Brazil’s first recognition of a foreign proceeding under the Model Law on Cross-Border Insolvency
By Ana Carolina Monteiro (KINCAID – Mendes Vianna Advogados)
This article discusses a landmark decision by a court in Rio de Janeiro recognizing the first foreign insolvency proceeding under Brazil’s recently adopted Model Law on Cross-Border Insolvency. This decision represents a significant development for the future of insolvency law in Brazil and beyond, reinforcing the importance of cross-border insolvency cooperation.
The Legal Context
Prosafe SE filed a request for the granting of a relief provided in Section 64 of Singapore’s Insolvency, Restructuring and Dissolution Act 2018 (“IRDA”), a local law containing provisions on insolvency and bankruptcy proceedings. In brief, section 64 of the IRDA states that when a company proposes or intends to propose a restructuring plan to be implemented using a scheme of arrangement to its creditors, the company may ask the Singapore High Court for urgent relief for a certain period of time, including a stay period/moratorium protection against the starting or continuation of proceedings as well as measures against said company or its assets.
In December 2019, Prosafe SE initiated discussions with its creditors regarding a possible financial restructuring process. The discussions continued throughout the year of 2020 and early 2021. On 30 April 2021, after discussing with its creditors, over 95% of secured creditors supported the filing of the moratorium. At the current state, the Prosafe SE group now has an in-principle support of 100% of the secured creditors (subject to their credit approval processes). Prosafe SE then presented a request for the granting of moratorium protection to the Singapore High Court, which was initially granted for a period of 30 days. Later, a hearing was held on 27 May 2021, and the moratorium was granted for a period of five (5) months, running from the date of the initial filing. The moratorium, in general terms, allowed the Norwegian parent company, Prosafe SE and its wholly owned subsidiary Prosafe Rigs Pte. Ltd. to protect their assets in a period prior to the start of the restructuring proceedings.
Application for recognition of Singaporean proceedings in Brazilian courts
On 10 June 2021, Prosafe SE filed a claim before the Court of Rio de Janeiro seeking the acknowledgment of a foreign insolvency proceeding so that protective guarantees may be granted to the debtor, pursuant to articles 167-A and subsequent of the Brazilian Law no. 11.101/05.
First, it is important to clarify that these articles, which were enacted on 23 January 2021, substantially altered the rules pertaining to judicial reorganization and Bankruptcy by including an exclusive chapter on Cross-Border Insolvency and the Acknowledgment of Foreign Bankruptcy Proceedings.
For the granting of the measure to acknowledge the foreign proceeding, article 167-J presents four (4) objective requirements. Generally, the judge will acknowledge the foreign proceedings when: (i) the proceeding fits the definition presented in item I of the caput of art. 167-B of this Law; (ii) the representative that has applied for acknowledgment of the proceeding fits the definition of foreign representative present in item IV of the caput of art. 167-B of this Law; (iii) the request meets the requirements established by art. 167-H of this Law; and (iv) the request has been sent to the judge, as provided in art. 167-D of this Law.
The fourth requirement refers to the allocation of the proceeding to the court of the jurisdiction of the debtor’s main establishment in Brazil. In this case, Prosafe SE operates in Brazil through Prosafe Serviços Marítimos Ltda., which has its commercial headquarters in Rio de Janeiro, according to its Corporate Taxpayer ID (CNPJ).
It is important to highlight that Prosafe SE filed this claim seeking to protect three vessels located in Brazil (Safe Concordia, Safe Notos, and Safe Eurus). Two of these three vessels are operating on behalf of Petrobrás through freight contracts for the exploit of Oil. Hence, an anticipation of relief, pursuant to article 167-L of Law 11.101/05, was also requested to temporarily suspend any enforcement proceedings or any other measures individually taken by creditors regarding the debtor’s assets.
The Court’s decision
The Court emphasized that the chapter regarding Cross-Border Insolvency and the Acknowledgment of Foreign Bankruptcy Proceedings was included in Law no. 11.101/05 with the aim of providing effective mechanisms for:
• Cooperation between judges and other competent authorities in Brazil and other countries in cases of transnational insolvency;
• Increasing in legal certainty for economic activity and investment;
• Fair and efficient administration of transnational insolvency proceedings, in order to protect the interests of all creditors and other interested parties , including the debtor;
• Protection and maximization of the value of the debtor´s assets, and
• Promoting recovery of companies in economic and financial crisis, with investment protection and job preservation.
Thus, the decision stated that the case must receive transnational insolvency treatment as it fulfilled the formal requirements established in Law 11.101/05, notably in its art. 167-J. It also acknowledged the existence of the foreign insolvency proceeding, in progress before the Supreme Court of Singapore, as the main proceedings and granted the anticipation of the effects of the intended relief, determining:
• The suspension of the course of any proceedings of execution or any other measures individually taken by creditors relating to the debtor´s assets;
• The suspension of the course of the prescription of any judicial executions against Prosafe SE and
• The ineffectiveness of transfer, enforcement or any form of disposal of goods of non-current assets of the debtor, carried out without prior judicial authorization.
Following this outcome, we expect similar decisions from Courts around the country so as to grant the recognition of foreign insolvency proceedings. While the request for recognition by Brazilian companies in foreign countries is already a common practice, it remains to be seen whether the Courts will allow the reciprocal recognition.
(*) The author represented the company seeking the international recognition of the Singapore proceeding in Brazil. The case was handled before the Brazilian Third Commercial Court of Rio de Janeiro.