In-court reorganizations in Brazil: opportunities and threats to creditors

The news made the headlines in June: Odebrecht, arguably the largest privately-owned Brazilian conglomerate, filed for in-court reorganization after months of speculation. Creditors from several jurisdictions are affected, and they range from banks and bondholders to suppliers and even public entities.

That has hardly been the only ongoing high-profile filing over the last couple of years, as real estate developers, construction companies, sugarcane producers, bookstore chains, publishing houses and an airline all sought court protection against creditors.

This July 2019 issue of L&S Brazil Outlook examines some key aspects to which creditors should pay attention if a Brazilian debtor files for in-court reorganization.

The article co-authored by Larissa Machado, Rodrigo Dias and Rafael Zabaglia focuses on local courts’ increasing inclination to impair large creditors’ ability to oppose a bad restructuring plan by disregarding their votes against it on the grounds of “abusiveness”.

Rafael Zabaglia analyzes in broader terms how the judiciary has been interpreting the Business Insolvency Act to unduly protect debtors, why that stance can have negative effects on the financial system and what creditors can do in and out of court to limit the risks stemming from courts’ pro-debtor bias.

Needless to say, financial distress also gives rise to business opportunities. Marcos Malvar comments on the precautions that investors should take when they contemplate doing business with distressed companies involved in corruption probes.

Luiz Assis, Fabio Rodarte, Pedro Ferraz and Rafael Zabaglia address how foreign bondholders are treated in Brazilian in-court reorganizations and discuss whether it makes sense for them to let the trustee represent them; or, instead, to pursue their interests as individual claimholders.

Finally, Renato Oikawa, Fabio Rodarte and Rafael Zabaglia summarize key factual information on Odebrecht’s in-court reorganization filing.