Cleary Gottlieb successfully represented Garuda Indonesia Holiday France (Garuda France), the French subsidiary of the flag carrier Indonesia Garuda, against Greylag Goose Leasing 1410 Designated Activity Company and Greylag Goose Leasing 1446 Designated Activity Company (Greylag), two of Garuda’s aircraft lessors, in French appeal proceedings against a Paris Civil Court’s judgment that had ordered the release of precautionary seizures performed by Greylag on Garuda France’s bank accounts.
This decision of the Paris Court of Appeal is the most recent of several decisions issued by French courts in this case which agreed to give some effect in the French legal order to the Indonesian judgment ratifying Garuda’s restructuring plan. This is despite the fact that such a judgment has not yet obtained recognition in France.
On June 27, 2022, the Jakarta Commercial Court ratified Garuda’s restructuring plan of approximately $9.58bn of bank, bond, lease, and other indebtedness to address the ongoing challenges presented by the COVID-19 pandemic (the Homologation Judgment). The restructuring of the aircraft lessors’ receivables involved a release of claims against Garuda France, who was the main lessor that subleased aircraft to its mother company Garuda, which acted as guarantor.
On the same day, Greylag obtained ex parte the authorization from the enforcement judge of the Paris Civil Court to perform precautionary seizures on Garuda France's bank accounts as a security for the amounts due under the aircraft lease agreements entered into with Garuda France. Garuda challenged those precautionary seizures on the grounds that by virtue of Garuda’s restructuring plan, as ratified by the Homologation Judgment, Greylag did not have a claim that appeared grounded in principle against Garuda France, which is the threshold to meet to obtain precautionary seizures under French law.
In addition, a few weeks later, Greylag filed with the Paris Commercial Court a petition for the opening of bankruptcy proceedings against Garuda France, claiming that the company was insolvent as it was unable to pay Greylag’s claims under the aircraft lease agreements (as existing before the restructuring).
Garuda challenged the petition on the grounds that, by virtue of Garuda’s restructuring plan and as ratified by the Homologation Judgment, Greylag’s claims were not “certain, due and payable” (the threshold for the bankruptcy proceedings to be accepted).
In both cases, Greylag argued that French courts could not take into account the restructuring of the debts under the aircraft leases resulting from the Homologation Judgment, as such judgment had not been recognized in France yet.
French Court Challenges Insolvency Claim
On November 25, 2022, the Paris Commercial Court dismissed Greylag’s petition for the opening of bankruptcy proceedings against Garuda France, considering that the Homologation Judgment could be used as a finding of fact, even in the absence of recognition in France, in order to determine whether Greylag’s claim was “certain, due and payable.” It held that the dispute regarding Greylag’s claims – which is subject to pending arbitration in Singapore – was serious and therefore that Greylag could not request the opening of bankruptcy proceedings against Garuda France on the basis of such claims.
On February 9, 2023, the Paris Civil Court ordered the release of the precautionary seizures, holding that Greylag no longer had a claim that appeared grounded in principle against Garuda France since Garuda’s restructuring plan provided for a release of all aircraft lessors’ claims against Garuda’s subsidiaries.
French Court Challenges Insolvency Claim
On November 25, 2022, the Paris Commercial Court dismissed Greylag’s petition for the opening of bankruptcy proceedings against Garuda France, considering that the Homologation Judgment could be used as a finding of fact, even in the absence of recognition in France, in order to determine whether Greylag’s claim was “certain, due and payable.” It held that the dispute regarding Greylag’s claims — which is subject to pending arbitration in Singapore — was serious and therefore that Greylag could not request the opening of bankruptcy proceedings against Garuda France on the basis of such claims.
On February 9, 2023, the Paris Civil Court ordered the release of the precautionary seizures, holding that Greylag no longer had a claim that appeared grounded in principle against Garuda France since Garuda’s restructuring plan provided for a release of all aircraft lessors’ claims against Garuda’s subsidiaries.
Greylag applied before the Paris Court of Appeal to overturn both judgments and claimed that Garuda’s restructuring plan, as ratified by the Homologation Judgment, could not have any legal effect in France as the Homologation Judgment had not obtained recognition in that country. Therefore, Greylag argued that French courts could not take into account the release of the claims against Garuda France provided in the restructuring plan.
Greylag applied before the Paris Court of Appeal to overturn both judgments and claimed that Garuda’s restructuring plan, as ratified by the Homologation Judgment, could not have any legal effect in France as the Homologation Judgment had not obtained recognition in that country. Therefore, Greylag argued that French courts could not take into account the release of the claims against Garuda France provided in the restructuring plan.
Paris Court of Appeal Confirms Reasoning of the First Instance Courts
On December 14, 2023, the court refused to open bankruptcy proceedings against Garuda France on the basis that the Greylag claims are obviously litigious and cannot be considered as due and payable liabilities.
On February 22, 2024, it ruled that although the Homologation Judgment is not res judicata, nor is it enforceable in France, it nonetheless constitutes a legal fact that calls into question the very existence of Greylag’s claims against Garuda France, which no longer appear to be grounded in principle. Therefore, Greylag is not entitled to perform precautionary seizures on Garuda France’s assets. The Paris Court of Appeal thus rejected Greylag’s appeals and confirmed the release of all the precautionary seizures. It also ordered Greylag to pay damages to Garuda France.
This is, to our knowledge, the first time that French courts had to rule on the effects of a foreign (non-EU) judgment approving a restructuring plan that has not obtained recognition yet.
Traditionally, French courts consider that foreign judgments issued in the context of bankruptcy proceedings have no binding effect in France as long as they have not been granted recognition by national courts (exequatur). They have, for instance, considered that a foreign judgment opening bankruptcy proceedings and imposing a moratorium on creditors’ claims did not prevent creditors from pursuing their claims in France.
However, in the present case, Garuda France did not ask French courts to consider that the Homologation Judgment was binding on creditors in France. It asked French courts to take into account the Homologation Judgment as a factual element that can be used as evidence that Greylag’s claims are litigious and, more likely than not, extinguished as a result of the restructuring plan.
This approach seems not only grounded from a legal standpoint, but also pragmatic in a situation where there is a foreign restructuring plan that is final and has been implemented. In such a situation, opening bankruptcy proceedings in France or allowing the debtor challenging the effects of the plan to perform precautionary attachments on the basis of the claims that existed prior to the restructuring would be particularly counterproductive, as it may jeopardize the success of the restructuring.
Built with Shorthand