Blavatnik Not to Blame for LyondellBasell Bankruptcy, Judge Says

After almost a decade of being haunted by the failure of a leveraged buyout of LyondellBasell Industries NV, billionaire Len Blavatnik has prevailed.

A Manhattan bankruptcy court judge on Friday threw out claims seeking about $3 billion from Blavatnik and his businesses, finding that they hadn’t improperly extracted money from a company while it was already insolvent. The finding, which shows the challenge of blaming leveraged deals or pre-bankruptcy transactions for a company’s failure, could chill optimism among distressed debt investors that they can prevail in similar lawsuits.

“No amount of mental gymnastics can substantiate a recovery on an intentional fraudulent transfer claim brought against Blavatnik, the person who himself lost billions on LBI’s failure,” Judge Martin Glenn said in his 177-page ruling.

Blavatnik’s victory means creditors of the company, which went bankrupt the year after the 2007 transaction, will get just $7.2 million on a claim related to a failure to allow a draw on the company’s revolving credit facility right before its bankruptcy. The judge threw out claims seeking $3 billion on allegations that money was transferred from the company with fraudulent intent and that Blavatnik and some of the company’s board members breached their fiduciary duties.

Blavatnik has fought the lawsuit since 2009, arguing it was premised on the absurd notion that he should have anticipated the 2008 financial crisis.

The judge agreed, ruling that it wasn’t the merger or certain transactions that drove the company into bankruptcy. Rather, he said, the company was ravaged by “unforeseeable” events that that included “the tragic collapse of a large crane at the Houston refinery, two hurricanes, and of course, the Great Recession.”

‘Revisionist History’

Susheel Kirpalani, a lawyer who represented Blavatnik and his businesses, said the ruling shows “revisionist history made for litigation experts will not be considered credible by bankruptcy judges who are evaluating a transaction that happened in real-time.”

The closely watched case may make debt investors more careful with their analysis of potential litigation.

“You can’t assume because a company went through a leveraged transaction and filed for bankruptcy that there will be viable litigation claims,” Kirpalani said.

The case is Lyondell Litigation Trust, 09-01375, U.S. Bankruptcy Court Southern District of New York (Manhattan).