Debtors: Agrokor Trgovina enforce a Mexican court order approving a Mexican
d.o.o.; Ledo d.d.; Jamnica d.d.; Konzum d.d.; PIK- reorganization plan that released guarantees of US-
Vinkovci d.d.; Zvijezda d.d.; Belje d.d.; and Vupik d.d. based non-debtor affiliates of the Mexican debtor's
The remaining entities—namely Ledo d.o.o. Čitluk; debt. The Vitro plan created only a single class of
Sarajevski kiseljak d.d.; and Konzum d.o.o. Sarajevo unsecured creditors and the necessary creditor votes
—are the “Bosnian-Herzegovinian Guarantors,” as to approve the plan were only achieved by counting
described in the Verified Petition.6 (Verified Petition the votes of insiders. In re Vitro S.A.B. de C.V., 701
¶ 63.) These three entities are not Foreign Debtors in F.3d at 1039. Insider votes are not counted under
these Chapter 15 cases and nothing in this Opinion the Bankruptcy Code. See 11 U.S.C. § 1129(a)(10)
determines the rights of these entities or of their (“If a class is impaired under the plan, at least one
creditors. The Bosnian-Herzegovinian Guarantors are class of claims that is impaired under the plan has
affiliates of Agrokor. (Annex 2 to the Settlement accepted the plan, determined without including any
Agreement) (not available on ECF.) The Bosnian- acceptance of the plan by any insider.”) (emphasis
Herzegovinian Guarantor Release is provided for in added). Absent the subsidiaries' votes of intercompany
section 29.8 of the Settlement Agreement, which is debt in favor of the plan, the Vitro plan could not
titled “Releases.” (Settlement Agreement § 29.8.) have been approved. Vitro, 701 F.3d at 1039. Because
the Settlement Agreement here was approved by the
The final sentence of section 29.8.1 of the Settlement required majority vote of creditors, even excluding
Agreement, which deals *173 with releases, contains the “insider” affiliate votes, the Court concludes that
a carve out. It clarifies that directors, officers and Vitro does not stand in the way of recognition and
members of management or supervisory boards of any enforcement of the Settlement Agreement. Of the total
member of the Agrokor Group are not released from number of creditors entitled to vote, 78.52% of non-
liability arising from their conduct. The section states: insiders by claim amount voted in favor of the plan—
this is comfortably above the requisite two-thirds of all
[N]othing in this Cl. 29.8.1 shall operate or be voting creditors by claim amount necessary to confirm
construed to release any person who was a director the plan without including the votes of affiliates.
and/or officer (or member of the management board
or supervisory board) of any member of the Agrokor Section 18.3.2 of the Settlement Agreement discusses
Group prior to the commencement of the EA the trustee release of BNY Mellon. The agreement
Proceedings from any liability arising from his or provides:
her conduct in such capacity prior to that time.
(Settlement Agreement § 29.8.1.) Two of the Bosnian- To the maximum extent permitted under New York
Herzegovinian Guarantors—Ledo d.o.o. Čitluk and law, having regard for (i) the critical, ministerial
Sarajevski kiseljak d.d.—are affiliates of the Foreign services heretofore performed and to be performed
Debtors and listed as voting “FOR” the Settlement by BNY Mellon in its respective capacity as
Agreement. (“Croatian Court Order Approving the trustee of the Notes under the relevant Indenture
Settlement Agreement,” ECF Doc. # 4 Exhibit B at and pursuant to this Settlement Plan, (ii) the risk
302–07.) Both are listed as creditors in voting class B. that BNY Mellon could incur further fees and
(Id.) expenses under the broad expense reimbursement
and indemnification provisions of the Notes and
The Court believes it must consider whether these the Indentures to the detriment of the [Agrokor],
“insider” votes (and any other “insider” votes) taint the Bond Guarantors, their Creditors and their
approval of the Settlement Agreement insofar as estates, and (iii) the reasonable, commercial
recognition and enforcement is concerned. As this expectations of the Noteholders, the [Agrokor] and
Court explained in In re Avanti Commc'ns. Grp. the Bond Guarantors that the terms of the Notes
PLC, 582 B.R. at 617–18, the Fifth Circuit in In and the Indentures will be upheld and enforced
re Vitro S.A.B. de C.V., 701 F.3d 1031, 1043 (5th as written under New York law, each of the
[Agrokor], *174 the Bond Guarantors and the

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In re Agrokor d.d., 591 B.R. 163 (2018)

Noteholders, as of the Settlement Confirmation

Date, shall be deemed to have unconditionally (3) Unsecured Claims. All unsecured claims
released BNY Mellon in its respective capacity including deficiency claims, intercompany claims
as trustee of the Notes under the relevant and unsecured guarantees of other entities' claims.
Indenture, and its current and former affiliates and
(4) Equity Value. Equity value consists of the
subsidiaries, and such entities' and their current and
remaining Distributable Value after all debt claims
former officers, directors, managers, equity holders
are satisfied in full.
(regardless of whether such interests are held
(Settlement Agreement § 7.5.)
directly or indirectly), predecessors, successors,
assigns, principals, members, employees, agents,
Impaired claims with a Settlement Recovery amount
attorneys, consultants, advisors, representatives
of less than HRK 40,000 (equivalent to approximately
and other professionals (the “Trustee Released
$6,151.48 as of August 10, 2018) (the “Minor Impaired
Parties”) from any and all claims, obligations,
Claims”) will receive a payment of a monetary amount
suits judgments, damages, rights, causes of action
in euros, corresponding to the Settlement Recovery
and liabilities arising from, in connection with, or
of such claim (the “Cash-Out Payment”). (Settlement
relating to the Notes or the Indentures, which any
Agreement § 16.1.2.) The difference between the
such party may be entitled to assert, whether known
registered amount of the Minor Impaired Claim and
or unknown, foreseen or unforeseen, existing or
the Settlement Recovery amount paid as a Cash-Out
hereafter arising, in law, equity or otherwise ....
Payment will be discharged. (Id.)
(Settlement Agreement § 18.3.2.)

Impaired Claims with a Settlement Recovery amount

The section goes on to clarify that BNY Mellon will
of HRK 40,000 and above will receive a combination
not be released from any claims for gross negligence
of depository receipts of Aisle STAK, which holds
or willful misconduct in BNY Mellon's actions as
all the shares of Aisle Dutch TopCo (the “Depository
trustee of the Notes. Additionally, BNY Mellon is not
Receipts”) and convertible bonds of Aisle Dutch
deemed released from its obligations in its capacity as
TopCo in an aggregate nominal amount of up to €1,149
trustee of the Notes to take actions necessary under
million (the *175 “Convertible Bonds”). (Settlement
the Settlement Agreement. BNY Mellon and BNY
Agreement § 5.4.) The percentage recovery to the
Mellon Corporate Trustee Services Limited are shown
holders of English Law Governed Loans and New
as comprising their own class—class C—out of a list
York Law Governed Notes is projected to be 50.8
of 664 creditors grouped into classes A through E,
percent.
as listed in the Croatian Court Order Approving the
Settlement Agreement. (ECF Doc. # 4 Exhibit D at
Each of the Foreign Debtors has secured debt
287.)
obligations, including loans and operating leases to
specific Agrokor Group entities that are secured by
D. Settlement Agreement share pledges and fixed security over the Agrokor
Group's real estate assets. Like section 506(a)(1)
Under the Settlement Agreement,7 the following
of the Bankruptcy Code, a portion of each secured
waterfall is provided for the priority of claims:
claim against the Foreign Debtors in the Croatian
(1) Estate Claims. Unpaid prepetition employee Proceeding will be treated as an unsecured prepetition
claims; certain court costs, fees, and expenses claim against the debtor entity (and an unsecured
incurred in connection with the Croatian prepetition liability) to the extent that the amount of the
Proceeding; and post-petition claims have priority secured claim exceeds the value of the related secured
over all other claims of the EA Group. collateral. (See Settlement Agreement § 5.1.)

(2) SPFA Claims. Amounts outstanding under the For secured claims with a separate satisfaction right
Super-Priority Term Facilities Agreement. (“SSR”) against any of the Foreign Debtors where
the debtor is either (a) the owner of the collateral of
the relevant SSR (a “Sole Security Debtor”) or (b) if

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In re Agrokor d.d., 591 B.R. 163 (2018)

more than one EA Group member granted an SSR, The High Court of England and Wales also agreed
the owner of the collateral that comprises over 50 to recognize the Croatian Proceeding of Agrokor,
percent of the total value of SSR securing the relevant but an appeal of that decision is pending. Appeals
claim (a “Main Security Debtor”) will assume the of decisions rejecting recognition of the Croatian
secured obligation. More specifically, the holder of Proceeding are pending in *176 Slovenia, Serbia,
such secured claim will retain its SSR and receive a Bosnia-Herzegovina and Montenegro. (Id. at 13–122.)
monetary claim in an amount equal to the appraised A summary of the foreign recognition proceedings
value of the collateral. (See Settlement Agreement § relating to the Croatian Proceeding follows.8 These
23.2.1.) This secured claim will be paid back over decisions have no direct impact upon the decision to
an eight-year term following a grace period, which is recognize and enforce the Croatian Proceeding and
the greater of the original maturity date or two years Settlement Agreement in the U.S.
after the Implementation Commencement Date, at an
interest rate of three percent that accrues during the
grace period and increases by two percent if in default.
(Settlement Agreement § 23.2.1.) 1. Slovenia

