Chilean bank owner allowed to question creditors over bankruptcy plan

An Itau branch in Rio de Janeiro. REUTERS/Sergio Moraes

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  • Judge overturns concerns over plan’s legal shields
  • Online junior creditors for minimal collections

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(Reuters) – The co-owner of Chilean bank Itaú Corpbanca won court approval on Wednesday to begin seeking votes from creditors for his draft Chapter 11 plan after a judge dismissed concerns from a lawyer for the government regarding the plan’s legal protections for non-bankrupt individuals and entities.

U.S. Bankruptcy Judge Kate Stickles in Wilmington, Delaware, has approved Corp Group Banking SA’s disclosures that will be sent to creditors who can vote on its liquidation plan. CGB, which owns about 26% of the bank and is controlled by Chilean billionaire Álvaro Saieh, filed for bankruptcy in June with nearly $2 billion in debt.

The Chapter 11 filing was precipitated by several years of declining Itaú Corpbanca stock prices. In June, noteholders took action to freeze CGB’s assets, leading to the bankruptcy filing. CGB has no business and its only asset is its stake in Itaú Corpbanca. The bank itself is not in Chapter 11 and received a capital raise last year.

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Under the proposed plan, major creditors, including Itaú Corpbanca’s majority shareholder, Itaú Unibanco, would collect collateral securing their debts. The plan would also set up a litigation trust for junior creditors.

Holders of unsecured notes who say they owe $543.7 million are in line for about four cents on the dollar, according to court documents.

In a hearing on Wednesday, the US Justice Department’s Mississippi Bankruptcy"}” data-sheets-userformat=”{"2":513,"3":{"1":0},"12":0}”>Mississippi Bankruptcy watchdog, the US Trustee, challenged the plan’s so-called non-debtor releases that would protect individuals, such as current and former executives, and CGB Affiliates. Timothy Fox argued for the US trustee that the releases are too broad and would be imposed on a “wide” range of creditors. Fox also asserted that releases should not be considered consensual unless a creditor actively opposes them when voting on the plan.

Stickles said the scope of releases is an issue to consider when the plan itself is pending approval and deemed the opt-out provision for releases adequate.

The committee representing unsecured creditors in CGB’s bankruptcy resolved its issues with the disclosures ahead of Wednesday’s hearing, but a lawyer for the group said it could still raise concerns about “complex financial transactions” which, among other things, allowed Itaú Unibanco to take a controlling interest in the bank, which the committee described as “catastrophic”.

Creditors have until April 4 to vote on the plan. A hearing before Stickles to approve the plan will begin on April 11.

The case is In re Corp Group Banking SA, US Bankruptcy Court, District of Delaware, No. 21-10969.

For CGB: Michael Torkin, Bryce Friedman and David Zylberberg of Simpson Thacher & Bartlett; and Pauline Morgan, Sean Greecher and Andrew Magaziner of Young Conaway Stargatt & Taylor

For the American administrator: Timothy Fox and Juliet Sarkessian

For the committee: Jamie Edmonson and Rachel Jaffe Mauceri of Robinson & Cole; and Glenn Siegel, Jason Alderson, Andrew Gallo and Christopher Carter of Morgan Lewis & Bockius

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Chilean bank shareholder obtains bankruptcy protection in Delaware

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Maria Chutchian reports on corporate bankruptcies and restructurings. She can be reached at [email protected]

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