A New York bankruptcy judge ruled Wednesday that a creditor settlement reached in the foreign restructuring proceedings for Croatian food and beverage giant Agrokor should be enforced in the U.S. even if certain provisions require the modification of English law-governed debt, saying it seems appropriate to extend comity.
U.S. Bankruptcy Judge Martin Glenn ruled that a pending debt restructuring scheme for Agrokor, the largest private company by revenue in Croatia, “should be recognized and enforced” with respect to the nine subsidiaries that filed for bankruptcy court relief in the U.S. earlier this year. Although the judge last month gave the company’s U.S. assets Chapter 15 protection and recognized its foreign restructuring proceedings, he reserved decision on whether to enforce a massive settlement Agrokor reached earlier this year with creditors.
In a 55-page opinion, the judge explained that determining whether to enforce the agreement hammered out under Croatian law raises challenging issues because the provisions modify English law-governed debt, of which the company has over €1.6 billion. The court in the United Kingdom has not yet been asked to enforce the agreement, he noted.
While English case law may not permit recognition and enforcement of the settlement, that does not prevent a U.S. court from presently weighing the issue and reviewing the propriety of the arrangement under U.S. bankruptcy law, the judge said.
Importantly, it has been demonstrated that the substance and procedures set forth in Croatia’s restructuring law “comport with broadly recognized principles for insolvency laws,” Judge Glenn said. He added that the proposed creditor distributions “closely follow the waterfall provisions of the U.S. Bankruptcy Code” and “over two-thirds of non-insider creditors voted to approve the settlement agreement.”
“All evidence before the court demonstrates that creditors received due process and will be better off under the settlement agreement than they would be in a liquidation,” he concluded.
Agrokor filed for Chapter 15 protection seeking to shield itself from legal actions that could be brought by stakeholders in the U.S. while it finishes executing a massive restructuring settlement reached earlier this year with creditors. The company said any U.S. claims can be addressed through proceedings in Croatia.
Under the deal, which was confirmed by a Croatian court on July 6, Agrokor will “deleverage the current business to make it viable going forward by converting large portions of the prepetition unsecured debt into equity” of a new corporate group and “structurally subordinated debt instruments,” representatives for the company said in earlier court filings.
Agrokor, the biggest employer in the Balkans, was put under state-run administration more than a year ago after an overly ambitious expansion drive left it weighed down by borrowings. Since then, the company's creditors, including banks and suppliers, have pressured it to restructure, but the company nevertheless continued shipping goods and maintaining lines of credit.
The Agrokor Group counts among its primary businesses Croatia’s largest supermarket chain, largest producer of mineral and spring water, and largest producer and distributor of ice cream and frozen foods, the company said. Pulling in roughly €6.5 billion in annual revenue, Agrokor’s earnings represent “approximately 15 percent of the gross domestic product of Croatia,” it added.
The company said it commenced restructuring proceedings in Croatia last year shortly after taking on a new loan from Sberbank that was insufficient for it to avoid insolvency proceedings.
Under the settlement, Dutch and Croatian holding companies will take over the new Agrokor, with Croatian and foreign subsidiaries. Company representatives said the new structure will reduce systematic risk, “increase transparency and accountability of the individual businesses,” “focus efforts on core businesses” and “maximize flexibility for any future sale of business units.”
The company reported that creditors holding 80 percent of total claims voted in favor of the plan.
The foreign representative for the debtors is represented by James H.M. Sprayregen, Adam C. Paul, Daniel Rudewicz, Brad Weiland and Whitney Fogelberg of Kirkland & Ellis LLP.
The case is In re: Agrokor D.D. et al., case number 18-12104, in the U.S. Bankruptcy Court for the Southern District of New York.