The Supreme Court of the Republic of Slovenia

For secured claims with an SSR against any of the
(“Slovenian Court”) decided the issue on March 14,
Foreign Debtors where the debtor is not a Sole Security
2018. (ECF Doc. # 21 at 13.) The Slovenian Court
Debtor or the Main Security Debtor, the holder of
explained:
such secured claim will retain its SSR and receive a
monetary claim against Aisle HoldCo, in an amount Since the recognition of a foreign court decision
equal to the appraised value of the collateral, and means recognition of its legal effects on the territory
such claim will be paid back over an eight-year term of the Republic of Slovenia, only a decision
following a grace period, which is the greater of (procedure) which corresponds to the fundamental
the original maturity date or two years after and the legal principles of procedures due to insolvency
Implementation Commencement Date, at an interest under ZFPPIPP may be recognized. A recognition
rate of three percent that accrues during the grace of a foreign extraordinary administration procedure,
period and increases by two percent if in default. that does not ensure an equal treatment of creditors,
The amount of any secured claim of any of the would adversely affect the public interest of
Foreign Debtors that exceeds the appraised value of all the Republic of Slovenia, which in domestic
objects of the SSR is treated as an unsecured claim. insolvency procedures determines (and safeguards)
(Settlement Agreement § 23.2.2.) the common (basic) principle of equal treatment
of creditors, whereas in insolvency procedures
with an international element (on its territory)
E. Recognition of the Croatian Proceeding in
recognizes only financial restructuring procedures
Other Jurisdictions
or liquidation procedures of the debtor for the joint
Though the EA Law aims to centralize a debtor's
account of all creditors (which corresponds to the
claims in a single court, several jurisdictions have
principle of equal treatment of creditors).
refused to recognize the Croatian Proceeding under
(Id. at 27.)
their own laws. According to the Memo on Foreign
Recognition Hearings (“Memo on Foreign Hearings,”
The Slovenian Court proceeded to explain that the
ECF Doc. # 21) at least some of the Agrokor Group
EA Law (and therefore the Croatian Proceeding)
sought recognition of the Croatian Proceeding in six
should not be recognized, primarily because it does
jurisdictions in addition to the United States. Of these
not comply with Slovenia's insolvency rule that
foreign recognition requests, only Switzerland has
creditors of equal standing should be provided equal
made a final decision to recognize the commencement
treatment. The Slovenian Court states, “it does not
of the Croatian Proceeding and to give effect to
even provide the basic rights the creditors would have
the Extraordinary Administrator to represent debtors
under the Slovenian insolvency legislation.” (Id. at
and to deal with their assets in Switzerland under
28.) Additionally, the Slovenian Court argues that
the Swiss International Private Law Act. (Id. at 4.)

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In re Agrokor d.d., 591 B.R. 163 (2018)

the extraordinary administration procedure envisioned an appeal to the Constitutional Court of Serbia; that
by the EA Law is subordinated to the interests of appeal remains pending.
Croatia, since the Croatian government selects the
extraordinary administrator to conduct the debtor's
business. (Id.) While not entirely clear, it appears that
3. Federation of Bosnia and Herzegovina
the Slovenian Court was concerned that the EA Law
serves the purpose of protecting the Croatian economy Article 205, Paragraph 1, item 3 of the Federation
by providing a new form of relief on a somewhat ad of Bosnia and Herzegovina (“FB & H”) Bankruptcy
hoc basis as needed for Agrokor and its subsidiaries. Law states that to recognize a foreign decision
on bankruptcy proceedings or proceedings similar
The Slovenian Court also notes that other countries to bankruptcy, such decision must not contravene
rejected the recognition of the Croatian extraordinary the legal order of the Federation. (Id. at 52.) The
administration procedure and argued that since several court explains that the basic purpose of bankruptcy
of these countries had laws arising out of the former proceedings should be the collective settlement of
Yugoslavian Compulsory Composition, Bankruptcy creditors and that it does not believe that the EA Law
and Liquidation Act (SPPSL), that in a broader public was passed with creditors in mind. The court stated:
policy context of the region, recognition would not
be “justified and proportional.” (Id. at 28.) Four days The protection of economic, social and financial
after the Supreme Court of the Republic of Slovenia stability of the Republic of Croatia cannot
rejected the application for recognition of the Croatian jeopardize the FB & H legal order, and this opinion
Proceeding, the Extraordinary Administrator appealed of the first instance court, contrary to the appeal,
that decision to the Constitutional Court of Slovenia; is not different from the international case law,
that appeal remains pending. according to which protection and maintenance
of economic, social and financial stability of one
country in the proceedings of recognition of a
foreign ruling, in a situation where the compulsory
2. Serbia
regulations are opposed - which is the case here-
The Commercial Appellate Court for the Republic of cannot jeopardize the legal order of another country
Serbia confirmed rejection of the Croatian Proceeding where the decision is to be recognized, as otherwise
on November 13, 2017. (Id. at 32.) The Serbian the principle of equality would be breached.
court found that under article 174, paragraph 2 of its (Id. at 53.) The Extraordinary Administrator filed an
*177 Law on Bankruptcy, the Croatian extraordinary appeal at the Constitutional Court on March 16, 2018;
administration procedure could not be found to be a that appeal remains pending.
“foreign proceeding.” (Id. at 45.) The court provides
several grounds for this conclusion. One issue the
Serbian court notes is that the EA Law is not a 4. Montenegro
general law that governs all insolvency in Croatia, but
rather is a sui generis regulation adopted to protect The Montenegro court held that extraordinary
companies of systemic importance to the Republic administration procedures under the EA Law did
of Croatia. The court found it problematic that the not meet the requirements of the Insolvency Act of
level of protection determined under the EA Law is Montenegro. The court explained:
determined by the interest of the Republic of Croatia
[T]he court finds that the extraordinary
as opposed to the interests of creditors. (Id.) The
administration proceeding is not a foreign
court states, “the aim of this regulation ... is not the
proceeding in terms of Article 178 paragraph 2 of
aim of the collective settlement of creditors, but the
the Insolvency Act, since it is not a proceeding
protection of the interests of the state, the creator
aimed at the collective settlement of creditors, but
of such a regulation.” (Id. at 46.) On December 20,
at protecting and maintaining economic, social and
2017, the Croatian Extraordinary Administrator filed
financial stability of the Republic of Croatia, that is,

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In re Agrokor d.d., 591 B.R. 163 (2018)

the sustainability of business operations of certain group of entities, the combined procedure could block
companies that are of systemic importance for the a creditor from asserting a distinct claim against a
Republic of Croatia. particular debtor. Counsel argued that the combined
(Id. at 109.) In other words, because the EA Law proceeding effectively created a set of third-party
seemed primarily concerned with the protection of releases for affiliated or sub-companies—counsel for
the interest of the Republic of Croatia rather than Sberbank gives the example that if someone has
the creditors of a certain debtor, the proceeding did advanced finance on terms where they also have
not comply with the requirements for recognition in guarantees from companies B, C, D, E and F as well
Montenegro. An appeal filed in the Commercial Court as principal debt from company A, consolidation into
of Montenegro is pending. a single pool with one claim would eradicate the
value of any guarantee. (“English Recognition Hearing
Transcript,” ECF Doc. # 24 Exhibit B at 42.) It argued
it was further problematic as applied to Agrokor,
5. England and Wales
because unless Agrokor and its affiliates are grouped
The High Court of England and Wales found that the as one debtor, the threshold number of employees
EA Law and Croatian Proceeding *178 sufficiently required under the EA Law is not met. (English
satisfied the requirements of a foreign main proceeding Recognition Hearing Transcript at 40.) However, when
under the CBIR, England's adaptation of the Model referencing these arguments, Sberbank's attorney also
Law, over the objections of respondent Sberbank. goes through pains to remind the English court that
As with the above discussed foreign recognition U.S. courts have adopted the Model Law differently
decisions, it should be noted at the outset that the and that the English court is only bound by the CBIR
English decision was rendered before the Settlement and not U.S. precedent. (Id. at 47.) Recognition in
Agreement was finalized or voted upon. The English England also apparently was sought for a single debtor,
decision was issued on September 11, 2017. Nearly a Agrokor, on behalf of the whole group. As already
year later, creditors voted to approve the Settlement stated, Chapter 15 cases were filed in this Court on
Agreement on July 4, 2018. The English decision behalf of nine separate entities.
specifically states that, “recognition of the settlement
agreement is not the real question here. That is The High Court of England and Wales ultimately
something for the future. Such recognition will depend rejected Sberbank's arguments. The High Court
at that stage on other considerations, for example the concluded:
submission by the creditors to the jurisdiction of the
The important point is simply this. There is nothing
foreign proceeding.” (Id. at 97 ¶ 127.) Therefore, the
in the CBIR to prevent *179 a foreign proceeding
decision only grants recognition of a foreign main
being recognized, which in the foreign court
proceeding; it does not make any decisions with
involves a group of companies, but the recognition is
respect to the later approved Settlement Agreement.
sought in this country in relation only to a particular
individual debtor. In my judgment, the respondent's
A transcript of the English hearing shows that
objection here is without foundation.
several contentions were raised against recognition
(ECF Doc. # 21 at 78 ¶ 54.)
of the Croatian Proceeding under the Model Law
and the CBIR. First, Sberbank's counsel argued that
Additionally, the English court concluded that (1) the
recognition of a “foreign proceeding” under the CBIR
Croatian Extraordinary Administration Law is a law
is limited to a single debtor and that recognition of
relating to insolvency for the purposes of CBIR, (2) it
the Croatian Proceeding would require recognizing
is a proceeding under the control or supervision of a
a debtor grouped together with related, but separate
court, (3) it is a collective proceeding, (4) it is a law
entities, in one proceeding.9 Counsel argued this was for the purposes of reorganization or liquidation within
problematic because it would allow (1) all the members the meaning of the CBIR and (5) it is not manifestly
of the group to participate in a restructuring without contrary to English public policy. (Id. at 78–98.) In
requiring each individual member to prove insolvency reaching this final public policy conclusion, the court
as a gateway issue and (2) in effect, by consolidating a noted that the principal of pari passu can be overridden

