ALBANY — An indenture trustee for a Hellas Telecommunication noteholders seeking roughly $565 million over defaulted bonds can bring lawsuits against two private equity firms accused of fraudulently transferring the proceeds from the indenture, New York's highest court ruled Tuesday, in the long-running saga.

In a 5-0 decision, in which Associate Judge Michael Garcia took no part, the court affirmed a 2016 Appellate Division ruling that trustee Wilmington Trust Co. and assignee Cortlandt Street Recovery Corp. can seek recovery claims on behalf of noteholders. The Court of Appeals upheld the Appellate Division's ruling, which overturned a state Supreme Court decision that the plaintiff had no legal standing to bring the claim.

Writing for the majority, No. 14 Cortlandt Street Recovery v. Bonderman, Associate Judge Jenny Rivera posed the question “whether an indenture trustee may seek recovery on behalf of note holders for the defendants' alleged fraudulent redemption intended to siphon off assets, leaving corporate obligors unable to pay the noteholders.”

Mark Zauderer, a partner at Flemming Zulack Williamson Zauderer, who represented Wilmington Trust, said Thursday morning that the decision was a “home run” for investors. “The decision is the first definitive one in New York that confirms the broad powers of a bond indenture trustee to protect investors. It gives the trustee a range of powers to take legal action against third parties who benefited from fraud committed by the bond issue,” Zauderer said in an interview.

“This case sets a precedent not only for New York, but courts throughout the country who will likely be very influenced by the court's decision,” Zauderer said.

Lawyers for the appellant-defendants, Robert Fischler, a partner at Ropes & Gray, and Paul O'Connor III, a partner at Kasowitz Benson Torres, did not reply to a request for comment.

In 2005, a consortium controlled by the private equity groups Apax Partners and TPG Capital Management, of which David Bonderman was founding partner, created a group of shell companies incorporated in Luxembourg to acquire TIM Hellas Telecommunications, the third-largest cellular company in Greece at the time. By the end of the year, the Hellas Group carried €1.6 billion in debt, but only €38 million in equity and no retained earnings. Hellas Group continued to borrow heavily and their debt continued to balloon.

Despite the debt, the Hellas Group issued €200 million in payment-in-kind notes, guaranteed by one of the shell companies and governed by the indenture. As part of the recapitalization, Hellas redeemed convertible equity certificates that had been held by the defendants for roughly €973.7 million, which the defendants allegedly pocketed. Roughly two months after the redemption of the certificates, the defendants sold the Hellas Group to an investor. In 2009, amid the global financial crisis, Hellas Finance and Hellas I—part of the Hellas Group—defaulted on their payment-in-kind notes, leading the Wilmington Trust Co. to bring up legal action against several Hellas entities and the private equity firms to recover payments, according to court documents.

In the complaint, Wilmington Trust claimed that the company's recapitalization wasn't for debt restructuring, but rather was a scheme to distribute the loan proceeds to the defendants by redeeming securities from the Hellas Group. Wilmington Trust accused the private equity companies of breach of contract, fraudulent conveyance, unlawful corporate distribution and unjust enrichment.

Wilmington Trust also sought to pierce the corporate veil theory that the private equity defendants are the alter egos of the Hellas Group, and therefore liable for the corporate debt. Wilmington Trust is requesting payment of €268 million owed on the payment-in-kind notes, in addition to interest, trustee's fees and attorneys fees.

State Supreme Court in New York County in 2014 granted the private equity defendants' motion to dismiss the complaint, deciding that Wilmington lacked standing to maintain the fraudulent conveyance and other noncontractual claims against them as third parties

On appeal by the trust company and the recovery corporation, the Appellate Division, First Department, in 2016 modified by reinstating Wilmington Trust's complaint and said that the section relating to indenture governing notes states that a trustee can pursue fraudulent conveyance and other claims, which seek to recover the amounts due under the notes. The Appellate Division also found that Wilmington's complaint sufficiently states a cause of action against the defendants under a veil-piercing theory, giving Wilmington the green light to bring up claims.

Bonderman and Hellas appealed that decision to the state's highest court, the Court of Appeals, which upheld the Appellate Division's decision on Tuesday. By the terms of the agreement “the trustee is empowered to bring this third-party suit against the defendants in order to recover monies due and unpaid on the PIK notes,” Rivera said in her opinion.

“The text of the indenture authorizes the trustee to pursue 'any available remedy.' This, by its terms, includes all remedies available at law and in equity. The indenture further provides that those remedies may be pursued 'to collect the payment of principal, premium, if any, and interest on the notes or to enforce the performance of any provision of the notes or this indenture,” Rivera wrote.

Chief Judge Janet DiFiore and Associate Judges Leslie Stein, Eugene Fahey, Rowan Wilson and Paul Feinman concurred with Rivera.

The decision by the Court of Appeals is just the latest in a series of years-long litigation in state and federal courts involving Hellas Telecommunications and the private equity firms. The appellate-defendants, Apax and TPG, have also been the subject of a similar lawsuit in Luxembourg.