In Re Energy Coal SPA

The Delaware Bankruptcy Court held that comity outweighed the parties' contractual choice of jurisdiction. Although claims would be allowed to be brought in the US, any recoveries would need to be pursued in Italian insolvency proceedings.  

Energy Coal, an Italian company engaged in trading coal and other raw materials, commenced debt restructuring, or Concordato Preventivo ("Italian Proceedings"), proceedings in Italy in 2015. The restructuring plan allowed for the business to continue as a going concern and pay creditors from future revenues.

Energy Coal also carried on business in the US and therefore filed a Chapter 15 application in the Delaware Bankruptcy Court seeking recognition of the Italian Proceedings as a foreign main proceeding, and a stay of litigation pending in any US court, which was granted. Following recognition, Energy Coal took steps to have the Italian Proceedings approved in Italy.

The current case related to an application to recognise and give full force to the final order in the Italian Proceedings, which made the restructuring plan final and binding on all creditors, and to close the Chapter 15 proceedings in the US. Energy Coal also sought an injunction preventing creditors entering Judgment in the US. This application had been objected to by MacEachern Energy LLC and Christopher MacEachern ("the Objectors").

The Objectors were engaged by Energy Coal from 1999 as independent contractors to source petroleum coke, manage Energy Coal's related logistics in the US and provided administrative and other services. The Objectors continued to be engaged by Energy Coal throughout their restructure. MacEachern Energy LLC were owed €2.2 million by Energy Coal, however they also owed money to Energy Coal, creating a right of setoff of mutual debts.

The Objectors objected to the Italian Proceedings because they wished to issue proceedings in Florida to obtain Judgment entitling them to a 100% recovery in the Italian Proceedings as an expense of the Italian Proceedings. Energy Coal asserted they were unsecured creditors but could bring proceedings in Italy to challenge their classification.

The Objectors however cited no case law which argued that the jurisdiction clause of the contract should be considered ahead of comity. 

The foreign representative for Energy Coal eventually agreed that the claim could be liquidated in any court of competent jurisdiction, including Florida, but argued that any amount determined in those proceedings would need to be recovered through the proceedings in Italy.

The Court noted that "U.S. bankruptcy courts have not hesitated to require foreign creditors to file their claims and to litigate in our courts if they wish a distribution from a U.S. Debtor's estate. It is equally appropriate to expect U.S. creditors to file and litigate their claims in a foreign main bankruptcy case".

The Court held that is should be "guided by principles of comity and cooperation with foreign courts in deciding whether to grant the foreign representative additional post-recognition relief."

As such, the Court ruled that comity outweighed the contractual choice of law. Therefore the claim can be brought in Florida but the Objectors will need to pursue recovery of their debt in Italy.

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