CHAPTER 11 AFTERMATH
SSCC Subsidiary Noteholders Lose Out
Holders of notes issued by a Canadian finance subsidiary of reorganized Smurfit-Stone Container Corp. (SSCC) were losers in an
opinion filed by U.S. Bankruptcy Judge Brendan L. Shannon in
the now-completed Chapter 11 case, Bloomberg reports.
The opinion didn’t decide an issue that has been arising in
bankruptcies involving companies straddling the border between
the U.S. and Canada. Other SSCC creditors stand to receive the
stock that would have gone to the Canadian noteholders.
The dispute involved a Smurfit Canadian finance subsidiary
named Stone Container Finance Co. of Canada II, a so-called
unlimited limited liability company under Canadian law. Unlike
ordinary corporations where owners have no liability for company
debt, the shareholders of an unlimited limited liability company
are liable for all of the company debt. The indenture governing the 7.375 percent notes issued by Finance II contained a
provision immunizing the owner, SSCC, from liability. SSCC
nonetheless guaranteed the notes. Finance II was to be one of
the companies reorganized under the Smurfit Chapter 11 plan,
but when noteholders objected, Finance II was dropped from the
plan and its Chapter 11 petition was later dismissed.
Meanwhile, Finance II went into bankruptcy in Canada,
and a trustee was appointed. The bankruptcy trustee for Finance II filed a $222 million claim against SSCC based on the
company’s status as an unlimited limited liability corporation.
The SSCC plan called for making distributions to Finance II
noteholders based on SSCC’s guarantee. The distributions were
made, and Shannon said that noteholders received new stock with
an estimated value equal to 70 percent on the notes. He denied
the allegedly separate claim by the trustee for Finance II. He based
his ruling on the plain meaning of the note indenture releasing
any claims against SSCC as shareholder.
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