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In re Agrokor d.d., 591 B.R. 163 (2018)

in appropriate cases under English law. (Id. at 98 ¶ systemic importance for the Republic of Croatia
131.) The High Court of England and Wales' decision which with its operations individually or together
is further discussed below in relation to the Gibbs with its controlled or affiliated companies affect the
rule and the possible effects of that rule on future entire economic, social, and financial stability of the
proceedings in England. The appeal is to be heard by Republic of Croatia.
the Court of Appeal, and the stay will remain in effect (Id. at 46.) The Croatian law was passed to try
while the English proceedings are ongoing. to prevent a wider economic fallout in Croatia
and surrounding global markets through restructuring
companies of systemic importance to Croatia. In effect,
the new law is somewhat reminiscent of the efforts
6. Switzerland
globally to deal with problems of “too big to fail.”
The Court of the Canton of Zug in Switzerland granted The Croatian Law appears to be unique in dealing
recognition of the Croatian Proceeding in a decision with systemically important companies as opposed to
issued on February 2, 2018. (ECF Doc. # 21 at 113.) systemically important financial institutions.
There has been no appeal of this decision; it is final
and binding. Article 21 of the EA Law provides that either a
debtor of systemic importance or *180 such a debtor's
creditors, with the debtor's permission, may file an
extraordinary proceeding. (Id. at 50.) The petition
7. European Union to commence the proceeding is submitted to the
Croatian Court, which must then inform the Croatian
On July 4, 2018, the European Parliament added
Government within the same day that a petition has
the Recast Insolvency Regulation (EU) 2015/848 to
the European Union's Acquis Communautaire the been filed. (Id. at 51.) After a petition has been
Law on Extraordinary Administration Proceeding for filed, the debtor is estopped from disposing of any
Companies of Systemic Importance for the Republic assets until the petition is either approved or denied,
of Croatia. (Recast Insolvency Regulation, “EU except for those dispositions necessary for debtor to
Regulation,” ECF Doc. # 21 Appendix D at 161–225.) maintain its ordinary course of business operations.
The EU insolvency regulation was designed to regulate (Id.) The Croatian Court issues the final order that
insolvencies. This adoption of the EA Law ostensibly commences the extraordinary proceeding, and upon
gave the Croatian Proceeding automatic recognition the court's order commencing a proceeding, notice
as an insolvency proceeding, entitled to recognition is posted in the relevant Croatian Court districts, on
across all European Union member states. (Id. at 217.) the public books or records of the debtor and on the
Croatian Court's web pages. (Id. at 52.) After the
commencement of a proceeding under the EA Law,
all relevant parties, further detailed below, have fifteen
II. DISCUSSION months (twelve months' time is allotted automatically,
and the option of an additional three months' time is
A. EA Law
granted upon request approved by the Croatian Court)
On April 7, 2017, Croatia published Official Gazette
to craft a single settlement agreement to resolve all
No. 31/17, the Law on Extraordinary Administration
claims against the debtor. (Id. at 57.)
Proceeding in Companies of Systemic Importance
in the Republic of Croatia. (“Certified Translation
The EA Law lists two requirements for a debtor to
from Croatian Language of the Law on Extraordinary
be considered a company of systemic importance that
Administration Proceeding in Companies of Systemic
may file an action under the EA Law. (Id. at 46.)
Importance for the Republic of Croatia,” ECF Doc. #
Article 4, paragraph 2 provides that in the calendar year
4 Exhibit B at 46–59.) Part 1, article 1, chapter 1 of the
preceding the filing of the petition, the debtor, alone
EA Law explains:
or with its controlled or affiliated companies, must (1)
This Law is passed for the purpose of protection employ more than 5,000 employees on average for
of sustainability of operations of the companies of the year and (2) have balance sheet liabilities of at

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In re Agrokor d.d., 591 B.R. 163 (2018)

least the equivalent of HRK 7,500,000,000. (Id.) In the Extraordinary Commissioner and appoint a new
these calculations determining whether a debtor is of one. (Id. at 48.)
systemic importance to Croatia, article 5, paragraph 2
specifies that affiliated and controlled companies are The EA Law requires the Extraordinary Commissioner
companies in which the debtor holds at least a 25% to submit monthly reports regarding the debtor's
ownership interest, have a principal place of business financial status and the status of the EA proceedings to
in The Republic of Croatia and exist and operate under the central authority of the government administration
Croatian law. (Id. at 47.) The requisite amount of debt responsible for economic operations in Croatia
and employees along with identification of the debtor (the “Croatian Ministry”) for every month between
and its related entities must be proven by the party his appointment and the approval of a settlement
who files the petition for the extraordinary proceeding agreement under the EA Law. (Id.) Additionally, the
(either the debtor or a creditor of the debtor). (Id. at 51.) Extraordinary Commissioner is tasked with electing
a restructuring advisor, auditors, legal advisors and
Article 6 of the EA Law provides that the Croatian other specialized advisors—all of whom must be
Court shall have exclusive jurisdiction in an EA given prior approval by the Croatian Ministry prior to
proceeding. (Id.) Article 7 further provides that once appointment. (Id.)
the EA proceeding has been instituted, there will be a
stay of any liquidation or bankruptcy proceedings, as Article 16 establishes an advisory body (“Advisory
defined under Croatian law, against the debtor. (Id.) To Body”) that, upon request of the Croatian Ministry or
the extent that the EA law is silent regarding procedure, the Croatian Court, will provide opinions regarding
article 8 provides that procedural rules from Croatian the propriety of the Extraordinary Commissioner's
bankruptcy proceedings will apply. (Id.) Article 10 decisions under Croatian Law. (Id. at 49.) The
authorizes the Croatian Court to take any actions or Advisory Body has five members: one member serves
pass any decisions that are not expressly conferred on as a representative of the employees of the debtor
another entity as the responsibility of that other entity and may be an employee of the debtor; the other four
under Croatian Law. (Id.) members must be knowledgeable in business and law,
of good reputation and not have been employed by
An extraordinary commissioner (“Extraordinary the debtor or any of its affiliates within the ten years
Commissioner”) is appointed by the Croatian Court leading up to the filing of an EA proceeding. (Id.)
upon the proposal of the Government of the Republic
of Croatia who will represent the debtor solely and In addition to the Advisory Body, EA Law article 18
independently. (Id.) The Extraordinary Commissioner requires the establishment of a creditors' committee
is subject to the provisions of the Croatian Bankruptcy with up to nine members who will serve as
Act's rules governing a bankruptcy receiver in representatives of the debtor's creditors. (Id.) The
instances where no provision of the EA Law governs Extraordinary Commissioner recommends, and the
directly. (Id. at 48.) Together with deputies who Croatian Court approves the members of the creditors'
may assist him, upon the proposal of the Croatian committee, who must be categorized according to their
government and appointment by the Croatian Court, legal position and may be subcategorized according to
the Extraordinary Commissioner may make decisions their economic interests in the debtor. (Id.) Article 30
regarding the debtor's property but may not make provides that each category of creditors is then entitled
decisions regarding the debtor's property without prior to designate one member to serve as the category's
approval of a creditors' committee if the *181 value representative on the creditors' committee. (Id. at
of the property exceeds HRK 3,500,000. (Id.) The 53.) The creditors' committee has rights to receive
commissioner may also bring legal actions on behalf of information regarding the debtor and to participate
the debtor and, with approval of a creditors' committee, in the preparation and approval of the settlement
may assume new debt on behalf of the debtor when agreement in conjunction with the Extraordinary
necessary to maintain debtor's operations. (Id. at 55.) Commissioner. (Id. at 49–50.) Additionally, article 31
Additionally, at any time, upon the proposal of the explains that an interim creditors' council (“ICC”) will
Croatian government, the Croatian Court may remove take the role of the permanent creditors' council in

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In re Agrokor d.d., 591 B.R. 163 (2018)

the interim until the official committee is established. deemed that the creditors accepted the settlement
The ICC assumes and performs all functions of the agreement if the total sum of claims of the creditors
creditors' council until the official creditors' council is who voted for the settlement agreement amounts to
established. (Id. at 53–4.) at least two thirds of the total claims.
(Id.)
Articles 32 through 36 provide a procedure for the
public listing of claims against debtor and contesting Thus, there are two methods of approving a settlement
claims. (Id. at 54.) The Extraordinary Commissioner agreement. (See id.) The settlement agreement is
creates a table of filed claims, a table of preferential approved either if (1) more than half of all creditors
claims and a table of rights to separate satisfaction. by number (including non-voting creditors) vote in
(Id.) Along with these tables, the Extraordinary favor of the Settlement Agreement and more than half
Commissioner must clearly indicate whether he of all creditors in each class10 by value of claims
contests any of the claims listed in the tables. (Id.) vote in favor of the Settlement Agreement or (2)
The tables of claims and the commissioner's stance two-thirds of all voting creditors by claim amount
on each claim are published on the Croatian Court's vote in favor of the Settlement Agreement. (Id.) In
website. (Id.) If a creditor does not commence a civil other words, even if the first method of approving
proceeding within eight days after publication of the the Settlement Agreement cannot be achieved, the
table of claims, the right to contest the claim is deemed Settlement Agreement can still be approved if the sum
waived. (Id.) Once a final order is made, a claim, of all claims who vote in favor of the agreement is at
the claim's payment rank and the claim's category of least two-thirds of the total amount of all outstanding
creditors are all considered effective as to *182 both claims. (Id.) Article 43, paragraph 18 provides that
the debtor and all the debtor's other creditors. (Id.) once the settlement agreement is passed in accordance
with paragraph 14, all creditors, even those who
Part VI of the EA Law includes provisions for the do not vote, shall be bound by the agreement. (Id.
negotiation, acceptance by creditors and approval by at 58.) Therefore, it does not matter whether a
the court of a settlement agreement. (Id. at 56–8.) creditor has appeared or voted on the settlement; if
The settlement agreement envisioned and negotiated the settlement receives the requisite votes, it can be
under the EA Law is essentially the same as what approved and has binding effect upon all creditors.
is usually referred to as a plan of reorganization in (See Id.) These portions of the EA Law governing
other restructuring contexts. Within the prescribed approval of the settlement agreement therefore create
twelve-month (and optional additional three month) a similar effect to Bankruptcy Code § 1141(d)(1)(A)
period, the Extraordinary Commissioner and creditors' *183 which provides, in part, that confirmation of a
committee must create a single settlement agreement. plan “discharges the debtor from any debt that arose
(Id. at 57.) After a settlement agreement is created, before the date of such confirmation ... whether or
it is published on the Croatian Court's website; three not ... a proof of claim based on such debt is filed or
days after publication, all creditors are deemed to have deemed filed ....” See 11 U.S.C. § 1141(d)(1)(A).
notice of the agreement. (Id.) Within fifteen days after
publication of the settlement agreement, the creditors
vote upon the settlement agreement at a hearing. (Id.) B. Model Law
In 1997, the United Nations Commission on
Article 43, paragraph 14 describes the voting outcome International Trade Law (“UNCITRAL”) promulgated
necessary to pass the settlement agreement. It states: the Model Law on Cross-Border Insolvency (the
“Model Law”). Chapter 15 of the Bankruptcy Code,
The settlement agreement, or plan of reorganization, which is based upon the Model Law, was adopted
shall be deemed adopted if a simple majority of by Congress in 2005. Before 2005, former section
all creditors voted for it and if in each category of 304 of the Bankruptcy Code provided the statutory
the sum of claims of creditors who voted for the framework for dealing with ancillary cases filed in
settlement agreement exceeds the sum of claims of the U.S. relating to foreign insolvency proceedings.
the creditors who voted against the acceptance of Many of the principles—particularly comity—that
the settlement agreement. Exceptionally, it shall be

