New York Court rules in favor of Asia Pulp and Paper

Leony Aurora, The Jakarta Post, Jakarta

The New York Supreme Court has ruled in favor of the Asia Pulp and Paper Company (APP), denying a motion by its United States creditors aimed at supporting a previous ruling on collateral rights and halting the current litigation process in Indonesia.

Judge Helen Freedman said in the final disposition signed on Feb. 5, that APP had already disclosed that any judgment obtained by creditors from a U.S. court concerning the bonds issued by APP would not be enforced by the courts of Indonesia.

"The plaintiffs knew that they could only enforce their rights to the Indonesian collateral by litigating there," the judge said in the court disposition, a copy of which was made available to The Jakarta Post by law firm White & Case, which represented APP, on Saturday.

Several creditors, including Gryphon Domestic VI LLC, in October 2003 won a suit in a New York court to claim collateral from APP subsidiaries, Indah Kiat Pulp and Paper Corporation and PT Lontar Papyrus Pulp and Paper Industry, who guaranteed the bonds.

The notes, worth more than US$62.5 million, were issued in 1994 and secured by the Indonesian properties owned by APP subsidiaries.

However, Indah Kiat and Lontar stopped the creditors' move by filing a lawsuit at the Bengkalis, Riau court in November last year, claiming that a judgment from the Indonesian courts was required to enforce collateral rights.

The creditors responded by filing petitions asking the New York Supreme Court to stop the APP subsidiaries from further prosecuting their actions and to issue a permanent injunction against their litigation.

However, the creditors' efforts failed as the Supreme Court said in its ruling that:"Litigation was a pre-disclosed risk of investment that the plaintiffs had voluntarily accepted."

"Anyone investing in foreign notes needs to weigh this risk (against the benefits) and take it seriously," David Hill, a commercial litigator at White & Case, said in a statement in response to the APP win.

"This decision is significant not only for the APP global restructuring but also for companies involved in international litigation," he said.

APP, the world's 10th largest paper maker, owned by the Widjaja family, has been struggling for three years to reschedule its $13.9 billion debt divided among its companies in China and Indonesia, with each responsible for $7.2 billion and $6.7 billion respectively.

The Indonesian Bank Restructuring Agency (IBRA), who was APP's largest single creditor with US $880 million owed, signed last year a restructuring plan for the debts owed by APP's four Indonesian units.

So far, only 40 percent of the creditors agreed to the scheme, which gives APP up to 22 years to repay its debts. To be effective, it needs 90 percent of creditors to sign up.

IBRA later sold the debt to Orleans Investment of the U.S. for the heavily discounted price of $213 million.