October 15, 2004 Houston, Texas Larry B. Pascal Francisco Reyes Villamizar

1. ABA Section of International Law and Practice Chapter 11 October 15, 2004 Houston, Texas Larry B. Pascal Francisco Reyes Villamizar

2. Cross – Border Insolvency • Importance of cross-border proceedings • Increase of transnational lending • Increasing number of multinational corporations • Corporations hold numerous assets in foreign countries • Uniform international statutes necessary

3. Territorialism • Main characteristics • National sovereignty imposes local law over all issues within the territory • Each country seizes local assets and applies them for the benefit of local creditors • Foreign creditors are often unfairly treated and seldom receive proper notice • No equal distribution of debtor’s assets

4. Territorialism • Consequences • Creditors may not learn of debtor’s insolvency in time • Uncertainty for international investors • Initiation of multiple, often inefficient, bankruptcy proceedings

5. Universalism • Main characteristics • Main forum and secondary jurisdictions • Coordination and cooperation between all courts • Foreign creditors are fairly treated and promptly notified • Equal distribution of debtor’s assets is often achieved

6. The Avianca Chapter 11 Case Chapter 11

7. The Avianca Chapter 11 Case • Background • Shareholders of Avianca: 1. Coffee growers 2. Valores Bavaria S.A. • Avianca’s financial problems • Combination of assets of Avianca-Aces: Alianza Summa

8. The Avianca Chapter 11 Case • Avianca’s hubs located in Colombia • Main debtors • Bank of New York Noteholders • Airplane lessors • Caxdac Pension Fund • Dip Lenders • Others

9. The Avianca Chapter 11 Case • Corporate Structure Avianca S.A. Parent Company Chapter 11 Avianca Inc. Wholly owned subsidiary and Agent

10. The Avianca Chapter 11 Case • Main factors affecting Avianca • Slowdown of Colombian Economy • Exchange rates affecting peso • BoNY Transaction • Fuel prices • 9-11 • High aircraft lease rates • Unwillingness to negotiate high rate leases

11. The Avianca Chapter 11 Case • Pros of filing in the US • Treatment of executory contracts • Sixty day vacation period/ certainty of non-foreclosure • Automatic stay • Mitigation of damages • Assume/reject process • BoNY (trapping of cash)

12. The Avianca Chapter 11 Case • Priorities under US/ Colombian Law • Pension liabilities • Labor liabilities • Taxes • Different treatment of secured creditors • Treatment of Colombian creditors

13. The Avianca Chapter 11 Case • Other legal issues • First day motions Vendors (catering, IATA, wages, etc) National taxes Civil Aviation Department Small vendors • Unenforceability of Automatic Stay in Colombia

14. The Avianca Chapter 11 Case • Liquidation of Aces • Not economically viable • Mandatory liquidation proceeding was ordered • Liabilities higher than assets • Pensioners have threatened shareholders with piercing actions

15. The Avianca Chapter 11 Case • Motions to dismiss based upon: • Inability of the US court to bind Colombian creditors • Forum Shopping • Discrimination of local creditors

16. The Avianca Chapter 11 Case • Motions to dismiss based upon: • Not in “best interest” of debtor or creditors to file for Chapter 11 • Filing creates uncertainty and proves bad faith • Law 550 process was viable • Not enough contact with U.S.

17. The Avianca Chapter 11 Case • The Court’s Argument: • Property requirements under 109 (a) • No foreign process pending Fulfilled Existence of substantial property in the U.S. • Fulfilled • No Law 550 • proceeding initiated • Cited precedents • not applicable

18. The Avianca Chapter 11 Case • Passed • Law 550 is inefficent • Majority of creditors served well by Ch. 11 • Colombian creditors did not oppose Ch. 11 • Avianca has been able to maintain business • “Best Interests” Test Established under 305(a)(1) for dismissal or suspension of proceedings

19. The Avianca Chapter 11 Case • Other reasons for approval of Ch.11: • High level of contact between Avianca and the U.S. • Existence of substantial credit card receivables • Ongoing dispute with BONY Noteholders • American Lessors – Lease agreements are the life support of an airline

20. The Avianca Chapter 11 Case (cont’d) • The process is not detrimental to US creditors • Law 550 can still be invoked • Parallel • Ancillary

21. The Avianca Chapter 11 Case • Judge Gropper on Law 550: • Only 4 years old and relatively untested • No provision allowing for rejection of burdensome lease • Lessor may force debtor into liquidation after only 90 days of unresolved default • Nevertheless, a 550 proceeding may be recognized in the U.S.

22. The Avianca Chapter 11 Case • Judge Gropper on Cross-Border Insolvency: • An ancillary case in the U.S. is not the preferred alternative for a foreign enterprise • If Avianca filed a 550 ancillary case, both courts would be aligned in the best interest of all parties • U.S. courts may choose to proceed jointly with foreign courts in order to exercise full jurisdiction • If a main proceeding was pursued in Colombia, U.S. courts would be limited by such country’s substantive rights in bankruptcy d-1236496.2