Vol 22 (2025) - Issue 5

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Proper or Improper? Mega Newco Court Addresses Forum Shopping in Chapter 15

Synopsis
As more jurisdictions provide viable and efficient restructuring frameworks, it can be expected that distressed companies may consider venue options, even in jurisdictions where they may not have their centre of main interest (‘COMI’) or an establishment – or at least not yet. There are several examples of companies forming and using corporate entities to become eligible for a restructuring regime in a certain jurisdiction. But are such manoeuvres permissible? US courts generally scrutinise transactions to determine if debtors in Chapter 15 improperly manipulated their COMI. Specifically, they look to whether there is any evidence of insider exploitation, untoward manipulation, or overt thwarting of third-party expectations – but also whether there is creditor support for a restructuring transaction and/or the lack of objections thereto.
These issues were addressed by the US Bankruptcy Court for the Southern District of New York (the ‘Bankruptcy Court’) in In re Mega Newco Ltd. In connection with a request to recognise an English scheme as a foreign main proceeding, the Bankruptcy Court examined whether the following scenario constituted an improper COMI manipulation:
(i) the incorporation of a company in the United Kingdom;
(ii) by a Mexico-based parent with no ties to the UK;
(iii) for the sole purpose of gaining access to the English courts for a restructuring of notes.
As described in further detail below, the Bankruptcy Court found that any manipulation in this particular case was not improper, principally due to the lack of objections to recognition and the expectation of creditors that the restructuring as designed, including the venue choices, could be accomplished.