One of the singular features of the Brazilian Bankruptcy Law (BBL) that was ‘modeled after the US Bankruptcy Code’ is the fact that Foreign Trade Lines and Alienação Fiduciária (‘trust sale’ or ‘chattel mortgage’) are not only ‘outside’ of the 180 days ‘Automatic Stay’ period of the Recuperacao Judicial (‘RJ’,judicial recovery, Brazil’s version of Chapter 11 bankruptcy protection) but also, upon liquidation (Falencia), are granted super-priority status (as Credores Extraconcursais).
This priority was contested in local courts several times and was reaffirmed by the Superior Court of Justice by early 2013 – under Brazilian law, the Superior Court of Justice has the constitutional right to ‘defend and harmonize’ the interpretation of all Brazilian federal legislation, apart from the national Constitution, usually following decisions on the lower (state) courts.
Not surprisingly – this has triggered the somehow usual practice among local lenders of, whenever a company credit outlook is deteriorating to move its working capital lines to Foreign Trade lines – since this is business as usual for most exporters, this is not often contemplated in the Offering Memorandum and usually does not required waivers or authorization from Unsecured Creditors that before that were pari-passu with working capital lines and are now, in turn, being primed.
Another point in the same topic – given that there are no formal provisions for DIP finance in the Brazilian Bankruptcy Law (there are small mentions on Art. 67. and Art. 84. mostly related to suppliers and additional money from pre-petition creditors) – in ‘high-profile’ cases like ‘OGX’ – the DIP financing is structured as a trade-finance line to guarantee ‘super-priority’.
Lockmann.org 