Dechert Clients Given all Clear to Recover US$170 Million on International Bank of Azerbaijan Bonds

June 28, 2019

The Supreme Court of the United Kingdom has refused International Bank of Azerbaijan (IBA) the right to appeal the Court of Appeal and High Court’s landmark decisions to uphold the rights of holders of Eurobonds issued by IBA.

Some market participants had assumed that banks and other companies incorporated outside the EU had the right to restructure their debt by utilising local law restructuring processes and that such processes would be legally effective to cram down the rights of creditors under English law debt instruments. That has now been proved not to be the case.

In 2017, IBA launched a restructuring process under Azerbaijan law for the purposes of restructuring its international debt obligations, including the English law Eurobonds. Following that restructuring process, IBA applied to the English Court under the Cross Border Insolvency Regulations 2006 for a permanent stay on proceedings against it by creditors holding such rights.

However certain creditors, mainly accounts managed by Franklin Templeton Investment Management Limited that were holders of IBA’s 5⅝% Notes due 2019, did not agree to the terms of the restructuring, opposed the application and successfully argued that a long standing legal principle known as the rule in Gibbs (after a Court of Appeal decision from the late 19th century) prevented the UK Courts from recognising the effectiveness of the Azerbaijan law restructuring on English law debt instruments. That argument was accepted in the High Court and the Court of Appeal and the Supreme Court has now confirmed that it will not interfere with that decision. The UK position differs from that in the US where the New York courts recognised the effectiveness of IBA’s restructuring so as to modify the rights of creditors under NY law governed instruments.

Commenting on the decision Adam Silver, a partner at global law firm Dechert LLP who acted for the successful bondholders, said: “This is an important decision upholding creditors’ rights. It highlights one of the many advantages for international investors in contracting under English law, and could have a significant impact on the shape of international restructurings in years to come.” Mr Silver added: “The maturity date of the Notes having passed, IBA is indebted to holders for more than $170 million. IBA has exhausted its legal rights to seek a stay against our clients and they hope that IBA will now honour its obligations to them.”

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