Notice to creditors and an opportunity to be heard is a hallmark feature of chapter 11. This means, even in a largely consensual chapter 11 reorganization, any one stakeholder can attempt to stop plan confirmation.

Given the existence of the absolute priority rule in chapter 11, which provides, with a few exceptions, that equity cannot receive any recovery if creditors are impaired, it is often the case that most plans provide for the cancelation of exiting equity.

Although there are scenarios in which equity holders can seek to contest confirmation of a plan that extinguishes their equity if, for instance, the debtor's asserted valuation is too low and there is value left on the table that should flow to equity, these are exceptional cases for the most part.

For cases involving U.S. companies, state law facilitates the implementation of a plan that provides for old equity to be wiped out notwithstanding the protections usually provided to shareholders under state corporate law that would otherwise require shareholders to consent to such a transaction.

Delaware law, for example, provides that any Delaware corporation can take any corporate action necessary to effectuate orders for relief pursuant to the Bankruptcy Code without further action by its directors or stockholders — including amending its bylaws, reconstituting its board of directors, and making changes in its capital or capital stock.³

If, notwithstanding these state law provisions, or provisions of a plan or confirmation order, shareholders try to resist plan implementation, the bankruptcy court can rely on its ability to exercise personal jurisdiction over such equity holders, either because they are United States citizens subject to jurisdiction, or because they are equity holders in a U.S. company subject to jurisdiction.⁴

If, despite these state law provisions, an equity holder attempts to block plan implementation by seeking to prevent the cancelation of old equity through corporate actions, for example, the Bankruptcy Code provides the debtor and the Bankruptcy Court another possible tool to effectuate the plan: Section 1142. The application of Section 1142 in the context of a domestic debtor is well established.⁵

Section 1142 requires the debtor and any entity organized for the purpose of carrying out a plan of reorganization to "carry out the restructuring plan and to comply with any orders of the court."⁶ To ensure compliance, section 1142 further provides that the bankruptcy court may "direct the debtor and any other necessary party" to execute any act or transaction "that is necessary for the consummation of the plan."⁷

This scenario plays out quite differently, however, with a foreign debtor, where things are not so simple. If a confirmed plan, in order to go effective, requires shareholder votes under foreign law governing the foreign debtor, and shareholders do not vote in accordance with the confirmed plan, foreign debtors may be at risk of not being able to implement their confirmed plans.

In the face of this, some have argued that section 1142 of the Bankruptcy Code can be used to require parties that may be subject to the jurisdiction of the bankruptcy court to take action abroad, such as voting in favor of shareholder resolutions.⁸ That said, if these non-complying parties never appeared before the Bankruptcy Court, it may be unlikely that a bankruptcy court would find such a parties in contempt if they do not comply with such rulings, and instead, for example, abstain from voting in accordance with provisions of a confirmed plan.

Indeed, even if the bankruptcy court were to issue an order requiring these equity holders to take action (or finding them in contempt), one can only speculate as to whether any foreign-local court would enforce such an order or recognize a chapter 11 plan more generally.⁹ And, even if that foreign-local court did enforce the order, the chapter 11 debtor could be opening itself up to the risk that the motion to compel compliance in the foreign-local court provides a new avenue to attack the plan of reorganization.

Thus, in the context of a foreign debtor, this issue presents unique challenges. Although a few large chapter 11 cases have flirted with this issue,¹⁰ it has not been firmly decided. But In re Venator provides some insight that may color how this issue is likely to unfold in the future.

Venator Materials PLC ("Venator") and its affiliates are a group of United Kingdom-based companies.¹¹ Venator is a global manufacturer and marketer of chemical products, an industry that is known for its cyclical nature and which has been acutely and negatively affected by the supply chain issues caused by the COVID-19 pandemic.

Given these headwinds, on May 14, 2023, Venator and certain of its affiliates filed for chapter 11 protection in the Southern District of Texas. On that same day, Venator filed a prepackaged plan of reorganization (the "Venator Plan") that had the backing of all voting classes. Importantly, the Venator Plan provided that all unsecured claims would remain intact after Venator's emergence from bankruptcy, and it provided that all existing equity would be canceled, with new equity being distributed to Venator's secured lenders.

