After last weeks call to think along with me and provide input in order to contribute to the draft text for the 5th edition of Wessels International Insolvency Law part I, I received quite a few contributions. Many thanks to all levelling the forthcoming book to even higher ground. Providing input is based on the idea of a ‘deliberate public participatory drafting process’, see my blog at https://bobwessels.nl/blog/2021-12-doc1-book-on-international-insolvency-law-your-input-needed/. This second blog focuses on (legislative) developments in some 30 countries (outside of the EU, obviously these draft texts are rather short), in the blog at hand: Brazil. I also look forward to comments on the draft text below, preferably soon, but on 15 January 2022 at the latest via: info@bobwessels.nl. The second half of January 2022 I hope to finalize the manuscript and send it to Wolters Kluwer’s editorial office. Below is the draft text:
Brazil. Brazil (party to the Code of Bustamante of 1928, see para. 10069) adopted a renewed Brazilian bankruptcy law, which became effective 9 June 2005. It does not contain provisions on international insolvency law. One of the first tests of the new law related to Varig SA, the Brazilian airlines, a reorganisation proceeding. The Varig group – under former section 304 U.S. Bankruptcy Code – sought protection in the USA against aircraft and engine lessors to enjoin them from repossessing their equipment, see further Lobo, in: Lobo (2009), 105ff. Due to the lack of specific legislation, coordination may only be reached on a case-by-case basis, see Filho (2010), 142, who outlines the (historic development of) Brazilian cross-border insolvency system. On 23 January 2021 the Brazilian Judicial Recovery and Bankruptcy Law was amended, with the key amendment being Brazil’s adoption of the UNCITRAL Model Law on Cross-Border Insolvency (Law 14,112/2020), leading to Articles 167-A to 167-Y (Law 11.101/05).
Prosafe case. 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. Earlier, 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 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.
Judgment. 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). 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.