Brazilian Courts Awake To Multijurisdictional Insolvency - The OGX Case And Other Cases

In the last months, we have been following the crisis experienced by OGX Group that filed for court-supervised reorganization on October 30, 2013. OGX Group is formed by the following companies: OGX Petróleo e Gás S.A., OGX Petróleo e Gás Participações S.A. (both established in Brazil) and OGX International GMBH and OGX Austria GMBH (Austrian subsidiaries of the Group).

OGX Group used its subsidiaries in Austria to issue bonds and receive revenues abroad that were intended to finance the group's activities in Brazil.

In OGX's case, the Prosecutor's Office presented Opinion contrary to the admission of the processing of the petition for court-supervised reorganization of the Austrian subsidiaries together with the Brazilian companies.

Based on the Principle of Territoriality, the 2nd Bankruptcy Prosecutor's Office of Rio de Janeiro argued that the bankruptcy (liquidation) or court-supervised reorganization, whichever the case, should be processed in the country where the debtor company is based. It further argues that according to Law 11.101/05 (Brazilian Bankruptcy And Reorganization Law - BBRL) only the Court of the place of the debtor's principal place of business would be competent to ratify reorganization plans.

That was also the understanding of Judge Gilberto Matos, of the Fourth Corporate Court of Rio de Janeiro, who accepted the request for court supervised reorganization only for the companies based in Brazil and excluded from the proceedings OGX's subsidiaries in Austria.

Although the Rio Bankruptcy Courts had previous experience regarding bankruptcy procedures with international repercussions, and used the principle of comity to obtain the cooperation of the New Your courts as to the seizure of certain airplanes involved in the notorious Varig Bankruptcy procedures, the filing and the decision did not seek international cooperation, simply excluding the Austrian debtors from the jurisdiction of the Brazilian bankruptcy court.

This also notorious case led us to prepare this Article, trying to give an overview of how the Brazilian rules of conflict of laws deal with multi-jurisdictional insolvencies.

Any company, be it a sole proprietorship or a business corporation, as defined in Article 892 of the Brazilian Civil Code, facing liquidity or financial problems may seek recovery by operationally and financially restructuring itself and the legal benefit under Art. 47 of BBRL or, if the recovery is unfeasible, file for voluntary bankruptcy (self bankruptcy - liquidation) or defend itself in an involuntary bankruptcy-liquidation case under the same law

However, where the main place of business is abroad, where the debtor is abroad and the principal place of business is in Brazil, where there are assets and rights located abroad and, finally, where there are other countries than Brazil involved, conflicts of law and jurisdiction arise.

Although the international insolvency is a matter relatively new and little discussed in Brazilian courts, examples of provisions for cooperation and harmonization, either unilateral or in the form of treaties, can be found in Europe since the Middle Age.

Most of the Middle Age treaties were intended to allow the extradition of negligent debtors. The treaty between Verona and Trento, quite likely one of the oldest insolvency treaties in the world (XIV Century), aimed at subjecting assets located abroad to only one jurisdiction.

In the United States of America, the discussion on the international insolvency and its effects is not new. From an initial position of extreme resistance to the enforcement, in the US, of decisions by foreign insolvency courts (XIX Century), the US courts gradually constructed forms of legal cooperation in cases of insolvency, culminating in the US Bankruptcy Code (1979) ("USBC") that was preceded by US Bankruptcy Act...