Fifth Circuit Declines to Enforce Mexican Plan of Reorganization and...

By: Maurizio Anglani

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

In a matter of first impression, the Court of Appeals for the Fifth Circuit refused to enforce a foreign debtor’s plan of reorganization because it discharged debts of the debtor’s non-debtor subsidiaries.[1] In 2003, Vitro S.A.B. de CV (“Vitro”), a Mexican corporation, issued various notes totaling more than $1 billion. Most of Vitro’s direct and indirect subsidiaries, including its U.S. subsidiaries, guaranteed the notes.[2] Before the notes became due, Vitro initiated an insolvency proceeding in Mexico.[3] However, many of Vitro’s U.S. subsidiaries did not participate in the insolvency proceedings.[4] In February 2012, the Mexican court approved Vitro’s reorganization plan.[5] The Mexican plan purported to extinguish the guarantees of Vitro’s debt by Vitro’s U.S. subsidiaries.[6] Vitro’s representatives then sought to recognize and enforce releases granted in the foreign case, but the Bankruptcy Court for the Northern District of Texas denied relief, holding that non-consensual, non-debtor releases are “manifestly contrary” to U.S. public policy.[7]  

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