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(Bloomberg) -- A battle of so-called bankruptcy tourists has erupted in New York court, with unclear consequences for global companies and their bondholders.

On Thursday, New York bankruptcy Judge Martin Glenn refused to issue a ruling on a request by Ocean Rig UDW Inc. to block a lawsuit in the Marshall Islands that it said threatens a $3.7 billion restructuring approved in Cayman Islands Courts. Glenn said he would think about the “extraordinary” issues the case raised, possibly ruling later.

"You want me to stop litigation in another sovereign country," Glenn said in court Thursday, adding that he had never seen such a request and that there was no clear precedent. If Highland wanted to try to recover Ocean Rig’s U.S. assets in U.S. court, then the issue would be in his jurisdiction, he said.

The twist comes in a legal battle raging since Ocean Rig’s March bankruptcy. In September, Highland Capital Management seemed to lose out in the fight to Elliott Management Corp., which had backed the offshore drilling service company’s bankruptcy plan. Under a plan approved in the Caymans, a large chunk of Ocean Rig’s stock ended up with Elliott, and almost 10 percent went to Ocean Rig Chairman George Economou. Highland got almost nothing, it said in court papers.

But Highland had another card up its sleeve: a claim in the Marshall Islands, the sovereign nation in the Pacific Ocean. There, in a lawsuit filed in August, but not part of New York court records until October, it revived its central argument.

Highland alleged that Economou, a shipping magnate who runs Ocean Rig as well as its non-bankrupt parent, DryShips, bilked bondholders out of around $370 million to benefit himself and other companies. Under a bankruptcy code provision for fraudulent transfers that applies in the Marshall Islands, but not in the Caymans, Highland said, it should be able to get the money back.

‘Next Phase’

Any decision in the case could have wider implications for what restructuring experts call "bankruptcy tourism." In the past, bankruptcy participants wrangled over the merits of Delaware versus New York courts, and sometimes drew criticism about "forum shopping" for a venue that favored their case. Now companies and creditors are engaged in international battles over where they can best win their debt wars.

"This is the next phase of the restructuring business,” said William Brandt Jr., chief of a New York-based restructuring advisory firm Development Specialists, speaking at an Association of Insolvency and Restructuring Advisors meeting in New York on Monday."Bankruptcy tourism will come into the fore."

Brandt didn’t mention the Ocean Rig case, but cited his work as a trustee in the international case of China Fishery Group Ltd., where he regularly travels from Lima to Hong Kong. Another example, he said, is Oi SA, a Brazilian telecom company, in which Aurelius Capital Management is fighting a battle that involves jurisdiction of Dutch, U.S. and Brazilian law.

An ‘Attack’

Economou couldn’t be reached for comment, and hasn’t addressed the allegations in New York court. Marshall Islands courts didn’t reply to a request for court filings there. A lawyer for Ocean Rig said he wasn’t aware of any response to the allegations in U.S. courts.

Ocean Rig in court papers said stopping claims like Highland’s against Economou is "fundamental" to its restructuring, calling its new lawsuit an “attack” that violates the Cayman order, and asking Glenn to find Highland in civil contempt.

Highland, which had Ocean Rig notes with a face value of $74 million, said in court papers that any allegations that it is "forum shopping" for a venue that will recognize its fraudulent transfer claims are "absurd" given the company and Economou went on a shopping trip themselves.

At the time Highland bought the company’s debt, Ocean Rig was based in the Marshall Islands, and the company later moved to the Caymans “after shopping various jurisdictions to find the most favorable one.” Highland also said it never agreed to give up its claims against Economou as part of the restructuring.

Singer Agitates

Meanwhile, billionaire Paul Singer’s hedge fund, Elliott Management, which holds about a fifth of Ocean Rig UDW Inc. shares, is agitating for a sale and has said the stock, trading around $25, should be worth almost $40 a share.

Elliott was part of a group including Avenue Capital Management II, BlueMountain Capital Management LLC and Lion Point Capital LP that helped shape the restructuring. Elliott held the company’s 6.5 percent senior secured notes due 2017; Highland held 7.25 percent senior notes due 2019.

Glenn, the Manhattan Bankruptcy Courts judge, already ruled in favor of Cayman jurisdiction in an August opinion. He said the company had a legitimate purpose to shift its center away from the Marshall Islands, where local law would mean a liquidation was more likely.

Just after his opinion, Highland filed its Marshall Islands lawsuit, saying that under the republic’s law, any transfer of domicile won’t affect creditor rights.

The case is: In re Ocean Rig UDW Inc., 17-10736, U.S. Bankruptcy Court, Southern District of New York (Manhattan.)

(Updates with ruling from New York court starting in the first paragraph.)

To contact the reporter on this story: Tiffany Kary in New York at tkary@bloomberg.net.

To contact the editors responsible for this story: Rick Green at rgreen18@bloomberg.net, Dan Wilchins, Kenneth Pringle

©2017 Bloomberg L.P.

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