By Tom Hals
WILMINGTON, Del, Oct 24 (Reuters) - A U.S. judge told
Japanese chipmaker Elpida Memory Inc he was "troubled" by the
firm's inadequate efforts to keep creditors informed about its
bankruptcy process, and warned he may upend its proposed sale to
U.S. rival Micron Technology Inc.
Elpida's main bankruptcy proceeding is being handled by a
district court in Tokyo, but Christopher Sontchi, the Delaware
Bankruptcy Court judge overseeing Elpida's parallel U.S. case,
said the company was taking a risk by not keeping creditors
"I don't have a problem tanking a case," judge Sontchi said
at a court hearing in Wilmington on Wednesday. Sontchi will
eventually have to approve the transfer of U.S. assets after a
sale is cleared by the Japanese court.
Elpida, the last of Japan's dynamic random access memory
(DRAM) chipmakers, was driven into bankruptcy by falling chip
sales and foreign competition. The company proposed a
$2.5-billion sale to Micron, based in Boise, Idaho, as a way to
That deal would catapult Micron into the No. 2 spot in the
global market for DRAM chips, behind Samsung Electronics.
Bondholders, led by hedge funds Linden Advisors, Owl Creek
Asset Management and Taconic Capital Advisors, have said the
$2.5-billion price tag grossly valuation undervalues the firm,
arguing that Elpida is worth 300 billion yen ($3.78 billion).
Saying the planned sale to Micron has lacked transparency,
failed to involve creditors and not gone through meaningful
competitive bidding, the bondholders have proposed their own
restructuring plan to the Tokyo court.
The Tokyo court has appointed a neutral examiner to review
the two bankruptcy plans and to make a recommendation.
On Wednesday, Sontchi rejected a request by the bondholders
to appoint a court representative who could interact with the
Japanese court and demand information from the company.
Elpida filed for court protection of its U.S. assets under
Chapter 15 of the U.S. bankruptcy code. The company has argued
that the law requires a U.S. judge to give deference and
assistance to the main foreign proceeding.
Sontchi, however, noted exceptions.
"This court cannot and will not give deference if there is a
manifest problem with due process," he said.
Sontchi said he was troubled that Elpida never notified him
or U.S. creditors that the company struck a supply agreement
with Apple Inc, one of its top customers for DRAM chips. In the
agreement, Elpida pledged 523 patents to the iPhone maker, half
of which are registered in the United States.
The deal only came to light after Sontchi ordered Elpida to
open its records to U.S. bondholders.
Elpida and the bondholders will return to court Nov. 8 to
decide how Sontchi should review certain rulings by the Tokyo
court, a decision that could impact the sale to Micron.
Elpida argues that Sontchi must approve orders by the Tokyo
court unless the orders are manifestly contrary to U.S. law.
The bondholders disagree and want Elpida to be forced to
prove its decisions were made in good faith and in the best
interests of creditors. Such a finding will likely require broad
disclosures about the sale process and a trial-like hearing with
The case is Elpida Memory Inc, Delaware Bankruptcy Court,
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