The country’s two largest private banks have filed a petition with the Rio de Janeiro court against Grupo Oi’s bankruptcy, which was declared on Tuesday (11th) and Monday (10th). Defense attorneys for Mr. Bradesco and Mr. Itau, two of the company’s largest creditors, argue that the company’s management failed to accomplish the plan laid out in the judicial recovery and that the bankruptcy would have been hasty.
“The non-compliance with the obligations set out in the judicial recovery plan resulted, for example, from the Grupo Recuperand administration’s failure to dispose of isolated production units (UPI) in a timely manner,” said Bradesco, a lawyer from SOB and Machado Meyer’s office. The bank will receive R$49 million from the company.
UPI is a mechanism used in judicial recovery to separate parts of a business that are being restructured. In Oi’s case, this also includes the operation of optical fiber broadband services.
The banks also argue that given Oi’s size and its public contracts, which include the military and judiciary, bankruptcy would be even more harmful to society than judicial restructuring.
“The main argument is that bankruptcy creates an immediate loss of value, and it is better to try a managed restructuring. Selling assets through UPI is very profitable and guarantees security for the buyer,” said Vitor Antony Ferrari, Mazzucco e Mello partner in the business restructuring field.
According to the defense, the sale of 7,877 properties registered in the name of Oi and its subsidiaries, valued at approximately R$5.8 billion, is one of the options to continue making scheduled payments and avoid bankruptcy.
Amounts related to corporate profits, physical assets, judicial deposits, credit rights and arbitration proceedings are also mentioned, with the total amount estimated to be between R$20 billion and R$50 billion.
“Although the Group (Oi) faces significant difficulties arising from high debt and cash flow constraints, recent procedural developments demonstrate the existence of sufficient significant assets to ensure continuity of business operations and implementation of the judicial rehabilitation plan,” said the petition filed by Itau, who also represents SOB. The bank will receive 2 billion reais from Oi.
The company owes around 45.5 billion reais to external creditors, according to an October report by the judicial administrator. In 2012, the company recorded average monthly revenues of R$2 billion (approximately R$4 billion adjusted for inflation).
The bankruptcy decision by the 7th Business Court of the Rio de Janeiro Court of Justice was made after the news agency applied for recognition of bankruptcy status last Friday (7th).
Judge Simone Gastesi Chevrand’s judgment cited 1.7 billion reais in super-insolvency debt (debts incurred after the restructuring began), 200 million reais in monthly income, and empty assets as evidence of the company’s insolvency.
Ferrari said the bank’s appeal does not counter the company’s definitive operational and financial unviability, which the court found to be unviable.
“Claims for stay effect essentially seek to preserve some of their claims, but do little to resolve the structural framework, protect the position of large creditors, do nothing to resolve the economic realities of the case, and are yet another attempt by creditors to preserve a business that has proven to be unsustainable over the years, which appears to be much more passive than the value it is worth preserving,” the lawyer said.
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