UPDATE 1-U.S. fund loses appeal versus Telecom Argentina
(Updates with quote from Telecom Argentina attorney)
By Emily Chasan
NEW YORK, May 29 (Reuters) - A U.S. court on Thursday rejected an appeal by a U.S. investment fund seeking to pursue its own claims against Telecom Argentina SA (TEC2.BA) (TEO.N) over a 2005 debt restructuring.
In the ruling, which could have implications for other companies involved in cross-border insolvencies, the three-judge panel of the U.S. Second Circuit Court of Appeals said the company's foreign bankruptcy proceeding could be recognized in U.S. courts.
In late 2001, when Argentina was in the midst of a currency crisis, Telecom Argentina was pushed into insolvency. The company had to accept customer payments in rapidly devaluing pesos, was prohibited from raising prices, and found it was unable to support its foreign debt obligations which it had to pay in increasingly expensive foreign currency.
The company negotiated with creditors and gained court approval to complete a $2.63 billion debt exchange, using an Argentine process called the Acuerdo Preventivo Extrajudicial, or APE.
In 2005, the company filed for bankruptcy protection in U.S. bankruptcy court in Manhattan, seeking protection from U.S. creditors who had not signed off on its debt restructuring.
The Argo Fund Ltd, a U.S. investment fund which had an interest in the company's notes, did not agree to the restructuring, asserting that the APE proceeding was not valid in U.S. courts because it lacked certain protections and was not undertaken in "good faith." It sought to have its own proceedings against the company in the United States.
The bankruptcy court rejected those claims in February 2006, and the ruling was upheld on appeal later that year by the U.S. District Court in Manhattan, which said Argo could have raised its objections in Argentina's courts.
The appeals court on Thursday ruled in favor of upholding those decisions as well, saying that foreign proceedings did not have to be identical to the U.S. bankruptcy code.
"Argo's challenge to the APE in the United States, after refusing to participate even by objection in the Argentine proceedings and after Telecom closed on the APE, is contrary to our long-standing recognition that foreign courts have an interest in conducting insolvency proceedings concerning their own domestic business entities," the appeals court judges wrote in the opinion.
An attorney for Argo did not return a call seeking comment.
Karen Wagner, an attorney representing Telecom Argentina, said the ruling "vindicates the notion that creditors in insolvency proceedings pending in other countries cannot use U.S. courts inappropriately to try to evade the rules" that would apply to them in the foreign country's proceedings.
(Reporting by Emily Chasan; Editing by Tim Dobbyn, Richard Chang)
