AP&S Attorneys Successfully Represent International Precious Metals Consignor in Multinational, Multi-Million Dollar Litigation

The Challenge:

AP&S attorney Stephen Geanacopoulos represented the world’s largest supplier of precious metals milled products to the jewelry industry (the “Client”) in connection with the negotiation and completion of an Agreement for Strategic Alliance between the Client and a group of five affiliated jewelry manufacturing companies in the United States, Thailand and Israel (the “Companies”). Pursuant to the Agreement for Strategic Alliance: (1) the Client made multi-million dollar loans to the Companies, secured by a pledge of stock of the Companies and personally guaranteed by the shareholders of the Companies; (2) the Client extended multi-million dollar precious metals consignment lines to support the Companies’ jewelry manufacturing operations in the United States, Thailand and Israel; and (3) the Client obtained an option to acquire 50% of the equity of all the Companies, coupled with a buy-sell device that could later result in the Client acquiring 100% control of the Companies. AP&S engaged local counsel in both Thailand and Israel to assist with ensuring compliance with the requirements of Israeli and Thai law. Ultimately, the Companies defaulted on their loans and other obligations, and the Client declined to exercise its option.

The Solution:

In response to the Companies’ default, AP&S attorney Joseph Avanzato instituted litigation in U.S. District Court for the Southern District of New York on behalf of the Client against those Companies with a presence in the United States. Shortly thereafter, some of the defendant Companies filed Chapter 11 petitions in the U.S. Bankruptcy Court for the Eastern District of New York.

AP&S subsequently learned that one of the Companies’ other creditors, First International Bank of Israel, had previously petitioned two of the Companies into an Israeli receivership proceeding in Tel Aviv. Given that a significant portion of the Companies’ assets were located in Israel (precious metals), AP&S assisted the Client in engaging counsel in Tel Aviv to represent it in the Israeli receivership proceeding. The Israeli court ultimately ruled that the automatic stay under the United States Bankruptcy Code did not stay the Israeli receivership proceeding. Together, AP&S and Israeli counsel guided the Client through the process of filing a claim in the Israeli receivership proceeding.

AP&S also learned that substantial assets of the Companies (precious metals) were located in Bangkok, Thailand, in a manufacturing facility operated by one of the Companies (a Thai entity that was not a party to the bankruptcy filing.) Accordingly, AP&S assisted the Client in engaging Thai counsel who, with the assistance of AP&S, instituted litigation in Bangkok against the Thai entity, with the objective of obtaining a lien on the assets located in Thailand and, ultimately, a judgment on the loan notes.

Thus, litigation was pending on four fronts: the U.S. District Court for the Southern District of New York; the U.S. Bankruptcy Court for the Eastern District of New York; the Israeli receivership action; and the lawsuit in Thailand. The key circumstances of these four actions were the following: (1) the Companies’ assets consisted primarily of precious metals located in Israel and Thailand (not the United States); (2) very few of the Companies’ assets were located in the United States; (3) the entity in possession of the precious metals in Thailand was not a party to the bankruptcy case; and (4) the Israeli court held that the United States Bankruptcy Code did not stay the Israeli receivership proceeding.

Given these circumstances, AP&S filed in the Bankruptcy Court a motion for that Court to abstain from exercising jurisdiction over, and to dismiss, the Companies’ Chapter 11 petitions. On behalf of its Client, AP&S argued that under the facts of the case, especially the location of the vast majority of the Companies’ assets overseas, the Bankruptcy Court should abstain from exercising jurisdiction under section 305 of the Bankruptcy Code, with due regard to the principles of international comity (i.e., with due regard to litigation pending in other countries). The day of the hearing on that motion, counsel for the Companies commenced settlement discussions with AP&S and counsel for the Companies’ other creditors.

The Result:

AP&S’ litigation and corporate teams worked together to negotiate and close a very favorable settlement, pursuant to which the loans were restructured and the Client obtained a lien on the Thai company’s manufacturing facility as security for repayment. AP&S’ success in this matter on behalf of its Client resulted from its ability to craft the corporate documentation necessary to protect its Client’s interests in the event of the other parties’ default, to vigorously litigate on multiple fronts, and to strenuously negotiate until the Client’s objectives were satisfied.