Davis Polk advised Elpida Memory, Inc. (Elpida), a debtor in a corporate reorganization proceeding pending in Japan, in obtaining United States recognition of its Japanese plan of reorganization. Elpida’s highly contested cross border reorganization case has been (and continues to be) followed with great interest among bankruptcy practitioners, judges and academics around the world, largely due to the novel issue of Chapter 15 recognition of a Japanese reorganization plan – which had been sought but never obtained in any prior Chapter 15 case. Elpida’s U.S. recognition order marks the first time a United States court has granted full recognition to a Japanese reorganization plan under Chapter 15 of the U.S. Bankruptcy Code.
Headquartered in Tokyo, Japan, and with presence in several countries worldwide, Elpida is a leading manufacturer of Dynamic Random Access Memory (DRAM) integrated circuits. DRAM is used in many devices, including personal computers, servers, mobile devices and digital consumer electronics. For the fiscal year ending March 31, 2011, Elpida disclosed an aggregate amount of indebtedness of approximately ¥448 billion ($5.36 billion approx.) on its balance sheet. As part of the restructuring process, on February 27, 2012, Elpida petitioned the Tokyo court for the commencement of reorganization in Japan and, on March 19, 2012, Elpida’s foreign representative commenced a Chapter 15 ancillary case in the U.S. Bankruptcy Court for the District of Delaware, later obtaining Chapter 15 recognition of the Japanese reorganization case as the foreign main proceeding and a broad stay of U.S. litigation against Elpida and Elpida’s down-stream customers. Meanwhile, in Japan, the combined Japanese- and United States-court protection allowed Elpida’s trustees to concentrate their efforts on the selection of a sponsor of Elpida’s reorganization.
On July 2, 2012, the Tokyo court approved Elpida’s entry into a Sponsor Agreement with Micron Technology, Inc. (Micron) by which Micron would serve as the sponsor of Elpida’s reorganization. Pursuant to the Sponsor Agreement, Micron agreed to provide support to Elpida in a total amount of ¥200 billion (less some reductions) to fund common benefit claims (i.e., administrative expenses) and reorganization claims of Elpida. In addition to that support, Micron further promised to maintain Elpida’s current business operations, preserve Elpida workers’ employment, and provide certain financial support. In furtherance of the Sponsor Agreement, on August 21, 2012 the Elpida trustees filed Elpida’s plan of reorganization with the Tokyo court. A competing plan of reorganization was also filed by certain of Elpida’s bondholders.
After the Tokyo court rejected the bondholders’ plan, finding it not feasible, and allowed the Elpida trustees’ plan to be distributed to creditors for voting, the trustees’ plan was overwhelmingly approved by Elpida’s creditors and was thereafter confirmed by the Tokyo court on February 28, 2013. Appeals filed by certain bondholders against the Japanese confirmation order were dismissed by the Tokyo High Court on May 13, 2013.
Pursuant to the Tokyo court-confirmed (and now U.S. court-recognized) Japanese reorganization plan (and related documents), at closing Micron will acquire 100% of the newly issued equity of Elpida in exchange for a cash payment, or subscription fee, of ¥60 billion, which will fund the first installment payment to Elpida’s creditors pursuant to the reorganization plan (subject to certain adjustments). After closing, Elpida’s business will be transitioned to a cost plus model pursuant to which Micron (or its subsidiaries) will purchase Elpida products at cost plus a certain margin. The recognition of the reorganization plan enables Elpida and Micron to implement the Sponsor Agreement, the reorganization plan, and the cost plus model on a cross border, multi-jurisdictional basis.
The Davis Polk team is led by partners Theodore A. Paradise (corporate) and Timothy Graulich (bankruptcy), and counsel James I. McClammy (litigation) and Giorgio Bovenzi (cross border insolvency and global credit). At various stages of the case, the bankruptcy team also included partner Marshall S. Huebner and associates Angela Doolan, Steven C. Krause, Damon P. Meyer, Adam B. VanWagner, and Adam L. Shpeen. The litigation team included partner Karen E. Wagner, associates Jordan Leigh Smith, Jami Johnson, Bernard Chen Zhu, Joshua Thomas Foust, Scott A. Eisman and Kahlil C. Williams, former associates Nicholas P. Stabile, Jonathan D. Newton and Richard A. Cooper and law clerk Craig Bergman. The intellectual property team included partner Frank J. Azzopardi, associate David R. Bauer and former associate Randy Samson. The credit team included partner Joseph P. Hadley and associates Vivian Y. Wong and Mhairi Collins Immermann. The corporate team included associates Mork Murdock, Hiroshi Sugiyama and Miles E. Hawks, foreign temporary associates Yohsuke Higashi and Tomoyuki Oka, former foreign temporary associates Yohei Yamada and Robert van den Sigtenhorst and legal manager Yuji Igarashi. Elliot C. Law, Leah K. Edwards, David James Pisano, Keiko Murano and Kumiko Iida are the legal assistants. Members of the Davis Polk team are based in the New York, Hong Kong and Tokyo offices.