Although nearly all stakeholders supported the prepackaged Venator Plan, Prague-based private equity fund and significant Venator shareholder J&T MS 1 SICAV ("J&T") contested confirmation on the basis that it believed Venator's asserted valuation was too low and, accordingly, there was sufficient value for equity to receive distributions before it could be canceled.

After hearing from both J&T's and Venator's experts, Judge Jones found that J&T's proposed valuation was "results-oriented," stating that even after going back to "tweak" and "play with" the valuation models he did not "come anywhere close to equity being in the money."¹²

At the same time, Judge Jones also expressed serious concern with Venator's attempt to use the confirmation order to secure the shareholder votes required to implement restructuring transaction. Just days prior to the confirmation hearing, Venator had introduced language in the proposed confirmation order, language which would have compelled equity holders to vote (in general meetings or by proxy) to approve certain corporate actions necessary to effectuate the plan, citing Section 1142(b) as the basis for relief.¹³

Judge Jones expressed concerns with this procedural approach, noting the relief gave him "heartburn," given that it was not contemplated in the plan nor described in the Debtors' disclosure statement. Ultimately, under threat of denial of confirmation, Venator removed the provisions, and Judge Jones entered a confirmation order over J&T's and other parties' objections.¹⁴

Despite fully contesting confirmation and being overruled, after the Venator Plan was confirmed, J&T led a proxy campaign urging stockholders to vote against the board resolutions that would have approved the cancelation of existing equity rights and the issuance of new ordinary shares. Venator sought intervention from Judge Jones through an emergency motion requesting enforcement of the confirmation order pursuant to Section 1142(b).

Although Judge Jones had previously noted concern with using Section 1142(b) to force foreign creditors to take certain corporate actions, that concern seemed largely procedural rather than substantive. That is, Judge Jones had concerns with the way in which Venator attempted to insert Section 1142(b) into the confirmation order with little notice at the last minute, but was less concerned where relief was sought against specific entities on notice.

In a hearing on Venator's emergency motion to enforce the confirmation order, Judge Jones implicitly noted that J&T had submitted to the court's jurisdiction by appearing to object to the plan, and suggested he could hold J&T in contempt if they continued to defy his court order by blocking the plan.¹⁵ In the end, likely given Judge Jones' comments, J&T settled with Venator and agreed not to try to block plan implementation.¹⁶ Venator held a shareholder meeting and vote, where the necessary corporate actions were approved.¹⁷

The Venator case is likely a harbinger of things to come. Although the case did not result in an order of the Bankruptcy Court, Section 1142(b) and the threat of sanctions seems to have played a critical role in the resulting settlement. J&T may have misread Judge Jones at the confirmation hearing, and assumed his view was that Section 1142 could not be used to force foreign parties to take actions abroad.

In reality, Judge Jones seems to have taken the position at the emergency hearing that parties like J&T, those who actively participate in the bankruptcy case, are subject to the Bankruptcy Court's jurisdiction and Section 1142(b) orders can and will be applied to them.

The rising number of Chapter 11 cases brought by predominantly foreign companies may involve more complex plan implementation processes, as these cases often involve a large number of equity and debt holders who are outside the jurisdiction of U.S. bankruptcy courts.¹⁸ Accordingly, these types of cases may prove to be a testing ground for the application of Section 1142 to foreign debtors' shareholders moving forward.

In the future, foreign companies seeking to reorganize under chapter 11 should consider at the outset whether corporate actions will be required, and if so, how they will effectuate those actions. If shareholder participation will be required, companies should think carefully about how they will obtain those votes.

Section 1142 may be an option, but, unless a party participates in the chapter 11 process and subjects itself to jurisdiction, U.S. courts have not yet indicated that they will be willing to use their power to force parties to take action outside of the United States. Thus, it is not clear precisely how a bankruptcy court will handle this issue in the future.

