Challenges And Opportunities For Canadian Investors In Brazilian Insolvency Proceedings: Lessons From The IBA's 2019 Global Restructuring Conference

Canada and Brazil share a long and significant common history of business and investment. Over a century ago, Canadian companies were heavily involved in building electrical and other infrastructure in São Paulo and Rio de Janeiro. Today, over 50 public companies listed on the TSX and TSX-V have substantial assets and operations in Brazil. In 2018, direct investment between the two countries exceeded $14 billion in each direction. Over $260 million was raised on Canadian exchanges for companies with Brazilian mining assets alone, and Canadian listed companies own over 100 mining properties in the country.1 Canadian pension funds and other investors continue to pursue opportunities in Brazil to acquire assets across various sectors. In recent years, insolvency proceedings in Canadian courts have restructured hundreds of millions of dollars of debt owed by companies with principally Brazilian assets and operations.2

Beginning in 2014, Brazil experienced a prolonged economic crisis marked by slow and negative growth, high unemployment and stagflation.3 At the same time, the country has been rocked by corruption scandals implicating some of its largest corporate groups and business leaders. The start of Brazil's economic trouble coincided with the end of a 14-year long commodities super-cycle that had propelled much growth in the country's resource sector. The economic and political crisis has resulted in several high profile insolvencies. These conditions represent both challenges and opportunities for Canadian investors and other stakeholders that are active or interested in Brazil. They would do well to learn about the country's insolvency regime, which is different from Canada's in important ways.

The International Bar Association's 2019 Global Restructuring Conference was held in São Paulo and its content revolved largely around corporate insolvency in Brazil. Lawyers from top firms in the country shared their perspectives on recent developments and aspects of the domestic insolvency regime that should be of interest to anyone who might be involved in a Brazilian insolvency proceeding or has substantial investments in the country.

Debtor-Friendliness and the Role of Equity

One aspect of a Brazilian Court-supervised restructuring proceeding (recuperação judicial) that is unfamiliar to Canadian practitioners is the role played by equity holders. In Canada and elsewhere, equity has a negligible role to play in insolvency proceedings once it is 'out of the money'. The conference participants explained that, in Brazil, equity continues to hold a great deal of power because, among other reasons, a plan of reorganization (plano de recuperação) can only be proposed by the debtor. Under Brazil's insolvency legislation, a plan...

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