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In re Agrokor d.d., 591 B.R. 163 (2018)

were applied in ancillary proceedings under section orderly distribution of a debtor's property requires
304 were carried forward and apply today in Chapter assembling all claims against the limited assets
15 cases. See In re Atlas Shipping A/S, 404 B.R. in a single proceeding,’ American courts regularly
726, 738 (Bankr. S.D.N.Y. 2009) (“Nevertheless, defer to such actions.” Finanz AG, 192 F.3d at
many of the principles underlying § 304 remain in 246 (quoting Victrix S.S. Co., S.A. v. Salen Dry
effect under chapter 15. Significantly, chapter 15 Cargo A.B., 825 F.2d 709, 713–14 (2d Cir.1987) );
specifically contemplates that the court should be Allstate Life Ins. Co., 994 F.2d at 999. In such cases,
guided by principles of comity and cooperation with deference to the foreign court is appropriate so long
foreign courts in deciding whether to grant the foreign as the foreign proceedings are procedurally fair and
representative additional post-recognition relief. This (consistent with the principles of Lord Mansfield's
is evidenced by the pervasiveness with which comity holding) do not contravene the laws or public policy
appears in chapter 15's provisions. For example, § of the United States.
1509 specifically requires that if the court grants 412 F.3d 418, 424 (2d Cir. 2005).
recognition under § 1517, it ‘shall grant comity or
cooperation to the foreign representative.’ 11 U.S.C. § While Altos Hornos was decided based on section 304,
1509(b)(3). In addition, § 1507 also explicitly directs before Chapter 15 became effective in the U.S., the
the court to consider comity in granting additional same principles are enshrined in Chapter 15. See Atlas
assistance to the trustee.”). Shipping, 404 B.R. at 738.

The Model Law is often described as an attempt to

create modified universalism, which essentially entails C. Comity in Chapter 15
allowing courts outside of debtors' home countries to Under the prior section 304 and the current Chapter
open and maintain secondary cases supplemental to the 15, American courts have recognized the need to
main proceedings. See, e.g., Ian G. Williams & Adrian extend comity to foreign bankruptcy proceedings. The
J. Walters, Modified Universalism in Our Time? A equitable and orderly distribution of a debtor's property
Look at Two Recent Cases in the U.S. and U.K., 37- requires assembling all claims against the limited
JUL Am. Bankr. Inst. J. 24 (2018). The U.S. has assets in a single proceeding; if all creditors could
a long tradition of recognizing foreign restructuring not be bound, a plan of reorganization would fail.
proceedings. For example, the Supreme Court's 1883 “The Second Circuit has frequently underscored the
decision in Gebhard approved the recognition of a importance of judicial deference to foreign bankruptcy
Canadian scheme of arrangement. Canada Southern proceedings.” In re Int'l Banking Corp. B.S.C., 439
Railway Co. v. Gebhard, 109 U.S. 527, 3 S.Ct. 363, B.R. 614, 624 (Bankr. S.D.N.Y. 2010) (citing Finanz
27 L.Ed. 1020 (1883). In Gebhard, Chief Justice Waite AG Zurich v. Banco Economico S.A., 192 F.3d 240, 246
explained that “the true spirit of international comity (2d Cir. 1999); Maxwell, 93 F.3d at 1048; Allstate Life
requires that schemes of this character, legalized at Ins. Co. v. Linter Grp. Ltd., 994 F.2d 996, 999 (2d Cir.
1993); Cunard, 773 F.2d at 458).
home, should be recognized in other countries.”11 Id.
at 548, 3 S.Ct. 363. See also Victrix S.S. Co., S.A. v.
[3] The issue here is whether this Court, in the
Salen Dry Cargo A.B., 825 F.2d 709, 713–14 (2d Cir.
exercise of comity, should recognize and enforce
1987); Cunard S.S. Co. v. Salen Reefer Servs. AB, 773
the Settlement Agreement approved by the Croatian
F.2d 452, 458 (2d Cir. 1985).
Court following creditor approval. There is nothing
exceptional in the Croatian Court's exercise of
[1] [2] As the Second Circuit explained in JP
jurisdiction over the Croatian Foreign Debtors' assets
Morgan Chase Bank v. Altos Hornos de Mexico, S.A.
and creditors' claims in the insolvency proceeding.
de C.V.:

We have repeatedly held that U.S. courts In section II.A., the Court has described the provisions
should ordinarily decline to adjudicate *184 of the EA Law in considerable detail. In substance
creditor claims that are the subject of a foreign and effect, the EA Law tracks closely to the structure
bankruptcy proceeding. “Since ‘[t]he equitable and of the U.S. Bankruptcy Code and many other foreign
insolvency laws. Creditors' rights to meaningful

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In re Agrokor d.d., 591 B.R. 163 (2018)

participation in insolvency proceedings is required claims like the effect of section 1141(d)(1)(A). (See
and creditor approval of a settlement agreement is Settlement Agreement § 16.1.2.)
also required. As explained in section II.D., below,
the record establishes that the EA Proceeding was [4] [5] Federal courts generally extend comity
procedurally fair. when the foreign court had proper jurisdiction and
enforcement does not prejudice the rights of United
While enterprise group aspects of the EA Law are States citizens or violate domestic public policy. See
novel, these Chapter 15 cases dealing with nine entities also Cunard S.S. Co. Ltd., 773 F.2d at 457. “Comity
that have their centers of main interest (“COMI”) takes into account the interests of the United States,
in Croatia do not push the boundaries of cross- the interests of the foreign state or states involved, and
border insolvency law. Therefore, recognition and the mutual interests of the family of nations in just
enforcement of the Settlement Agreement with respect and efficiently functioning rules of international law.”
to the Foreign Debtors safely fall within established In re Artimm, S.r.L., 335 B.R. 149, 161 (Bankr. C.D.
principles.12 As such, is there any basis to decline to Cal. 2005) (citing Maxwell Commc'n Corp. v. Societe
recognize and enforce the results? Generale (In re Maxwell Commc'n Corp.), 93 F.3d
1036, 1048 (2d Cir. 1996) ).
The Supreme Court concluded in Tennessee Student
Assistance Corp. v. Hood, 541 U.S. 440, 447, 124 From the record before this Court—particularly since
S.Ct. 1905, 158 L.Ed.2d 764 (2004), that the discharge no objections have been filed—the Court concludes
of debt in a U.S. bankruptcy proceeding is proper that the Croatian Proceeding was procedurally fair,
because it is an in rem proceeding. A single court provided proper notice to all creditors and, through
should resolve all claims to property of the debtor, the Settlement Agreement, determined the rights of all
which necessarily *185 requires that the court resolve creditors to property that was subject to the jurisdiction
all creditor claims that have been, or could have been, of the Croatian Court. Is there any reason, then, not
asserted, provided that the creditors have received the to recognize and enforce the Settlement Agreement
notice required by due process. Thus, in an in rem within the territorial jurisdiction of the United States?
proceeding, personal jurisdiction over all creditors is This Court believes there is not. Nonetheless, the
not required; the court determines the creditors' rights issue (of whether recognition of the entire Settlement
to receive distributions from all property of the debtor Agreement is appropriate within the territorial U.S.)
that is part of the estate. A creditor cannot ignore or arises because of the English courts' enforcement of
avoid a Chapter 11 case and later sue to recover on its the Gibbs rule, discussed below, which could lead an
prepetition claim. Upon confirmation of a Chapter 11 English court to conclude that certain aspects of the
plan, section 1141(d)(1)(A) discharges the debtor from Settlement Agreement cannot be enforced in England
any debt that arose before the date of confirmation, against creditors holding English law governed debt.
whether or not the creditors filed a proof of claim or Such a refusal of the English court to enforce parts
accepted the plan. A successful reorganization would of the Settlement Agreement would most certainly
not be possible if creditors could simply ignore the cause the Settlement Agreement to fail considering the
bankruptcy proceeding and then seek to recover on amount of prepetition debt governed by English law.13
their prior claims. Therefore, the in rem classification That would be unfortunate, indeed.
of a bankruptcy proceeding is key—in rem jurisdiction
gives the court the authority to administer all the *186 [6] [7] While recognition of the foreign
debtor's assets and resolve the rights of all creditors to proceeding turns on the objective criteria under section
all the debtor's property, and these are crucial steps in a 1517, “relief [post-recognition] is largely discretionary
successful restructuring. There is no reason that these and turns on subjective factors that embody principles
same principles should not apply when considering of comity.” In re Bear Stearns High-Grade Structured
recognition of the Croatian Proceeding, with the same Credit Strategies Master Fund, Ltd., 389 B.R. 325, 333
consequences for a confirmed settlement agreement— (S.D.N.Y. 2008) (citing §§ 1507, 1521 and 1525). Once
namely, the discharge and modification of prepetition a case is recognized as a foreign main proceeding,
as has already occurred here, Chapter 15 specifically

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In re Agrokor d.d., 591 B.R. 163 (2018)