Restructuring professionals, particularly those advising potential foreign chapter 11 filers, should be mindful of this potential roadblock to confirmation. Creative solutions to foreign equity holder issues may delay a decision on this issue, but it may come to a head in the near future.

1 Case No. 23-90301 (Bankr. S.D. Tex.) (Jones, J.).

2 See Richard J. Cooper, Kyle J. Ortiz and Thomas S. Kessler, Addressing Treatment of Equity Under Foreign Law and the Code, XL American Bankruptcy Law Institute Journal 4 (Apr. 2021).

3 Del. Code tit. 8, § 303.

4 The Delaware Court of Chancery held In re Pilgrim's Pride Corp. Derivative Litig. that, in certain circumstances, a shareholder can be subject to jurisdiction on account of (1) its ownership of shares in a Delaware corporation and (2) that corporation's adoption of bylaws providing for Delaware courts forum selection provision. See, e.g., In re Pilgrim's Pride Corp. Derivative Litig., (Del. Ch. Mar. 15, 2019) at *14-*15.

5 See, e.g., In re Voyager Digital Holdings, Inc., No. 22-10943 (MEW), , at *5 (Bankr. S.D.N.Y. Mar. 15, 2023) ("My confirmation order will have the effect, under section 1142(a), of affirmatively requiring that certain actions be taken.").

6 11 U.S.C. § 1142(a).

7 11 U.S.C. § 1142(b); In re Lehman Bros. Holdings Inc., 591 B.R. 153, 159 (Bankr. S.D.N.Y. 2018) ("Section 1142(b) 'empowers the bankruptcy court to enforce the unperformed terms of a confirmed plan.'" (citing In re WorldCom, Inc., Case No. 02-13533, , at *7 (Bankr. S.D.N.Y. May 19, 2009)); In re United States Brass Corp., 301 F.3d 296, 306 (5th Cir. 2002).

8 See Debtors' Emergency Motion for Entry of an Order to Enforce the Confirmation Order at p. 5, In re Venator Materials PLC, et al., Case No. 23-90301 (Bankr. S.D. Tex. Aug. 18, 2023) (No. 422) ("Indeed, the revised resolutions do not require [shareholders] to do anything (even though the Debtors could make such a request under section 1142 of the Bankruptcy Code) ... .").

9 When developing a U.S. restructuring strategy, a company should consider whether the relevant foreign-local jurisdiction permits the commencement of an ancillary proceeding to recognize a chapter 11 case and enforce the U.S. bankruptcy court's orders. Local jurisdictions may decline to grant recognition to a case if, for example, a company cannot establish the main proceeding was filed in the location of the company's center of main interests and it does not otherwise have operations in that jurisdiction.

10 See, e.g., In re LATAM Airlines Grp. S.A., Case No. 20-11254 (JLG) (Jointly Administered) (Bankr. S.D.N.Y. 2020).

11 For additional background, see Declaration of Kurt Ogden, Chief Financial Officer of Venator Materials PLC, In Support of the Chapter 11 Petitions and First Day Motions, In re Venator Materials PLC, et al., Case No. 23-90301 (Bankr. S.D. Tex. May 15, 2023) (No. 25).

12 Transcript of Confirmation Hearing Before the Honorable David R. Jones, United States Bankruptcy Court Judge at 237:21-24, In re Venator Materials PLC, et al., Case No. 23-90301 (Bankr. S.D. Tex. July 19, 2023) (No. 339).

