Vitro let its own subsidiaries vote on its bankruptcy plan — and a US court threw it out

Vitro was one of the world's largest glassmakers, a Monterrey industrial fixture, until the financial crisis caught it overextended: in February 2009 it defaulted on about $1.5 billion of debt. In December 2010 it filed concurso mercantil, Mexico's court-supervised restructuring — and presented a plan its foreign creditors had never seen the like of.

The plan counted about $1.9 billion of intercompany claims — debt Vitro's own subsidiaries held against the parent, some of it bonds issued to them shortly before the filing — and let those subsidiaries vote as creditors. With the insiders' votes, the plan passed: noteholders were offered roughly 60 cents on the dollar, while equity holders kept a stake a US court would later value at around $500 million. The plan also released claims against non-debtor subsidiaries that had guaranteed the notes.

The noteholders — including Aurelius Capital and Elliott Management — refused, and took the fight to the United States under Chapter 15. In 2012 the US Bankruptcy Court for the Northern District of Texas declined to enforce the Mexican plan: releasing claims against non-debtor guarantors ran against US public policy, and letting equity keep half a billion while creditors took a haircut raised absolute-priority problems. Vitro's shortcut through its own subsidiaries had won the vote in Mexico and lost the war in Texas.

Vitro let its own subsidiaries vote $1.9B of insider claims, passing the plan in Mexico, but US courts refused to enforce it, leaving creditors with a $500M equity stake.

The plan treated the group's internal debt as if it belonged to an outside creditor — manufacturing the votes needed to cram down the real ones.

Cross-border debt means cross-border courts: a restructuring approved at home still has to survive the jurisdictions where the creditors actually sit.

Non-debtor releases are the line US courts will not let a foreign plan cross — building the whole plan on that clause made the clause the case.

A restructuring that needs your own subsidiaries to outvote your creditors is not a deal, it is a lawsuit in the creditors' home court — structure for the judge you will actually face.