contemplates that the court will exercise its discretion quotation marks omitted) ); In re Ionica PLC, 241 B.R.
consistent with principles of comity. See generally 829, 841 (Bankr. S.D.N.Y. 1999) (dismissing ancillary
Allan L. Gropper, Current Devs. in Int'l Insolvency proceeding filed under former section 304 because of
Law: A United States Perspective, 15 J. Bankr. L. & pending insolvency proceeding in the U.K.).
Prac. 2, Art. 3, at 3–5 (2006) (hereinafter “Gropper”).
In other words, this case presents a unique challenge
[8] The court should be guided by principles of in the exercise of comity under Chapter 15, because
comity and cooperation with foreign courts in deciding the international litigation surrounding the Croatian
whether to grant the foreign representative additional Proceeding and Settlement Agreement that this Court
post-recognition relief. See In re Cozumel Caribe is asked to recognize and enforce could be seen
S.A. de C.V., 482 B.R. 96, 114–15 (Bankr. S.D.N.Y. as complicating this Court's own comity analysis
2012) (concluding that a central tenet of Chapter 15 is by requiring the Court to consider all of the other
the importance of comity in cross-border insolvency countries' decisions in addition to the analysis of
proceedings); Atlas Shipping, 404 B.R. at 738; see whether to extend comity to the Croatian Proceeding
also In re Rede Energia S.A., 515 B.R. 69, 93 (Bankr. and resulting Settlement Agreement on their own
S.D.N.Y. 2014) (holding that a request for relief merit. However, the Court does not ultimately need
by a foreign representative (1) to enforce a foreign to perform the broader analysis of comity with
reorganization plan and confirmation decision even respect to every nation involved, because *187
where the relief provided in the plan conflicts or is the Court's decision to recognize and enforce the
inconsistent with the relief available in a Chapter 11 Settlement Agreement is effective within the territorial
plan, and (2) to enjoin acts in the U.S. in contravention jurisdiction of the United States. As such, if a foreign
of the plan and decision is relief of a type that courts creditor has a claim governed by English law that is
have previously granted under section 304). modified by the Settlement Agreement and wants to
challenge the Croatian modification of that claim, the
In addition to providing deference to foreign creditor may still challenge enforcement of the claim
judgements, comity may also allow a U.S. court in the English courts.
“to decline to exercise jurisdiction in favor of a
pending foreign proceeding,” where “the foreign
tribunal has taken jurisdiction but not yet issued a D. Recognition of the Croatian Proceeding and
judgement.” William S. Dodge, Int'l Comity in Am. Settlement Agreement in the United States
Law, 115 Colum. L. Rev. 2071, 2106 (2015). As As previously stated, on September 21, 2018, the Court
between deferring to a foreign judgement or to a entered an order recognizing the Croatian Proceeding
foreign pending proceeding, “[w]hat changes is the as a foreign main proceeding. (ECF Doc. # 30.)
time at which the question [whether to defer to a The analysis supporting that conclusion will not be
foreign tribunal's resolution of a dispute] is asked.” repeated here. The effects of the decision to recognize
Id. Courts have generally recognized their ability to the Croatian Proceeding as a foreign main proceeding
decline to exercise jurisdiction in deference to a case merit some discussion.
already being adjudicated abroad. See, e.g., Mujica
v. AirScan Inc., 771 F.3d 580, 599 (9th Cir. 2014)
(“[A]djudicatory comity involves ... the discretion of a 1. Automatic effects of Chapter 15 Foreign Main
national court to decline to exercise jurisdiction over Proceeding Recognition
a case before it when that case is pending in a foreign
court with proper jurisdiction.” (citation and quotation Upon a court's determination that a proceeding
marks omitted) ); In re Arcapita Bank B.S.C.(c), 575 constitutes a foreign main proceeding as described
B.R. 229, 238 (Bankr. S.D.N.Y. 2007) (“[C]omity above, section 1520 of the Bankruptcy Code provides
among the courts or adjudicative comity may be that certain relief commences immediately, while
viewed as a discretionary act of deference by a national section 1521 provides additional relief that may be
court to decline to exercise jurisdiction in a case granted at the court's discretion. Compare 11 U.S.C.
properly adjudicated in a foreign state.” (citations and § 1520(a) (“Upon recognition of a foreign proceeding

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In re Agrokor d.d., 591 B.R. 163 (2018)

that is a foreign main proceeding- (1) sections 361 discretion consistent with principles of comity. See
and 362 apply with respect to ... property of the generally Gropper, at 3–5.
debtor that is within the territorial jurisdiction of the
United States ...”), with 11 U.S.C. § 1521(a) (“Upon Whether a foreign proceeding is held to be main or
recognition of a foreign proceeding, whether main or non-main, section 1521(a) outlines the discretionary
nonmain, where necessary to effectuate the purposes of relief that a court may order upon recognition of a
this chapter ... the court may ... grant any appropriate foreign proceeding. 11 U.S.C. § 1521(a); see Atlas
relief ....” (emphasis added) ). Shipping, 404 B.R. at 738 (“The discretion that is
granted is ‘exceedingly broad’ since a court may grant
[9] Section 1520 details the mandatory relief that is ‘any appropriate relief’ that would further the purposes
automatically granted upon recognition of a foreign of chapter 15 and protect the debtor's assets and the
main proceeding under Chapter 15. 11 U.S.C. § 1520. interests of creditors.”). That said, section 1522(a)
Section 1520(a)(1) provides that the automatic stay only allows courts to provide additional discretionary
will apply to all the debtor's property that is located relief under section 1519 or 1521 if the interests of
within the territorial jurisdiction of the United States. creditors are sufficiently protected. The list of forms
The statute refers specifically to the property of the of discretionary relief provided under section 1521
debtor, as opposed to the property of the estate, since are considered illustrative, as opposed to exclusive.
there is no estate in a Chapter 15 case. See, e.g., Atlas 11 U.S.C. 1521 (the list of discretionary relief options
Shipping, 404 B.R. at 739. Despite this difference, begins with the word ‘including,’ indicating that
the automatic effect of recognition of a foreign main discretionary relief includes, but is not limited to, the
proceeding under section 1520(a) is an imposition of following listed items).
an automatic stay on any action regarding the debtor's
property located in the United States. Id. The Court's discretionary relief under section 1521 of
the Code may either allow the foreign representative
Additionally, once section 1520(a) applies, sections to merely administer the debtor's assets in the United
363, 549 and 552 apply with respect to any transfers States, but require that those assets remain here, or
of a debtor's interest in property within the United may allow the foreign representative to remove the
States. 11 U.S.C. § 1520(a)(2). These provisions allow debtor's assets from the United States. 11 U.S.C. §§
a foreign representative to operate the debtor's business 1521(a)(5) and 1521(b); see, e.g., Atlas Shipping, 404
in the United States by exercising the rights and powers B.R. at 740. Section 1521(a)(5) entrusts to the foreign
of a trustee under sections 363 and 552. representative the “administration or realization” of
the debtor's assets within the United States. 11 U.S.C.
§ 1521(a)(5). This is part of the relief the Foreign
Representative requested in the present case. It is not
2. Discretionary Relief including Recognition of a Plan
to be confused with the optional relief provided by
and Third-Party Releases
section 1521(b), which allows the Court to “entrust
The grant of additional, discretionary relief under the distribution” of the debtor's assets within the
Chapter 15 is largely dependent upon principles of United States to the foreign representative. 11 U.S.C. §
comity discussed above. See Atlas Shipping, 404 B.R. 1521(b). This alternative provision allows the debtor's
at 738 (“While recognition of the foreign proceeding assets to exit the United States for distribution.
turns on the objective criteria under § 1517, ‘relief See Atlas Shipping, 404 B.R. at 740. The Foreign
[post-recognition] is largely discretionary and turns on Representative here did not seek relief under section
subjective factors that embody principles of comity’ 1521(b).
” (quoting In re Bear Stearns High–Grade Structured
Credit Strategies Master Fund, Ltd., 389 B.R. 325, Finally, section 1507 also deals with additional
333 (S.D.N.Y. 2008) ). Once a case is recognized as discretionary relief, which may include recognition
a foreign main proceeding, Chapter 15 specifically and enforcement of a plan reached in a foreign
contemplates that the court will exercise *188 its proceeding. As this Court explained in Atlas Shipping:

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In re Agrokor d.d., 591 B.R. 163 (2018)

though the Court noted that it was not clear that the
In addition to § 1521's provisions regarding ‘any third-party releases contained in the Canadian plan
appropriate relief,’ § 1507(b) provides that a court, would be permitted under U.S. law, the Court found
[i]n determining whether to provide additional that the proper inquiry was whether the Canadian plan's
assistance ... shall consider whether such additional provisions should nevertheless be enforced under
assistance, consistent with the principles of comity, Chapter 15. Id. at 696. This Court explained, “Chapter
will reasonably assure— 15 specifically contemplates that the court should
be guided by principles of comity and cooperation
(1) just treatment of all holders of claims against or
with foreign courts in deciding whether to grant
interests in the debtor's property;
the foreign representative additional post-recognition
(2) protection of claim holders in the United relief.” Id. Therefore, even though Chapter 15 contains
States against prejudice and inconvenience in the the explicit public policy exception in section 1506,
processing of claims in such foreign proceeding; which provides, “[n]othing in this chapter prevents
the court from refusing to take an action governed by
(3) prevention of preferential or fraudulent this chapter if the action would be manifestly contrary
dispositions of property of the debtor; to the policy of the U.S.,” the Metcalfe decision
explained that even if the law in the U.S. may have
(4) distribution of proceeds of the debtor's property
provided differing results, this alone did not prevent
substantially in accordance with the order prescribed
a recognition of the Canadian plan under broader
by this title; and
principals of comity. See 11 U.S.C. § 1506; see also
(5) if appropriate, the provision of an opportunity Metcalfe & Mansfield, 421 B.R. at 697.
for a fresh start for the individual that such foreign
proceeding concerns. What factors, then, should determine whether a
404 B.R. at 740 (internal citations omitted). U.S. Court should extend comity to a foreign main
proceeding's plan of reorganization? The Metcalfe &
[10] “Pursuant to section 1507, the court is authorized Mansfield decision noted several factors, including
to grant any ‘additional assistance’ available under the whether the foreign proceeding provided a full and fair
Bankruptcy Code or under ‘other laws of the United opportunity for creditors to be heard consistent with
States,’ provided that such assistance is consistent due process, and whether the plan was approved by the
with the principles of comity and satisfies the fairness debtor's creditors and the foreign court. See Metcalfe
considerations set forth in section 1507(b).” *189 & Mansfield, 421 B.R. at 698–99.
Rede Energia, 515 B.R. at 90. As with section 1521,
relief under section 1507 may include recognition and Courts should also look to circumstances in which
enforcement of a plan approved by a foreign court. Id. U.S. courts have refused to recognize foreign plans of
at 94–5. reorganization to further understand when the denial
of comity is appropriate. As already discussed, the
Thus, the principal question in determining whether Fifth Circuit affirmed the bankruptcy court's refusal
to recognize and enforce the Settlement Agreement's to recognize a plan of reorganization approved by a
terms under Chapter 15 ultimately boils down to a Mexican court due to considerations of comity. See
question of the appropriateness of granting comity Vitro, 701 F.3d at 1039. The plan in Vitro, like the
to the foreign court approval of the Settlement plan in Metcalfe & Mansfield, discharged obligations
Agreement. In Metcalfe & Mansfield, 421 B.R. 685, of creditors as well as of third-party guarantors. The
688 (Bankr. S.D.N.Y. 2010), this Court considered Court of Appeals decision affirming the bankruptcy
recognition of a Canadian plan of reorganization, court focused on the fact that the plan in Vitro was only
and specifically questioned whether it would be approved with “insider” votes. As a result, the Court
appropriate to extend comity to the Canadian plan if of Appeals concluded that the bankruptcy court did
it contained provisions, such as third-party releases, not abuse its discretion in refusing to grant comity and
that may not be allowed in plenary United States enforce the Mexican plan.
bankruptcy proceedings under Chapter 11. Even

