Multicanal judge rules against Argentinian Recovery

By Jeff Pines

Washington, March 15 - Multicanal SA retains its protection under Section 304 of the bankruptcy code, Judge Alan Gropper ruled in a March 12 New York bankruptcy court memorandum of decision.

A group of bondholders, including Argentinian Recovery Co. LLC, sought to have the court remove the Argentine cable television systems operator's protection under Section 304, which gives foreign firms a breather from U.S. creditors filing actions in U.S. courts.

Multicanal is working on an Argentinean authorized out-of-court restructuring called an acuerdo preventivo extrajudicial.

Argentinian Recovery also filed an involuntary petition to throw Multicanal in Chapter 11 after the Buenos Aires-based company received a temporary restraining order protecting it from actions filed in U.S. courts.

The investment group controls about $157 million of Multicanal's more than $500 million in U.S. bonds outstanding. The company has been in default since February 2002.

Argentinian Recovery's position was that the Trust Indenture Act trumped Section 304.

Judge Gropper disagreed and in an oral argument Argentinian Recovery "conceded that a foreign bankruptcy proceeding could possibly impair a bondholder's rights under the TIA - but only in the event the foreign proceeding were identical to a proceeding under U.S. law," the judge said in his decision.

He also said that Argentinian Recovery overstated the rights the Trust Indenture Act affords bondholders. Judge Gropper cited an 1883 U.S. Supreme Court case Canada Southern Ry Co. v. Gebhard, 109 U.S. 527, in which the court found for the foreign company against the U.S. bondholders.

In essence, the Supreme Court's decision signaled American investors who invest in foreign companies should not expect to play by American rules when things go awry.

Granted the Supreme Court decision predated the Trust Indenture Act, but if the Supreme Court could rule that foreign law takes precedence over U.S. law in certain cases then there is no basis for ruling that foreign law can never trump the Trust Indenture Act, he reasoned.

The judge did not dismiss the involuntary Chapter 11 against Multicanal or rule on Multicanal's motion to hold Argentinian Recovery in contempt because it filed the involuntary bankruptcy petition.

The case number for Multicanal's APE is 04-10280 and 04-10523 for the involuntary Chapter 11.

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