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Oi submits new restructuring plan ahead of adjourned creditors’ vote

Por: Latin LawyerImprimirVisualizar em PDF

Brazilian telecoms group Oi has submitted a revised restructuring plan before a court in Rio de Janeiro proposing a capital injection of 9 billion reais (US$2.8 billion), as creditors prepare to vote on whether the group can restructure seven entities in one go treating all creditors as a single, consolidated group.

Oi and its counsel at Brazilian law firm BMA - Barbosa, Müssnich, Aragão submitted the revised plan before the 7th Corporate Court in Rio de Janiero ahead of a midnight deadline on 11 October. It proposes a 6 billion reais (US$1.8 billion) injection from a stock offering with a further 3 billion reais (approximately US$950 million) raised through a debt-for-equity swap.

Creditors demanded the debt-for-equity swap back in August offering to exchange 26.1 billion reais' (US$8.2 billion) worth of bond holdings for 88% of the company. However, Oi's new plan limits the conversion of existing debt to just 25% of its equity.

The group has agreed to raise its annual capital expenditure from 5 billion reais (US$1.6 billion) to 7 billion reais (US$2.2 billion) at creditors' requests.

A first creditors' vote on the plan is due to take place on 23 October, with a follow-up meeting on 27 November.

The new plans comes shortly after Oi successfully asked the Rio court to delay the first meeting – initially set for 9 October – following a pair of appeals court rulings. These rulings ordered the company to let creditors vote on its use of a consolidated plan for all seven debtors.

The earlier of the appeals court rulings, handed down on 6 September by Justice Cezar Augusto Rodrigues Costa, directed Oi to provide separate creditors' lists for each of the seven debtors, as well as financial statements and other information on each debtors' assets. The latter, issued on 20 September, clarified that the creditors of each of the seven different Oi debtors should vote on the consolidation question separately. 

The court rulings followed an appeal by two Dutch Oi subsidiaries, Portugal Telecom International Finance (PTIF) and Oi Brasil Coöperatief (Coöp), who are both debtors and creditors in the judicial reorganisation process that has been pending before the Rio court since June 2016.

João Vicente Carvalho of E Munhoz Advogados, Brazilian counsel to PTIF and Coöp's Dutch bankruptcy trustees, says the Oi case is testing many "controversial issues" under Brazilian bankruptcy law.

"These decisions [have] changed dramatically the dynamics of the approval of the plan and increased the leverage of creditors against Oi," he tells Latin Lawyer's sister publication GRR, because the group now needs the support of the majority of creditors of each entity, not only on a consolidated basis.

Oi "always argued that substantive consolidation should be the 'default' approach" – and always prevailed – until September 2017, he adds.

The Brazilian Bankruptcy Act does not have specific provisions covering group insolvency, Carvalho explains, so courts have come to allow procedural consolidation permitting members of the same corporate group to file for judicial reorganisation jointly. The admission of joint administration proceedings, however, has led some courts to accept substantive consolidation without appreciating that the two concepts are different.

"The decisions in Oi Group's case have tackled the issue and properly distinguished the procedural consolidation from substantive consolidation," he notes.

Sergio Savi, a partner at BMA and counsel to Oi, declined to comment on what will happen if creditors vote against the consolidation, noting it is "a strategic decision we cannot anticipate".

PTIF and Coöp were not alone in objecting to Oi's sole plan and homogenous group of creditors approach: Oi's international bondholders' committee and its ad hoc bondholders' steering committee also appealed multiple times, but had their appeals dismissed.

Coöp's Dutch bankruptcy trustee, Jasper Berkenbosch of Jones Day in Amsterdam, also raised the substantive consolidation issue as one of several arguments in a Chapter 15 petition to a court in New York, where he has been seeking to overturn the recognition of Oi's Brazilian process granted back in July 2016, and to have Coöp's parallel Dutch insolvency proceeding recognised as its foreign main proceedings instead.

At a series of recognition hearings between 18 and 26 September, Berkenbosch argued that the Dutch Supreme Court had found Coöp's centre of main interests (COMI) to be in the Netherlands, meaning it should not be grouped with the six other debtors in Oi's Brazilian plan.

The bankruptcy trustee maintains the consolidated approach would result in creditors with New York law-governed bonds receiving nothing for their claims, and only 20% to 30% of their claims against the Brazilian parent as guarantor of their bonds.

Berkenbosch has also complained that the Brazilian plan ignores the Dutch insolvency process, as well as Dutch law and Coöp's own claims as a creditor of other Oi entities, which the insolvency trustee is bringing on its behalf in a Dutch pauliana action, which is similar to a fraudulent transfer claim in the US.

Meanwhile in the US,  both sides in the Chapter 15 action submitted proposed findings of fact and law before the Bankruptcy Court for the Southern District of New York on 6 October.

In Berkenbosch's submission, he argues there is no statutory basis for opening insolvency proceedings for foreign companies in Brazil and that Coöp has no place in the Rio insolvency proceedings. Antonio Reinaldo Rabelo, Oi's "purported" recognised foreign representative in the US, "was unable to identify any current business activities of Coop", he adds.