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In re Agrokor d.d., 591 B.R. 163 (2018)

This Court's recent decision in Avanti, 582 B.R. at 617– in the Canadian Orders, even if those provisions could
18, recognized and enforced a scheme of arrangement, not be entered in a plenary chapter 11 case.”).
including a release of third-party guarantees, that
was approved by creditors and by the High Court [11] Finally, the decision-making calculus for
of England and Wales. After reviewing Metcalfe & determining whether to grant comity to a foreign
Mansfield and Vitro, the Court upheld the scheme of court's action may be honed by the list of non-exclusive
arrangement, noting that “Avanti's Scheme Creditors factors used by the Second Circuit to analyze whether
had a full and fair opportunity to vote on, and be foreign proceedings are procedurally fair. In analyzing
heard in connection with, the Scheme.” Avanti, 582 procedural fairness, the Second Circuit has looked at
B.R. at 618. The *190 Avanti decision also referred the following factors:
to seminal Supreme Court jurisprudence dealing with
when a U.S. court should recognize and enforce a (1) Whether creditors of the same class are treated
foreign judgment under principles of comity. Id. at 616. equally in the distribution of assets; (2) whether the
Quoting Hilton v. Guyot, the Court stated: liquidators are considered fiduciaries and are held
accountable to the court; (3) whether creditors have
The Supreme Court has held that a foreign judgment the rights to submit claims which, if denied, can be
should not be challenged in the US if the foreign submitted to a bankruptcy court for adjudication;
forum provides: “[A] full and fair trial abroad before (4) whether the liquidators are required to give
a court of competent jurisdiction, conducting the notice to potential claimants; (5) whether there are
trial upon regular proceedings, after due citation or provisions for creditors meetings; (6) whether a
voluntary appearance of the defendant, and under a foreign country's insolvency laws favor its own
system of jurisprudence likely to secure an impartial citizens; (7) whether all assets are marshalled
administration of justice between the citizens of its before one body for centralized distribution; and
own country and those of other countries, and there (8) whether there are provisions for an automatic
is nothing to show either prejudice in the court, or in stay and for the lifting of such stays to facilitate the
the system of laws under which it [is] sitting ...”. centralization of claims.
Id. (quoting Hilton v. Guyot, 159 U.S. 113, 202–03, 16 Finanz AG Zurich, 192 F.3d at 249.
S.Ct. 139, 40 L.Ed. 95 (1895).
With respect to the Croatian Proceeding, the record
The Avanti opinion provides a helpful summary reflects that the Foreign Debtors' creditors received
of cases in which courts have enforced third-party proper notice of the Croatian Proceeding and of
releases in foreign proceedings under sections 1507 these Chapter 15 cases. The record also reflects that
and 1521. Avanti, 582 B.R. at 617; see also In re Ocean the substance and procedures set forth in the EA
Rig UDW Inc., 570 B.R. 687 (Bankr. S.D.N.Y. 2017) Law comport with broadly recognized principles for
(recognizing and enforcing scheme of arrangement insolvency laws. Moreover, the creditor distributions
that released affiliate guarantees); In re Towergate Fin. approved in the Settlement Agreement closely follow
plc, Case No. 15–10509–SMB (Bankr. S.D.N.Y. Mar. the waterfall provisions of the U.S. Bankruptcy Code.
27, 2015) [ECF Doc. # 16]; In re New World Res. Additionally, as *191 discussed above, over two-
N.V., Case No. 14–12226–SMB (Bankr. S.D.N.Y. Sept. thirds of non-insider creditors voted to approve the
9, 2014) [ECF Doc. # 20]; In re Sino–Forest Corp., Settlement Agreement, avoiding the taint of the insider
501 B.R. 655, 665 (Bankr. S.D.N.Y. 2013) (enforcing votes that prevented recognition and enforcement in
foreign order containing third-party releases); In re the Vitro case.
Magyar Telecom B.V., Case No. 13-13508-SHL, 2013
WL 10399944 (Bankr. S.D.N.Y. Dec. 11, 2013) [ECF Additionally, the standards for due process set forth
Doc. # 26]; Metcalfe & Mansfield, 421 B.R. at 696 in the Second Circuit's nonexclusive list of factors
(“[P]rinciples of enforcement of foreign judgments and for procedural fairness in Finanz AG Zurich were
comity in chapter 15 cases strongly counsel approval satisfied by the Croatian Proceeding. As outlined
of enforcement in the United States of the third-party in the EA Law, creditors have been grouped into
non-debtor release and injunction provisions included five classes and participated in the drafting and
approval of the Settlement Agreement, which provides

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In re Agrokor d.d., 591 B.R. 163 (2018)

for payout where creditors of the same class are Doc. # 5 ¶ 40.) The affirmation of a Croatian legal
treated equally, satisfying the first Finanz factor. 14 representative who practices complex commercial
The Foreign Representative acts as a fiduciary and litigation in Croatia, provides that “[p]ursuant to
is overseen by the Croatian Court throughout this the Settlement Agreement, the creditors will receive
process, which is consistent with the second Finanz a better outcome in respect of their claims than
factor of procedural fairness. After the Settlement they would in a Croatian bankruptcy or liquidation
Agreement was approved by a majority of creditors process.” (ECF Doc. # 6 ¶ 9.) Thus, the essential
and approved by the Croatian court on July 6, contours of a foreign proceeding that should be
2018, approximately 92 complaints were filed against granted comity in the U.S. are present. As such, the
confirmation, showing that creditors have the right Settlement Agreement should be recognized in full
to submit denied or contested claims for further within the territorial jurisdiction of the *192 United
adjudication, consistent with the third Finanz factor for States, including the provisions modifying the English
procedural fairness. According to Agrokor's official law governed debt and the New York law governed
website, the company responded to all 92 complaints in debt. Courts in other jurisdictions will make their
one submission to the Commercial Court on September own, independent decisions whether to recognize and
4, 2018. The issue is still pending before the Croatian enforce the Settlement Agreement.
Court; enforcement of the Settlement Agreement will
not commence in Croatia until the Court issues its
E. The Gibbs Rule
final order. Thus, creditors who opposed the Settlement
Because Chapter 15's principal criterion for
Agreement have been able to seek further adjudication
recognizing foreign proceedings and recognizing and
in the Croatian Court system.
enforcing a reorganization plan is a comity analysis, it
is appropriate for this Court to consider the effects of
Satisfying the fourth Finanz factors, the EA Law
a decision to extend comity to one nation if doing so
required published notification to creditors on the
could be seen as a refusal to extend comity to the laws
Court's website. Satisfying the fifth Finanz factor,
of another—particularly where a majority of the debt to
the EA Law provides for creditors meetings, which
be modified is governed by the law of the latter nation.
were held. Indeed, the Temporary Creditor's Council
In these circumstances, a complete comity analysis
continues to meet and was informed of the complaints
requires at least consideration of, even if not ultimately
as well as Agrokor's responses to the complaints at the
lending deference to, English law.
most recent meeting. Agrokor held its 22nd creditor
meeting on September 13, 2018. Representatives of all
The Gibbs rule remains the governing law in England
five creditor groups attended the meeting, including
despite its seeming incongruence with the principle
Sberbank as a representative of the unsecured
of modified universalism espoused by the Model Law
creditors, and Knighthead Capital Management, LLC
and a broad consensus of international insolvency
as the representative of the bond holders' creditor
practitioners and jurists. See, e.g., Kannan Ramesh,
group. Finanz factors seven and eight—regarding the
The Gibbs Principle: A Tether on the Feet of Good
creation of a centralized distribution and the creation
Forum Shopping, 29 Sing. Acad. L.J. 42, 43 (2017)
of an automatic stay—are both provided for by the EA
(noting that modified universalism is the theoretical
Law.
core of the Model Law and is increasingly recognized
by an international consensus as the way cross-
Finally, no objections to the recognition of the
border insolvencies should be dealt with moving
Settlement Agreement have been brought before this
forward). The essence of modified universalism is
Court. All evidence before the Court demonstrates that
that “bankruptcy proceedings ... should be unitary and
creditors received due process and will be better off
universal, recognized internationally and effective in
under the Settlement Agreement than they would be
respect of all the bankrupt's assets.” Id. The essence of
in a liquidation. The Foreign Representative affirms
the Gibbs rule, on the other hand, is territorialism.
that the “Croatian proceedings ... will allow the
[Foreign] Debtors to restructure in the most efficient
In Gibbs, Lord Esher questions, “Why should the
manner without jeopardizing creditors' rights.” (ECF
plaintiffs be bound by the law of a country to

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In re Agrokor d.d., 591 B.R. 163 (2018)

