No Double Dipping – Avianca Bankruptcy Court Demands that Foreign Creditors Drop Foreign Enforcement Proceedings at Risk of Having Bankruptcy Claims Disallowed

In a recent article, Mayer Brown’s Matthew Wargin, Aaron Gavant, Jade Edwards, and Lauren Wray examine a new iteration of coercive sanctions imposed on potentially “double dipping” foreign creditors in Latin American airline Avianca’s chapter 11 case in the Southern District of New York.  Avianca sought to sanction over 150 foreign creditors, asserting that their continued litigation against Avianca in Brazil and Colombia violated the discharge and injunction provisions of the confirmed Avianca plan and the Bankruptcy Code.  Notably, Avianca asserted that the foreign creditors submitted to the bankruptcy court’s jurisdiction by filing proofs of claim in the case, but that they would be unfazed by an injunction merely directing them to discontinue their foreign claims, having already flouted prior orders.  Agreeing that the foreign creditors had failed to abide by his prior orders, Judge Glenn granted the motion for sanctions, acknowledging that the unique circumstances warranted a unique, equitable solution:  provisionally disallowing each of the foreign creditors’ claims in the bankruptcy case, to become permanent unless they dropped their foreign claims within 30 days.