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Jul 21, 2023

Sale of CITGO Going Forward With Strict Deadlines for Participating Judgment Creditors

In our most recent update, we speculated that an upcoming decision by the federal district court in Delaware might deliver the coup de grâce to Venezuela’s and Petróleos de Venezuela, S.A.’s (PDVSA) efforts to protect CITGO from its judgment creditors. The blow fell that very afternoon, although perhaps the fight isn’t over yet after all.

In an order on July 17, the district court in Crystallex International Corporation v. Bolivarian Republic of Venezuela authorized a court-appointed special master to initiate the sale of PDVSA’s shares of PDV Holding, Inc. (PDVH) in accordance with its Sale Procedures Order, in effect putting CITGO itself on the auction block.

Any other judgment creditors of Venezuela and PDVSA who want to share in the proceeds of this sale should consider this the final starting gun. The court expects to rule “in a separate order to be issued in due course” on what criteria it will use to determine which other creditors (if any) may participate and in what order of priority. Judgment creditors will need to act quickly to ensure they meet those criteria, because the court will formally rule on which additional creditors may participate no later than November 2, 2023 – the “Additional Judgment Deadline.” The Sale Procedures Order, moreover, includes other important deadlines that any would-be additional creditors must meet, some of which arrive much sooner.

The sale process itself will commence on October 23, 2023 – the “Launch Date.” On that date, the special master will initiate a court-approved marketing process and shortly thereafter publish formal notice of the sale with bidding information and key deadlines. After the bidding process is complete, the court will hold a hearing, tentatively scheduled for July 15, 2024, to determine whether to approve the sale. Presumably the sale will require final approval from the Office of Foreign Assets Control as well, but OFAC’s recent policy reversal (which we wrote about on May 18) strongly signals that it will approve.

It certainly seems, then, that Venezuela and PDVSA have been knocked down, but don’t count them out just yet.

In a separate order the same day, the court also addressed (but did not quite resolve) an extremely thorny issue of Delaware and federal procedural law: whether physical seizure of the PDVH share certificates is necessary for any judgment creditors other than Crystallex to participate in the sale.

For technical reasons, Crystallex itself need not worry about that issue. For all other creditors, however, Venezuela and PDVSA have maintained that physical seizure is required, and further explained that the physical certificates – if they still exist at all – are likely in the possession of the Maduro regime in Venezuela. Consequently, they say, no other creditors may participate in the sale under Delaware law (meaning none can participate under federal law, which generally requires compliance with state rules of procedure in the execution of a federal judgment).

Exercising caution in its order, the district court did not expressly agree with Venezuela and PDVSA that Delaware law requires physical seizure of the share certificates. Instead, the court cut the knot, ordering PDVSA to either: (1) deliver the certificates to the special master by July 24, 2023; or (2) commit to the determination that the shares are “lost, stolen, or destroyed” and either (a) request that the court order PDVH to reissue replacement certificates, or (b) commence an action in Delaware court seeking an expedited order directing PDVH to reissue the certificates.  If PDVSA does not, the court will consider “appropriate sanctions.”

This creates an opening for Venezuela and PDVSA.  By directing PDVSA to take specific actions on pain of sanctions, the district court has issued injunctive relief in all but name. That may open the road back to the Third Circuit Court of Appeals, which has jurisdiction to review orders “granting, continuing, modifying, refusing or dissolving injunctions.”

We won’t be surprised if Venezuela and PDVSA seek appellate review of this second order and another stay of the proceedings during that appeal. Indeed, the district court may have issued these orders separately to avoid confusion and ensure that any stay of this second order would not interrupt the Sale Procedures Order, consistent with the court’s intent that this order “will not materially impact” the sale.

If you have any questions or would like to further discuss these developments, including further details of the Sale Procedures Order, please reach out to Natalie Shkolnik at (212) 981-2294, nshkolnik@wilkauslander.com or Michael Van Riper at (212) 421-2902, mvanriper@wilkauslander.com.

About Wilk Auslander

Wilk Auslander is an internationally recognized law firm leader in global judgment enforcement. Wilk Auslander’s judgment enforcement team represents both creditors and debtors in high-stakes cross-border disputes involving judgments worth hundreds of millions of dollars, including:

  • Domesticating foreign judgments and arbitration awards in the United States and recognizing United States judgments and awards overseas.
  • Protecting and pursuing foreign sovereign assets with a keen understanding of the pitfalls and advantages of the Foreign Sovereign Immunities Act.
  • Coordinating worldwide asset searches and executions in Europe, the Americas, Asia, and offshore havens and banking hubs, using a mix of court procedures and behind-the-scenes investigation.
  • Defending judgment debtors in proceedings seeking to recognize foreign judgments and protecting debtor assets from execution.