Shareholders of Brazilian telecoms company Oi will be able to challenge its US$20 billion restructuring in arbitration proceedings, after a local court revised an injunction issued in March.
The Second Section of the Brazil's Superior Court of Justice issued the order on 11 October, lifting a so-called conflict of jurisdiction injunction handed down by a Superior Court magistrate, Oi's securities filings show.
Oi said the order means its dispute with dissenting shareholders, led by Portugal's Pharol, will be heard before Brazil's Market Arbitration Chamber – but that its restructuring plan for now remains intact. The Rio de Janeiro court overseeing Oi's judicial reorganisation, which approved the US$20 billion plan in January, can choose whether to ratify any award from the arbitral tribunal, Oi added.
For its part Pharol says the ruling means the restructuring plan is not valid because it has never received shareholder consent. The Portuguese shareholder and Bratel, its Brazilian subsidiary, have long maintained the plan violates their rights and that it is the product of collusion between Oi's bondholders and directors.
They want, in particular, to reverse a debt-for-equity swap that handed 75% of the telecoms company to bondholders, and to halt a planned capital raising of 4 billion reais (US$1.2 billion).
According to Pharol, bondholders have received subscription bonuses and backstop fees to the tune of 300 million Brazilian reais (US$81 million) under the capital raising part of the plan, while shareholders' rights have been ignored.
Oi's managers similarly benefited from provisions preventing them from being fired or replaced without keeping their wages, guarantees, compensation and indemnities, the shareholders say. Pharol says they are now the best-paid telecoms executives in Brazil, earning more than those of rivals Telefônica Vivo and TIM that have not been in distress.
Pharol's arbitration arises out of an extraordinary shareholders' meeting that it called on 7 February, to discuss the restructuring plan's terms and to consider suing Oi's management for pushing the plan through without their consent. The shareholders claim this was a breach of Brazilian corporate law and the company's by-laws, which they say supersede insolvency law.
At the meeting, Pharol itself and other shareholders approved the lawsuit and nominated new managers.
But Oi responded by getting the Rio judicial reorganisation court to stay the effect of the extraordinary meeting, suspend the shareholders' voting rights and oust their newly appointed directors from Oi's board.
The shareholders claim the reorganisation court lacked jurisdiction to rule on matters arising from the meeting, because both the company's bylaws and the Brazilian capital markets regulator provide for such disputes to go to arbitration.
They moved to the Market Arbitration Chamber, asking an emergency arbitrator to order Oi to remove the managers who saw the plan through without their consent; comply with the shareholders' decisions in the meeting; declare the plan null and void and to prevent the company from implementing the restructuring.
On 6 March, the emergency arbitrator ruled he had jurisdiction to hear questions relating to shareholder rights and issued an injunction blocking an initial capital increase that was necessary for Oi's equity swap to go through.
That prompted Oi to seek the conflict of jurisdiction injunction from the Superior Court on 13 March, which had the effect of blocking the emergency arbitration.
Before and since the injunction, Pharol and Bratel have also been challenging the plan in the courts and in mediation. The Rio judicial reorganisation court denied their initial partial reconsideration request, so they filed a number of interlocutory appeals.
Those include an appeal of a November 2017 order in which the Rio court had vested authority over Oi's restructuring in its CEO and revoked the powers of allegedly conflicted Oi officers, which allowed the plan to pass. They also appealed the Rio court's March order in response to the extraordinary meeting, suspending the rights of Oi's shareholders and removing their appointed directors.
Despite the pending challenges, the Rio reorganisation court allowed Oi to move on with enforcing its plan, rejecting calls for a stay on enforcement. Oi eventually completed its debt-for-equity swap in late July.
The same month, the Bankruptcy Court for the Southern District of New York gave Oi's plan full force and effect in the US, dismissing the shareholders' objections that it should wait until all of their appeals were over. In June, a Dutch district court also confirmed the plan as it applied to Oi's two Dutch subsidiaries, Oi Coöperatief and Portugal Telecom International Finance.
But in Portugal, the Commercial Court of Lisbon took another view on 30 July, ruling that it can only recognise a decision issued by the Brazilian court approving the plan if it is final and the matter is closed. Oi said it would be appealing the Portuguese court's ruling because it was "in disaccord" with the findings of the New York and Dutch courts.
Oi's counsel did not respond to Latin Lawyer's sister publication Global Restructuring Review request for comment on the impact of the Superior Court's 11 November ruling.
The Portuguese shareholder has been using Brazilian firm Cescon, Barrieu, Flesch & Barreto Advogados as legal counsel in the restructuring, and has now also employed Lollato Lopes Rangel Ribeiro Advogados, after partner Tiago Lopes and associate Guilherme França left Cescon Barrieu to join the firm.
In Brazil and the US
Counsel to Oi
BMA - Barbosa, Müssnich, Aragão
Partners Luiz Antonio Sampaio de Campos, Sergio Savi, Rafael Calabria and Felipe Evaristo dos Santos Galea in Rio de Janeiro
Rosman Penalva Souza Leao Franco Avogados
Partners Paulo Penalva Santos and Luiz Aberto Clonna Rosman in Rio de Janeiro
Partner Ana Tereza Basilio in Rio de Janeiro
White & Case LLP
Partner Richard Kebrdle in Miami
Counsel for the International Bondholders' Committee
Sergio Bermudes Advogados
Associates Marcelo Carpenter and Luis Tomas Alves de Andrade
Partner Allan Brilliant in New York
Counsel to the Ad Hoc Group of bondholders
Pinheiro Neto Advogados
Partner Guiliano Colombo in São Paulo
Cleary Gottlieb Steen & Hamilton LLP
Partners Richard Cooper and Luke Barefoot in New York
Counsel to Bratel (Pharol)
Cescon, Barrieu, Flesch & Barreto Advogados
Partners Maria Cristina Cescon and Fábio Rosas, and associates José Luis Rosa and Juliana Vasquez in São Paulo
Lollato Lopes Rangel Ribeiro Advogados
Partner Tiago Lopes and associate Guilherme França in São Paulo
Andrade Fichtner Advogados
Partners Jose Antonio Fichtner, Sergio Nelson Mannheimer and Julio Rebello Horta, with associates Marcelo Dickstein and Eduardo Cardoso in Rio de Janeiro
Greenberg Traurig LLP
Partner Mark Bloom in Miami, and associate Ryan Wagner in NY
Counsel to Societe Mondiale Fundo
Galdino, Coelho, Mendes Advogados
Partners Joao Mendes, Rafael Pimenta and Lia Stephanie Saldanha Pompili in Rio de Janeiro
Counsel to Aurelius Capital Management
Kramer Levin Naftalis & Frankel
Partners Kenneth Eckstein and Bradley O'Neill, special counsel David Blabey Jr and associateAndrew Dove in New York
Counsel to Jasper Berkenbosch as bankruptcy trustee of Coöp
Partner Eduardo Munhoz, and associates Joäo Vincente Carvalho, Carolina Iwamoto, Ana Luiza Arguelloand Ana Elisa Laquimia
Partners Corinne Ball in New York and Louis Fischer in Washington, DC