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On Nov. 28, 2012, the U.S. Court of Appeals for the Fifth Circuit in In re Vitro S.A.B. de C.V.1 issued a groundbreaking decision under Chapter 15 of the Bankruptcy Code, which provides the mechanics for U.S. bankruptcy courts to deal with cross-border insolvency proceedings. Although deference to judgments of foreign courts is the norm under Chapter 15, in this instance the Fifth Circuit refused to enforce a court-approved Mexican plan of reorganization on the ground that it contained non-consensual non-debtor releases of noteholders’ claims against the debtor’s non-debtor subsidiaries. Unlike the bankruptcy court below, the Fifth Circuit did not hold that non-consensual non-debtor releases are “manifestly contrary” to U.S. public policy. Instead, the court held that such releases could theoretically be approved in Chapter 15 cases, but only upon a showing of the same type of “exceptional circumstances” that are deemed to justify such releases in U.S.-based cases under Chapter 11.

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