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2021-08-doc1 Brazil’s first ‘Model Law’ judgment: Prosafe SE

Until recently bankruptcy law in Brazil did not contain provisions on international insolvency law. The country is a party to the Code of Bustamante of 1928, concluded between 15 Latin and Middle American States, but this regional framework has not been applied often. Renewed Brazilian bankruptcy law, in force since the first decade on this century, did not contain international provisions either. Lacking specific legislation, cross-border recognition and coordination may only be reached on a case-by-case basis. A rather recent example being the time consuming and problematic Oi Brazil Telecom cases, in which the New York court and the Dutch court were fighting about their involvement in Oi connected proceedings related to two Dutch finance vehicles, see https://bobwessels.nl/blog/2019-03-doc2-no-action-clause-in-brazil-oi-case/.

BRIC. Until COVID-19 broke out, in my international lectures, I always discussed the status of enactment of the UNCITRAL Model Law on Cross-border Insolvency in different countries and the query of the position of the BRIC countries (are Brazil, Russia, India and China still referred to themselves in this way?). Russia lacks a system for cross-border recognition, the reciprocity principle is seen as an obstacle to recognition of foreign insolvency judgments, whereas an extensive interpretation of ‘public policy’ is followed towards recognition of foreign insolvency-related judgments. India is struggling whether to be inspired by the Model Law. A breakthrough has been an ad hoc solution via a protocol regarding a case between the Netherlands and India, with a strong role for the Indian court, see https://bobwessels.nl/blog/2020-07-doc1-jet-airways-insolvency-protocol/. China (mainland) has just three months ago created a small bridge for recognition purposes of three mainland courts with Hong Kong SAR (See Shuai Guo and Bob Wessels, Cross-Border Insolvency between Mainland China and Hong Kong: A First Glance from a Global Perspective, in: 18 International Corporate Rescue 2021, 247ff. (published by Chase Cambria Publishing, www.chasecambria.com). July 2021 saw Harris J deliver his first recognition judgment in the matter of Samson Paper ([2021] HKCFI 2151). In that same month in Brazil, on 23 July 2021, the 3rd Bankruptcy Court of Rio de Janeiro recognised for the first time insolvency proceedings filed in Singapore re Prosafe SE, as being foreign main proceedings. The court granted full relief and protected the debtor’s assets (at least three vessels anchored in Brazilian waters) against execution.

Prosafe SE case in Brazil. From the BRIC’s, Brazil is most advanced. Early 2021 the Brazilian Judicial Recovery and Bankruptcy Law was amended, with the key amendment being Brazil’s adoption of the Model Law (Law 14,112/2020), leading to Articles 167-A to 167-Y (Law 11.101/05). In May 2021, the Brazilian National Council of Justice adopted the Judicial Insolvency Network (JIN) guidelines for cooperation and communication between foreign insolvency courts. The JIN guidelines celebrate their 5th birthday this year (https://bobwessels.nl/blog/2016-10-doc8-judicial-insolvency-network-initiated-by-supreme-court-of-singapore/)

So in Brazil, all ingredients are there for an efficient and effective international insolvency law system. The case is exemplary. Prosafe SE has its headquarters in Norway (listed on the Oslo Stock Exchange). It is a shipping company, that is owner and operator of semi-submersible accommodation vessels. It operates all over the world, including Mexico, US Gulf, West and North Africa, the Mediterranean, North-west and Southern Australia, Russia, Indonesia and the Philippines. Judge Diogo Barros Boechat (3rd Bankruptcy Court of Rio de Janeiro.) granted relief (advance protection) to Prosafe SE, acknowledging the existence of the company’s insolvency proceedings in progress at the Superior Court of Singapore. It is related to the refinancing and a proposed scheme of arrangement pursuant to section 210(1) of the Singapore Companies Act. The Prosafe group (‘grupo econômico’) has headquarters in Singapore and has subsidiaries in several countries. In Brazil, it operates with seven vessels through its subsidiaries, especially Prosafe Serviços Marítimos Ltda. Two vessels have a charter contract with Petrobras, another is operating in Trinidad Tobago and the others are ‘in the Northern Hemisphere’. The company started to face financial problems, due to the excess supply of vessels in the market and, on the other hand, insufficient demand. The effect of the Brazilian judgment, shortly discussed here, is that the course of any enforcement process or other measures individually taken by creditors, relating to the debtor’s assets is suspended. This includes its subsidiaries vessels, owned by Prosafe group members, namely Safe Notos, Safe Eurus and Safe Concordia vessels. The decision also suspends the course of prescription of any judicial execution against Prosafe, and the ineffectiveness of transfer, encumbrance or any form of disposal of non-current assets of the debtor, carried out without prior judicial authorization. The Superior Court of Singapore decided for the full granting of the measures required by the economic group, for an initial period of five months. The measure guaranteed the suspension of all execution procedures by the debtors, in order to ensure the continuity of the business activity. The moratorium period may be extended by a new court decision.

Prosafe SE judgment. In a speed-read fashion, a few remarks follow on the judgment (with my thanks to prof. Cassio Cavalli and Ana Carolina Monteiro, who is the lawyer representing the corporate debtor in Brazil, for providing me the English translation of it).

With regard to the arguments in the judgment it is noticeable that Brazil seems to have enacted the preamble of the Model Law. The judge is satisfied that the Singaporean proceeding is a foreign proceeding and the DIP, appointed by the Court of Singapore (a DIP being appointed?) represents the company. The court adds that this is ‘… in accordance with the Brazilian legal system, being entitled to apply directly to the Brazilian Court the request for recognition of the foreign process in which it operates’. This is a strange observation, as if Brazilian domestic law has any meaning for the recognition of a foreign insolvency proceeding. Also challenging is the court’s view that it appears from the applicant’s research ‘… that several courts around the world allow and approve the recognition of the foreign insolvency’ under the Model Law. Sure, this is not incorrect, but does not seem relevant for the case at hand. Both remarks may have been made to give Brazilian readers the comfort of equivalence (‘it’s foreign, but rather similar in the way we do things’).

The COMI analysis regarding the applicant company takes the right steps but is not based on a multiple fact analysis. The presumption is straightforward (headquarters in Norway), and then follows that the applicant company is ‘… the controller of a group of other companies (at least five), all of them headquartered in Singapore…’. Any consideration regarding soft law recommendations in matters of restructuring and insolvency of international corporate groups have not been included in the judgment. The judge concludes that the COMI of the applicant company ‘… and, consequently, of the economic-business group, that is, the place where it enters into most of its contracts and where it is recognized by its creditors is located in Singapore’. Also here, a rather inward looking view with general wording (which contracts, which creditors of which group members?). No further analysis is found in the judgment of the place where the debtor conducts the administration of its interests on a regular basis and that is therefore ascertainable by third parties (as indicated in the Guide of Enactment and Interpretation 2013). As a final note, the court – in deciding the Singapore proceeding is a foreign main proceeding – leaves unsaid which relevant moment in time for localizing COMI it takes into account. Does it follow the US court’s view to determine the relevant moment in time for localizing COMI by looking at COMI at or around the time the request for recognition is filed. Or does it follow the other view, for which there is quite some support: to determine COMI at the time of the request to open insolvency proceedings (with applicable ‘suspect’ periods for COMI relocation) in the foreign jurisdiction (i.e. in Singapore).

More important, leaving aside theory, Brazil’s first case offers what one expects from a country having enacted the Model Law: predictable, timely and effective measures in a global cross-border case.