Session 3 Introduction to the Civil Law tradition in ….pptVIP

Cross – Border Insolvency Importance of cross-border proceedings Increase of transnational lending Increasing number of multinational corporations Corporations hold numerous assets in foreign countries Uniform international statutes necessary Territorialism Main characteristics National sovereignty imposes local law over all issues within the territory Each country seizes local assets and applies them for the benefit of local creditors Foreign creditors are often unfairly treated and seldom receive proper notice No equal distribution of debtor’s assets Territorialism Consequences Creditors may not learn of debtor’s insolvency in time Uncertainty for international investors Initiation of multiple, often inefficient, bankruptcy proceedings Universalism Main characteristics Main forum and secondary jurisdictions Coordination and cooperation between all courts Foreign creditors are fairly treated and promptly notified Equal distribution of debtor’s assets is often achieved Background Shareholders of Avianca: 1. Coffee growers 2. Valores Bavaria S.A. Avianca’s financial problems Combination of assets of Avianca-Aces: Alianza Summa Main factors affecting Avianca Slowdown of Colombian Economy Exchange rates affecting peso BoNY Transaction Fuel prices 9-11 High aircraft lease rates Unwillingness to negotiate high rate leases The Avianca Chapter 11 Case Pros of filing in the US Treatment of executory contracts Sixty day vacation period/ certainty of non-foreclosure Automatic stay Mitigation of damages Assume/reject process BoNY (trapping of cash) Priorities under US/ Colombian Law Pension liabilities Labor liabilities Taxes Different treatment of secured creditors Treatment of Colombian creditors Other legal issues First day motions Vendors (catering, IATA, wages, etc) National taxes Civil Aviation Department Small vendors Unenforceability of Automatic Stay in Colombia Liquidation of Aces Not economically viable Mandatory liquidation procee