The insolvency trustee's proposed findings suggest that Oi's management initially contemplated a multi-national restructuring for the group, with proceedings in Brazil, the US, UK and the Netherlands. This planned restructuring – labelled "Project Ocean" – anticipated an insolvency proceeding for Coöp in the Netherlands with automatic EU-wide recognition.

Berkenbosch notes, however, that counsel to Oi failed to inform the New York court of any intention to seek insolvency protection for Coöp in the Netherlands when they applied for recognition of the Brazilian insolvency proceedings including it as a debtor in June 2016.

Oi also obtained recognition of the Brazilian judicial reorganisation process in the UK in June 2016, and in Portugal in March and August 2017, without including Coöp as a party to the proceedings, Berkenbosch says. The Dutch insolvency trustee's submission is supported by Oi's international bondholders' committee and its counsel, Dechert.

On the other hand, Rabelo, who became the recognised foreign representative of Oi and Coöp in the US in July after replacing Ojas Shah of White & Case LLP, argues in his proposed findings of fact that the Brazilian public prosecutor concluded "there was no question" Coöp's principle place of business was in Brazil for the purposes of Brazilian bankruptcy law.

The New York court considered this opinion in granting recognition of the Brazilian proceedings against the Second Circuit's standard for determining the COMI of a special purpose vehicle, Rabelo argues, and found that the Oi group's "corporate nerve centre" was in Brazil.

Rabelo's submission is supported by the steering committee of the ad hoc group of bondholders, and its counsel at Cleary Gottlieb Steen & Hamilton LLP.

Carvalho says the New York court's decision on Berkensbosch's application is expected in the next couple of weeks, ahead of the creditors' meeting in Brazil.

PTIF, which is also in insolvency proceedings in the Netherlands managed by CMS partner Marcel Groenewegen as insolvency trustee, has not appeared in the US.

In the 7th Corporate Court of the Capital of the State of Rio de Janeiro


Counsel to Oi

BMA - Barbosa, Müssnich, Aragão

Partners Luiz Antonio Sampaio de Campos, Sergio Savi 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


Basilio Advogados

Partner Ana Tereza Basilio in Rio de Janeiro


White & Case LLP

Partner Richard Kebrdle in Miami


Counsel to Jasper Berkenbosch as bankruptcy trustee of Coöp

E Munhoz Advogados

Partner Eduardo Munhoz with Joäo Vincente Carvalho, Carolina Iwamoto, Ana Luiza Arguelloand Ana Elisa Laquimia


Jones Day

Partners Corinne Ball in New York and Louis Fischer in Washington, DC


Counsel for the International Bondholders' Committee

Sergio Bermudes Advogados

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 Giuliano Colombo in São Paulo


Cleary Gottlieb Steen & Hamilton LLP

Partners Richard Cooper and Luke Barefoot in New York


Counsel to Bratel

Souza, Cescon, Barrieu & Flesch Advogados

Partners Maria Cristina Cescon, Carlos Braga, Tiago Lopes, Carlos Augusto Junquera and Guilherme Franca, and associates Fernanda Montorfano and Thenard Figueirdo in Rio de Janeiro


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


Counsel to Societe Mondiale Fundo

Galdinho Coelho Mendes Advogados

Partners Joao Mendes, Rafael Pimenta and Lia Stephanie Saldanha Pompili in Rio de Janeiro


In the US Bankruptcy Court for the Southern District of New Yor

Judge Sean Lane


Coöp's bankruptcy trustee

Jones Day

Partner Jasper Berkenbosch in Amsterdam


Counsel to Coöp's bankruptcy trustee

Jones Day

Partners Corinne Ball and Stephen Pearson, with associates Brian Kotliar and Anna Kordas in New York


Counsel to Oi SA

White & Case LLP

Partner John Cunningham and associate Mark Franke in New York, partners Richard Kebrdle, Jason Zakia, and associate Laura Femino in Miami


Attorneys for the steering committee of the ad hoc group of bondholders

Cleary Gottlieb Steen & Hamilton LLP

Partners Richard Cooper and Luke Barefoot in New York


Attorneys for the international bondholder committee


Partners Allan Brilliant and Benjamin Rosenberg in New York


Counsel to export credit agencies

Mattos Filho, Veiga Filho, Marrey Jr e Quiroga Advogados

Partners Alex Hatanaka and Marcelo Ricupero, and associate Liv Machado in São Paulo


Milbank, Tweed, Hadley & McCloy LLP

Partner Nicholas Angel in London


FTI Consulting

In the Amsterdam District Court


Court-appointed insolvency trustee to Oi Brasil Holdings Coöperatief

Jones Day

Partner Jasper Berkenbosch in Amsterdam


Court-appointed insolvency trustee to Portugal Telecom International Finance


Partner Marcel Groenewegen in Amsterdam

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