which they do not belong, and by which they SA, a decision by the Supreme Court of England, was
15
have not contracted to be bound?” 25 QDB at cited as providing the relevant exception to the Gibbs
406. Throughout the Gibbs opinion, Lord Esher rule—when a creditor submits to the jurisdiction of
characterizes the recognition of a foreign insolvency a foreign court, either by submitting its claims in the
proceeding as an issue of contract law between a single foreign insolvency proceeding or otherwise agreeing
debtor and creditor. Id. If the contract was made in to be bound thereby, then the creditor will be bound
England and meant to be performed in England, Lord in that proceeding and Gibbs will no longer apply. See
Esher reasoned that a breach of contract should be Rubin v. Eurofinance SA (2012) UKSC 46 at ¶ 157–
determined by the laws in England, not discharged by a 67 (Eng.) (holding that creditors who filed proofs of
French insolvency proceeding. Id. at 404. Thus, Gibbs debt and participated in a creditors' meeting, but did
characterizes the recognition of foreign insolvency not file an appearance, had nonetheless submitted to
proceedings as a contractual issue to be settled in the the jurisdiction of an Australian court and were bound
territory with the governing contract. by that Australian proceeding). Agrokor's counsel
asserted:
Despite the clear territorial slant of the Gibbs rule, it
Here, the Gibbs Rule does not govern the
was recently followed by the English High Court. In
English Law Governed Loans compromised by the
a 2018 decision, Justice Hildyard began his opinion
Settlement Agreement because all holders of the
by noting the tension between the Gibbs rule and
Agrokor Group's English Law Governed Loans
the principle of modified universalism in the CBIR.
submitted their claims in full in the Croatian
Bakshiyeva v. Sberbank of Russia, et al. [2018] EWHC
Proceedings and, as such, the holders submitted to
59 (Ch). The Bakshiyeva court was asked to recognize
the jurisdiction of the Croatian courts.
and enforce proceedings in Azerbaijan that sought to
(Brief in Further Support ¶ 48.)
restructure Azerbaijan's largest bank. Bakshiyeva, the
foreign representative for the Azerbaijan proceeding,
While counsel argued that all holders of English Law
sought a permanent stay imposed in England so that
Governed Loans submitted their claims in the EA
English creditors would have to participate in the
Proceeding, no evidence was presented to support that
centralized, Azerbaijan proceedings. *193 Two of
contention, and the vote tally in the EA Proceeding
the bank's creditors, who held English law governed
shows that not all creditors voted on the Settlement
debt instruments and had not participated in any way
Agreement. The appropriate time and place for the
in the foreign proceeding, invoked the Gibbs rule.
Foreign Debtors to raise their argument will be in any
Justice Hildyard agreed with the creditors, finding
further proceedings in the English court.
that the CBIR did not allow a foreign court to
change or discharge the substantive rights of creditors
While the English court has yet to decide whether
conferred by English law. The decision reaffirmed
to recognize and enforce the Settlement Agreement,
the priority of the common law Gibbs rule over
the English court discussed Gibbs before holding that
the more recently adopted CBIR.16 In addition to the Croatian Proceeding should be recognized as a
governing English cross-border insolvency law for the foreign main proceeding in England, concluding that
past century, Gibbs has been influential and accepted the proceeding did not manifestly violate English
in other Commonwealth countries including Canada public policy. (English Decision ¶ 131.) The court did
and Australia. See Ian F. Fletcher, Insolvency in Private not reach the issue of whether the Gibbs rule applies
Int'l Law, Oxford Private International Law Series at and bars recognition and enforcement of the Settlement
130 (2d ed, 2005). Agreement. The decision whether to recognize and
enforce the Settlement Agreement is likely to implicate
Agrokor's counsel argued that although the Gibbs rule a more demanding analysis under Gibbs.
remains in force in England, an exception to the Gibbs
rule applies in Agrokor to creditors holding English *194 The fact that England applies the Gibbs rule
law governed debt because they voted in favor of the and refuses to recognize a discharge or modification
Settlement Agreement or otherwise submitted to the of English law debt approved by a court outside
jurisdiction of the Croatian court. Rubin v. Eurofinance of England is not, in this Court's view, a basis

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In re Agrokor d.d., 591 B.R. 163 (2018)

for this Court to decline to recognize and enforce A theoretical and practical issue with applying such
the Settlement Agreement within the territorial a contractual analysis in the context of insolvency
jurisdiction of the United States. On this issue, the proceedings, as Look Chan Ho and others argue,
Court agrees with Justice Kannan Ramesh of the is that bankruptcy discharges by their very nature
Supreme Court of Singapore in his opinion in Pacific imply diverging from the terms of most of the
Andes Resources Development Ltd, [2016] SGHC 210. debtor's prepetition contracts. The primary disputes
Justice Ramesh explains that, in his view, the parties in a bankruptcy are ordinarily not about the rights
to a contractual relationship governed by the law of of a single creditor against the debtor; insolvency
a jurisdiction adhering to the Gibbs rule should be proceedings are collective proceedings in which the
attributed with the expectation that their claims might rights of all creditors are determined for a slice of a
be discharged in proceedings in a jurisdiction where pie that is not big enough to repay all creditors in full.
the debtor has an established connection based on A fundamental tenet of the U.S. bankruptcy system,
residence or ties of business. Pacific Andes, SGHC also applied under the new Croatian law and most other
210 at ¶ 48. This view, of course, contrasts with modern insolvency laws, is that creditors of the same
Gibbs, where the court did not think that it was class are entitled to equality of distribution. Allowing
fair to attribute any expectation of or consent to the creditors with claims governed by English law to
jurisdiction of French bankruptcy law to the English recover a greater percentage *195 of their claims than
merchant who contracted with the French company creditors with claims governed, for example, by New
that was domiciled in Paris. Justice Ramesh's view also York law, would violate the fundamental principle
differs from the more recent Rubin decision, in which of equality of distribution. As already discussed,
Lord Collins declares it “wholly unrealistic” that “a the Settlement Agreement provides for equality of
person who sells goods to a foreign company accepts distribution between the holders of the English law
the risk of the insolvency legislation of the place of governed and New York law governed debt.
incorporation” without providing further explanation
on the point.17 Rubin UKSC 46 at ¶ 116 (Eng.). Additionally, as Look Chan Ho notes, framing the
issue of which law should govern a creditor's rights
In Pacific Andes, Justice Ramesh discusses several in a bankruptcy as a solely contractual issue between
academic criticisms of the Gibbs rule's continued two parties overlooks orthodox English classification
application in global bankruptcy proceedings. One of of bankruptcy as an in rem proceeding.18 The Gibbs
the lengthier excerpts is the criticism provided by rule's contractual analysis seems to be based on
Look Chan Ho, author of Cross-Border Insolvency: the contractual parties' expectations; but if parties'
Principles and Practice (Sweet & Maxwell 2016). expectations created the rule, is it realistic for creditors
Look Chan Ho criticizes the notion that insolvency to multinational corporations to expect that, in the
proceedings should be characterized as contractual context of an insolvency proceeding, their contractual
issues. As mentioned above, the original Gibbs bargain will ultimately prevail?
opinion discussed the idea that parties to a contract
should be able to choose the law that would govern As Justice Ramesh argues, a fundamental problem with
their interactions, even in the potentially unexpected the use of the Gibbs rule in international insolvency
situation of a bankruptcy proceeding. The fact that the cases is that it mischaracterizes the discharge of debt
Gibbs rule is premised on a predominately contractual as a contractual issue, rather than as a bankruptcy or
analysis is reinforced by the Rubin exception to the insolvency law issue.19 Kannan Ramesh, The Gibbs
rule, which says that if a party, who otherwise would Principle: A Tether on the Feet of Good Forum
not be bound to a foreign proceeding, nonetheless Shopping, 29 Sing. Acad. L.J. at 49. A discharge of
chooses to consent to the foreign forum's jurisdiction, debts in an insolvency proceeding almost invariably
the rule will no longer apply. Thus, the Gibbs rule involves some form of cram-down, or modification
centers around the idea of a party's contractual or of creditors' prepetition claims, where a majority
consensual choice to be bound to a certain forum's of creditors will outweigh a minority of dissenting
rules. creditors. Id. As justice Ramesh explains, “bankruptcy
is undergirded by the philosophy that policy is

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In re Agrokor d.d., 591 B.R. 163 (2018)

clause in that case provided a broad grant of exclusive

given primacy over contractual rights.” Id. (emphasis
added). Thus, the basic rationale espoused by Lord authority to New York courts,21 the Court of Appeals
Esher in Gibbs—that parties consensual, contractual nevertheless concluded that the Mexican court where
decisions should determine the choice of law of the insolvency proceeding was pending should be the
all future legal interactions—is inappropriate when court to resolve the contract dispute that affected the
applied in the context of insolvency or bankruptcy resolution of the Mexican insolvency proceeding. Id.
proceedings, which inherently involve a societal at 429. As the court explained, “regardless of the
choice to allow collective proceedings to discharge parties' pre-litigation agreement, once a party declares
previously existing contractual obligations. The Court bankruptcy in a foreign state and a foreign court asserts
agrees with Justice Ramesh that a creditor's autonomy jurisdiction over the distribution of assets, U.S. courts
is relevant in the context of an insolvency proceeding may defer to the foreign bankruptcy proceeding on
only to the extent that it does not impede the underlying international comity grounds.” Id. (emphasis added);
public policy that governs a collective insolvency or see also Canada Southern Railway Co. v. Gebhard,
bankruptcy proceeding.20 Id. at 50. 109 U.S. at 537–38, 3 S.Ct. 363 (where Chief Justice
Waite explained that “every person who deals with a
Professor Ian F. Fletcher, a distinguished professor foreign corporation impliedly subjects himself to such
in England, argues that *196 “[t]he Gibbs doctrine laws of the foreign government [and] anything done at
belongs to an age of Anglocentric reasoning which the legal home of the corporation, under the authority
should be consigned to history.” Insolvency in Private of such laws, which discharges it from liability there,
International Law, Oxford Private International Law discharges it everywhere”).
Series 130 (Oxford University Press, 2d Ed, 2005).
In sum, though the concept of comity is broad and
In addition to Gibbs' failure to create a system that
may require overlapping considerations of the rights
allows for the centralized, collective restructuring
of several parties and nations, the Court believes it
of debt, Fletcher finds the rule troubling because
is appropriate to extend comity within the territorial
English law only narrowly recognizes the effects
jurisdiction of the United States to the Croatian
of foreign discharges in England but asserts that a
Settlement Agreement if it becomes final, even with
discharge resulting from an English proceeding has
respect to the modification or discharge of English law
a universal effect, irrespective of the governing law.
governed debt.
Id. at 129, 209–10 (describing the Gibbs rule's effect
on English law as “a form of systemic schizophrenia
when contemplating the effects of foreign insolvency
proceedings on obligations to which the debtor was III. CONCLUSION
a party”). England, of course, is free to continue to
adhere to the Gibbs rule, but that does not mean that a For the reasons explained above, the Court concludes
U.S. bankruptcy court must follow the rule in deciding that the Settlement *197 Agreement should be
whether to recognize and enforce the decision of a recognized and enforced with respect to the nine
court of another jurisdiction. U.S. Bankruptcy courts Foreign Debtors within the territorial jurisdiction of
have long permitted foreign bankruptcy proceedings to the United States, if the approval of the Croatian
bind U.S. creditors even where the debtor entered into Court becomes final. When the approval of the
a contract governed by New York law and agreed to Settlement Agreement becomes final, counsel for the
a New York forum selection clause. For instance, in Foreign Representative shall submit a proposed order
Altos Hornos, 412 F.3d at 429, the court considered consistent with this Opinion.
whether contracting parties choice of New York as
the forum for all contract disputes was enough to
All Citations
override the preference of extending comity to foreign
bankruptcy proceedings. Though the New York forum 591 B.R. 163

Footnotes

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In re Agrokor d.d., 591 B.R. 163 (2018)

1 The Chapter 15 cases were filed by Agrokor d.d.; Agrokor Trgovina d.o.o.; Belje d.d.; Ledo d.d.; Jamnica
d.d.; Konzum d.d.; PIK-Vinkovci d.d.; Vupik d.d.; and Zvijezda d.d. (hereinafter, the “Foreign Debtors”).

