Brazilian bankruptcy laws to get international attention

July 31, 2013
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Bankruptcy laws

Laws are constantly evolving as new ways to look at them occur as they are challenged by various new lawsuits. Currently, the Brazilian bankruptcy law is about to have a magnifying glass shown on it because of a dispute between U.S.-based Oppenheimer Funds and JBS, the world’s biggest meat exporter.

The problem arises with Doux Frangosul, a French-controlled poultry company in Sao Paulo. According to the lawsuit, the lease allows JBS to operate the facility plants and is thus responsible for the $60 million debt which was just defaulted on.

Bigger issues come to light as the Financial Times is reporting that the lease was agreed upon without the permission of creditors and therefore violates Oppenheimer’s rights. A spokesmen for JBS declined to comment, but previous statements indicate they deny all wrongdoing.

“The lease agreement is a fraud,” a lawyer for Oppenheimer told the news source. “The actual agreement in place was the incorporation of Frangosul by JBS. JBS disguised the incorporation by naming the agreement a ‘lease’ in an attempt to avoid taking over Frangosul’s liabilities.”

This is another example of “de facto operators” in Brazil, where companies run assets that are in default without payment to creditors, which brings the country’s bankruptcy laws into question. The article mentions that this case highlights the loopholes that exist in the current law.

It will also be another ruling that will bring international attention to the problem. Brazilian oil, mining and infrastructure tycoon Eike Batista, is expected to restructure $4 billion in bondholder debt in the coming months.

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