13 The proposed order provided: "The Restructuring Transactions are contemplated to be implemented in part through a vote at [one or more] general meeting(s) of the Holders of Interests in Venator Materials PLC. Pursuant to section 1142(b) of the Bankruptcy Code (and subject to the limitations of this Court's jurisdiction and authority under the laws of the United States), all Holders of Interests in Venator Materials PLC (including J&T MS1 Sicav A.S. and its affiliates) and any broker, bank, or other holders of record holding Interests on behalf of such Holders are hereby ordered to (A) vote and/or exercise any powers or rights available (by proxy or otherwise) at such general meeting(s) in favor of the resolutions proposed to enable the implementation of the Restructuring Transactions ... ." See Proposed Order (I) Approving the Debtors' Disclosure Statement Relating to the Joint Prepacked Plan of Reorganization of Venator Materials PLC and its Debtor Affiliates Pursuant to Chapter 11 of the Bankruptcy Code, (II) Confirming the Joint Prepackaged Plan of Reorganization of Venator Materials PLC and its Debtor Affiliates Pursuant to Chapter 11 of the Bankruptcy Code (Technical Modifications), and (III) Granting Related Relief at ¶ 70, In re Venator Materials PLC, et al., Case No. 23-90301 (Bankr. S.D. Tex. July 16, 2023) (No. 303).

14 See Order (I) Approving the Debtors' Disclosure Statement Relating to the Joint Prepacked Plan of Reorganization of Venator Materials PLC and its Debtor Affiliates Pursuant to Chapter 11 of the Bankruptcy Code, (II) Confirming the Joint Prepackaged Plan of Reorganization of Venator Materials PLC and its Debtor Affiliates Pursuant to Chapter 11 of the Bankruptcy Code (Technical Modifications), and (III) Granting Related Relief at ¶ 70, In re Venator Materials PLC, et al., Case No. 23-90301 (Bankr. S.D. Tex. July 25, 2023) (No. 344).

15 Transcript of Emergency Motion for Entry of an Order to Enforce the Confirmation Order [422] Before the Honorable David R. Jones, United States Bankruptcy Court Judge at 8:17-9:4, In re Venator Materials PLC, et al., Case No. 23-90301 (Bankr. S.D. Tex. August 24, 2023) (No. 437).

16 J&T agreed to abstain from voting on the shareholder resolutions or advising other shareholders to do so. In exchange, J&T and its affiliates were covered by the third party releases set forth in Venator's plan, and after successful approval of the shareholder resolutions J&T received a $2.5m cash payment reimbursing their professional fees, payable as an allowed administrative expense. See Agreed Order With Respect to Debtors' Emergency Motion for Entry of an Order to Enforce Confirmation Order, In re Venator Materials PLC, et al., Case No. 23-90301 (Bankr. S.D. Tex. Sept. 25, 2023) (No. 477).

17 See Notice of Filing of Second Amended Plan Supplement, In re Venator Materials PLC, et al., Case No. 23-90301 (Bankr. S.D. Tex. Oct. 9, 2023) (No. 513). Separately, but interestingly, based on post-effective date analysis, it appears the recovery to pre-petition senior secured lenders was less than anticipated, as new money DIP lenders ended up with much more of the new equity than anticipated. Media sources have reported that the Venator DIP lenders seem likely to have received the bulk of the new equity, which is not what Venator publicly anticipated. Peter Badal, Venator Materials DIP Creditors Received 75% of Fully Diluted Reorganized Equity Upon Emergence, Plan Materially Diluted Non-DIP Participants, Reorg, Oct. 27, 2023. Creditors may wish to take note and carefully review the terms of a DIP loan, especially when both the plan and such loans involve equitizing debt.

18 For example, as part of its chapter 11 reorganization in the Southern District of New York, Scandinavian airline SAS AB recently announced a $1.175 billion exit financing package from the Danish State and a consortium of investment partners, involving an investment in, and issuance of new equity interests and secured convertible debt by, the reorganized SAS. Press Release, SAS Reaches Major Milestone in SAS Forward — Announces the Winning Consortium, Including Details of the Transaction Structure (Oct. 3, 2023), https://bit.ly/3STaZx8. A confirmation order from a Swedish court in a parallel foreign-local reorganization proceeding is a condition precedent to the transaction, and may be necessary to effect the cancellation of existing SAS shares and listed commercial hybrid bonds pursuant to Swedish law. See Motion of Debtors for Authority to Enter Into Investment Agreement, Perform Obligations Thereunder, and Pay Transaction Fees and Expenses at 101, In re SAS AB, et al., No. 22-10925 (MEW) (Bankr. S.D.N.Y. Nov. 4, 2023), ECF No. 1579.