2 UNCITRAL Working Group V continues its work developing principles for dealing with
such issues. See UNCITRAL: Working Group V, http://www.uncitral.org/uncitral/en/commission/
working_groups/5Insolvency.html (last visited Oct. 22, 2018).

3 Because final approval of the Settlement Agreement awaits the outcome of the pending appeals in Croatia,
this Court will not enter an order recognizing and enforcing the Settlement Agreement unless and until
the Settlement Agreement becomes effective in Croatia. If material changes are made in the Settlement
Agreement before it becomes effective in Croatia, the Foreign Representative will need to seek further
approval from the Court before an order recognizing and enforcing the Settlement Agreement, as amended,
is entered.

4 During the recognition hearing on August 27, 2018 the Court raised questions and suggested that it seemed
more appropriate to defer decision whether the Croatian court could approve modification of English law debt
to the court in England that has already recognized the Croatian Proceeding as a foreign main proceeding.
As explained in this Opinion, the Court has concluded that it is appropriate for this Court to decide whether, in
the exercise of comity, the Croatian court-approved Settlement Agreement—including provisions modifying
English law debt—should be recognized and enforced within the territorial jurisdiction of the United States.
Of course, if presented with the issue whether the Settlement Agreement should be recognized and enforced
in England and Wales (and perhaps in other Commonwealth jurisdictions), the English court is obviously
free to decide the issue as it believes appropriate. The Court has concluded that a U.S. court should not
leave to another court (here the High Court in London) the decision whether U.S. comity principles entitle
the Croatian court decision to recognition and enforcement. The Foreign Representative's counsel argued
that a recognized exception to the Gibbs rule (e.g., that creditors holding English law debt filed claims or
submitted to the jurisdiction of the Croatian court and are therefore bound by the Settlement Agreement)
allows this Court to decide that the Gibbs rule does not apply. The Court believes that is an issue for the
English court to decide if the issue is raised in a proceeding in England.

5 Annex 2 to the Settlement Agreement lists the non-Croatian subsidiaries and affiliates of the Agrokor Group.
23 are located in Serbia, 18 are located in Bosnia and Herzegovina, 15 are located in Slovenia, 6 are in the
U.S., 4 are in Montenegro, 3 are in Hungary, and 2 are located in both Macedonia and the Netherlands.
There are approximately 11 remaining locations that each contain one or fewer Agrokor Group subsidiaries.
Only Croatian subsidiaries and affiliates are subject to the Croatian Proceeding.

6 Paragraph 63 of the Verified Petition provides, “As part of this reorganization, the Settlement Agreement
contemplates (i) a release of any and all claim claims, obligations, suits judgments, damages, rights,
causes of action and liabilities arising from, in connection with, or relating to the Unsecured Notes or
related indentures against The Bank of New York Mellon and BNY Mellon Corporate Trustee Services
Limited in their respective capacities as trustee of the Unsecured Notes under the relevant indenture
and its current and former affiliates and subsidiaries, and such entities' and their current and former
officers, directors, managers, equity holders (regardless of whether such interests are held directly
or indirectly), predecessors, successors, assigns, principals, members, employees, agents, attorneys,
consultants, advisors, representatives and other professionals (such parties, the ‘Trustee Released Parties’
and such release, the ‘Trustee Release’), see Settlement Agreement, 18.3.2, and (ii) a release of certain
bond guarantees governed by New York law, including guarantees by three non-debtor entities from
Bosnia-Herzegovina granted by Ledo d.o.o. #itluk, Sarajevski kiseljak d.d., and Konzum d.o.o. Sarajevo
(such guarantors, the ‘Bosnian-Herzegovinian Guarantors’ and such release, the ‘Bosnian-Herzegovinian
Guarantor Release’), see Settlement Agreement, 29.8.” (Verified Petition ¶ 63.)

7 Capitalized terms not defined within this section shall have the meaning attributed to them in the Settlement
Agreement.

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In re Agrokor d.d., 591 B.R. 163 (2018)

8 References to ECF Doc. # 21 in the following sections refer to copies or English translations of the foreign
recognition opinions, which are appended to the Memo on Foreign Hearings. These opinions are cited
according to page number (and paragraph where possible) for clarity.

9 Though Sberbank opposed recognition of the Croatian Proceeding before the English court, it took an active
role in negotiating the Settlement Agreement as one of the members of the five-entity interim creditors
council. (Settlement Agreement § 4.1.3.1) (the members of the creditors council are Sberbank of Russia,
Knighthead Capital Management LLC, Zagrebacka Banka d.d., KRAS prehrambena industrija d.d., and Toni
Raic). Additionally, Sberbank voted in favor of the Settlement Agreement. (Croatian Court Order Approving
the Settlement Agreement at 301-07.)

10 Section 15 of the Settlement Agreement explains “[c]reditors have been classified into classes on the basis
of claim type, meaning a single creditor with several types of claims may be represented in multiple classes.
Such classification shall be used for the purposes of voting on this Settlement Plan pursuant to Art. 43 EA
Act. The classification of Creditors per the above Court resolution is as follows: small suppliers, in which class
Creditors whose claims do not exceed HRK 100,00 are classified; large suppliers, in which class Creditors
whose claims exceed HRK 100,00 are classified; Noteholders, in which class Creditors who are holders of
notes issued by the Debtor are classified; unsecured creditors, in which class Creditors whose claims are
not secured by a separate satisfaction right are classified; and secured creditors, in which class Creditors
whose claims are secured by a separate satisfaction right are classified.” (Settlement Agreement § 15.)

11 The Court's decision in Gebhard was reached over a strong dissent by Justice Harlan which relied heavily
on English case law and commentaries by Joseph Story, James Kent and others that, consistent with the
Gibbs rule, would not permit a discharge of contractual obligations other than under the law of the place
of contracting. Id. at 546–47, 3 S.Ct. 363. Justice Harlan was particularly troubled that the discharge in
Gebhard was based on a legislative act, with no judicial hearing subject to due process requirements, id. at
544, 3 S.Ct. 363, which is not an issue in this case because the loan modification here was approved by a
creditor vote followed by court approval following notice and a hearing.

12 It is noteworthy that no objections were filed to recognition and enforcement of the Settlement Agreement
within the territorial jurisdiction of the United States.

13 As Chief Justice Waite said in Gebhard, 109 U.S. at 539, 3 S.Ct. 363, “[u]nless all parties in interest, wherever
they reside, can be bound by the arrangement which is sought to have legalized, the scheme may fail. All
home creditors can be bound. What is needed is to bind those who are abroad. Under these circumstances
the true spirit of international comity requires that schemes of this character, legalized at home, should be
recognized in other countries.”

14 The Court has already indicated that the percentage recovery to the holders of English Law Governed
Loans and New York Law Governed Notes is projected to be 50.8 percent. The Loans and Notes are both
unsecured.

15 Lord Esher's question may be compared with Supreme Court Justice Waite's commentary seven years
earlier in the Canada Southern Ry. v. Gebhard case. 109 U.S. 527, 3 S.Ct. 363, 27 L.Ed. 1020 (1883).
In that opinion, Justice Waite says, “every person who deals with a foreign corporation impliedly subjects
himself to such laws of the foreign government .... It follows, therefore, that anything done at the legal home
of the corporation, under the authority of such laws, which discharges it from liability there, discharges it
everywhere.” Id. at 537-38, 3 S.Ct. 363.

16 Interestingly, one of the two creditors in the Bakshiyeva case, Sberbank, happens to be the largest pre-
petition lender of English Law Governed Loans to Agrokor d.d. in the current Croatian Proceeding. In contrast
to its position in Bakshiyeva, in which it did not participate in any way in the foreign proceedings, Sberbank
was a member of the five member Interim Creditors Committee and voted in favor of the Croatian Settlement
Agreement.

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In re Agrokor d.d., 591 B.R. 163 (2018)

17 Lord Collins' view about what is “unrealistic” obviously differs markedly from the view of the Chief Justice
Waites in Gebhard, decided in 1883, that everyone who deals with a foreign corporation impliedly subjects
himself to foreign law, including a discharge from liability. 109 U.S. at 537–38, 3 S.Ct. 363.

18 Though Look Chan Ho refers to an orthodox classification of bankruptcy proceedings as in rem proceedings,
the Rubin court definitively stated that bankruptcy proceedings were neither in rem nor in personam. Rubin
UKSC 46 at ¶ 43 (“if the judgement had to be classified as in personam or in rem the appeal would have to
be allowed, but bankruptcy proceedings did not fall into either category ....”). As discussed above, the U.S.
Supreme Court in Tennessee Student Assistance Corp. v. Hood, 541 U.S. at 447, 124 S.Ct. 1905, concluded
that the discharge of debt in a U.S. bankruptcy proceeding is proper because it is an in rem proceeding.

19 This criticism of the Gibbs rule is relevant in all cases dealing with the foreign recognition and enforcement
of judgments in insolvency proceedings. The Croatian Proceeding is certainly an insolvency proceeding and
Agrokor is, most certainly, insolvent. A separate question, unnecessary for the Court to reach in this case,
is whether the Gibbs rule should be applied when considering whether to recognize and enforce a foreign
scheme of arrangement that modifies English law debt. Statutory authority for schemes of arrangement
typically arise from companies' laws rather than insolvency laws. Gibbs' reasoning that contract law should
be applied in determining whether to recognize and enforce a scheme of arrangement that modifies English
law debt may have more force. But this Opinion only deals with application of the Gibbs rule in an insolvency
proceeding.

20 Where a contract selects English law, choice of law principles will most likely mean that determining the
amount a breach of contract claim should be determined under English law. Choice of law principles should
not dictate that English law applies in determining whether a claim can be discharged or modified in a foreign
insolvency proceeding.

21 The forum selection clause stated that the foreign borrower agreed that the loan would be governed by New
York law, agreed to submit any dispute to a New York court and agreed to “irrevocably waive to the fullest
extent permitted by applicable law, any claim that any action or proceeding ... should be dismissed or stayed
by reason ... of any action or proceeding commenced by [debtor] relating in any way to this Agreement ....”
412 F.3d at 428.

End of Document © 2024 Thomson Reuters. No claim to original U.S.

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