Court approval of a restructuring transaction allowing continuation of uninterrupted operations

A recent U.S. Bankruptcy Court ruling has reaffirmed the enforceability of foreign restructuring plans that modify or cancel U.S. law-governed debt, ensuring the continuation of a company’s operations without disruption. In In re Modern Land (China) Co., Ltd., the court granted recognition of a Cayman Islands restructuring proceeding under Chapter 15 of the U.S. Bankruptcy Code, allowing the debtor to implement a court-sanctioned scheme of arrangement that canceled New York law-governed notes in exchange for new notes governed by the same law. This decision underscores the role of international comity in cross-border insolvency proceedings and reinforces the principle that foreign restructuring plans can be enforced in the United States when they meet the procedural and substantive requirements of Chapter 15.

The debtor, Modern Land (China) Co., Ltd., is a Cayman Islands-incorporated holding company with significant operations in China and U.S. assets. After defaulting on $1.42 billion in New York law-governed debt in 2021, the company initiated a restructuring process in the Cayman Islands. The proposed plan, which received overwhelming support from creditors, included the cancellation of the old debt and the issuance of new notes, along with cash payments and releases of liability. The U.S. Bankruptcy Court for the Southern District of New York recognized the Cayman proceeding as a “foreign main proceeding,” determining that the company’s COMI was in the Caymans.

The court also addressed concerns raised by a Hong Kong court regarding the enforceability of foreign restructuring plans involving U.S. law-governed debt. It clarified that U.S. courts have long recognized and enforced such plans under principles of international comity, provided the foreign court has proper jurisdiction and the process is fair and transparent. This ruling provides clarity for multinational companies seeking to restructure outside of U.S. bankruptcy proceedings while maintaining operational continuity.

The decision in Modern Land highlights the growing importance of Chapter 15 in facilitating cross-border restructurings and supports the trend toward out-of-court restructuring mechanisms that allow businesses to reorganize without the disruption typically associated with formal insolvency proceedings.