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Chasing a debtor can be complicated, especially when the debtor manages to move its assets to a foreign country.
In Crystallex International Corp. v. Petroleos de Venezuela, that would be an understatement. The U.S. Third Circuit Court of Appeals called the debtor's trail "exceedingly complex."
It was a "tangle of debtors, creditors, parents, subsidiaries, alter egos, and complex international corporate transactions," but the court unraveled it in three words: no fraudulent transfer.
The appeals court said it did not approve of the transactions, but the plaintiff could not prove the defendants broke the law against fraudulent transfers. It was a major blow to Crystallex International Corp., a gold producer that had won a $1.2 billion judgment against Venezuela.
Crystallex has been trying to collect on a World Bank decision against Venezuela since 2016, but the country is in extreme financial distress. Venezuelan leaders have said they will never pay the judgment.
However, the country had control of petroleum assets in the United States through a Delaware subsidiary called Citgo. In a series of transactions among four separate entities, $2.8 billion from the assets were transferred through debt financing out of the United States.
Crystallex sued, alleging it was a fraudulent transfer under the Delaware Fraudulent Transfer Act. The Third Circuit disagreed.
The appeals court said Crystallex had a claim against Venezuela, but not Citgo. Because Citgo was not the debtor, the transfer did not violate the law.
"While we do not condone the debtor's and the transferor's actions, we must conclude that Crystallex has failed to state a claim," the judges said.
Reuters reported that investors holding distressed Venezuelan bonds have closely followed the case. Some considered suing Citgo in the event that Venezuela, struggling under hyperinflation and an economic crisis, defaults on its debts.