16/7/2019 Asset sales protect investigated companies’ creditors more than judicial restructuring, says panel - LL - Latin Lawyer Asset sales protect investigated companies’ creditors more than judicial restructuring, says panel
Luis Bulcao Pinheiro
16 July 2019
The wave of anti-corruption probes following Operation Car Wash left many implicated companies on the verge of bankruptcy, but most have found selling assets before filling for judicial restructuring better preserves the value of those assets than bankruptcy proceedings do, heard delegates at Latin Lawyer – GRR Live 4th Annual Restructuring conference.
José Antonio Jiménes and Tomás Allende discuss the impact of anti-corruption investigations in Latin America
The panel was moderated by Timothy Graulich of Davis Polk & Wardwell in New York.
The world’s largest meatpacker, JBS, is the best example of this strategy, which maximises value for companies accused of corruption. In financial distress after agreeing to pay a record-breaking 10.3 billion reais (US$3.2 billion) fine as part of a leniency agreement for its involvement in corruption, the Brazilian entity’s holding company parted ways with several assets, including paper manufacturer Eldorado, which it sold for US$2.6 billion in 2018. It also sold flip-flop manufacturer Alpargatas for US$3.5 billion, as well as several other assets.
Other companies in similar situations, including construction companies Odebrecht and Camargo Corrêa, also successfully divested assets for big sums before filling for restructuring.
By contrast, those companies that started in-court restructuring proceedings before selling assets struggled to get a good price for them. Examples of these include construction companies OAS and Queiroz Galvão, as well as rig chartering company Sete Brasil.
Marcelo Messer, a managing director at consultancy firm Rothschild, told delegates that this theme – although somewhat a surprise – emerged in the wake of Operation Car Wash and other major probes in Brazil. “I advise creditors and investors to pay attention to the asset sale covenants in their debt documents, [because] they might be a more promising source of recovery than waiting for the results of judicial restructurings,” he said.
Restructuring filings have been hampered by the unpredictability of different courts and the length of time proceedings take to reach a conclusion. Asset sales can be a quicker solution in a time of great need.
Rebaza, Alcázar & De Las Casas’ partner José Antonio Jiménez reports a similar trend in Peru. The country’s biggest construction company Grana y Montero (GyM) pursued divestment when it faced financial pressure following the cancelation of a pipeline contract it shared with Brazil’s Odebrecht. The company – which has not admitted to any wrongdoing – did not file for restructuring, but underwent a major internal reorganisation and sold several assets and properties. This enabled it to protect its creditors and raise capital that it set aside to fund compensation that might result from the investigations.
Speakers agreed that it is key that purchasers of assets belonging to companies implicated in corruption allegations get protection against possible liabilities attached to the assets they are acquiring. But Beccar Varela partner Tomás Allende said it is harder to get such guarantees from authorities in Argentina, in part because the country’s anti-corruption legislation does not apply corporate liability to companies retroactively. This has meant companies are relatively protected and – contrary to Brazil or Peru – anti-corruption probes have not brought companies under investigation to the brink of bankruptcy.
Panellists acknowledged the negative effect anti-corruption probes have had on some economies in the region. In Brazil, the emboldened judiciary may have “overshot the mark,” said Messer. “The whole Car Wash scandal has greatly empowered the judiciary. You see a lot of activism in the judicial branch; they are more pro-active and louder,” he said. While a tough stance against corruption is a good thing, he is concerned that the courts themselves are not entirely innocent of wrongdoing. “There has been some news lately that suggests they are not as clean as they made themselves out to be,” he said.
Since June, The Intercept, a news outlet led by Pulitzer Prize-winning journalist Glenn Greenwald, has been publishing leaked conversations between Car Wash prosecutors and Sergio Moro, the judge overseeing the probe. The conversations record Moro discussing strategy with prosecutors and giving them advice on how to proceed. Moro and the prosecutors caught up in the leak have not confirmed whether the conversations are authentic and say they were obtained through criminal conduct. The leaks have caused a stir in Brazil as Moro’s sentence against former president Luiz Inácio Lula da Silva directly affected the country’s presidential election.
Messer suggests there needs to be a “recalibration” of powers, with the courts taking a more balanced approach.
There may be a similar sentiment in Peru. Virtually all in the construction industry suffered in the wake of the Odebrecht scandal and probes continue to this day. The investigations led to the detainment of several former presidents and in April, former president Alan Garcia, who governed the country between 2006 and 2011, killed himself before being arrested.
https://latinlawyer.com/article/1195193/asset-sales-protect-investigated-companies’-creditors-more-than-judicial-restructuring-says-panel?utm_so… 1/3 16/7/2019 Asset sales protect investigated companies’ creditors more than judicial restructuring, says panel - LL - Latin Lawyer But in Argentina, Allende said authorities have been mindful of economic consequences. “The government is looking towards the future. They saw what happened in Brazil with Operation Car Wash affecting the economy and they do not want that repeated,” he said.
Latin Lawyer – GRR Live 4th Annual Restructuring also featured a keynote speech from sovereign debt legend Lee Buchheit, who emphasised the uniqueness of Venezuela’s debt load.
Practice area : Anti-corruption investigations and compliance, Restructuring & insolvency
Country : Brazil, International, Peru, Argentina
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