Samarco consensual debt restructuring plan to be ratified without need for creditor meeting
31st July 2023
On 28 and 29 July 2023, Brazilian mining company Samarco Mineracao, its shareholders Vale SA and BHP Billiton Brasil Ltda., and an ad hoc group of financial creditors represented by Ultra NB LLC, presented the amended – and likely the definitive – version of a repayment proposal for the company’s multi-billion debt. A potentially case-ending acceptance of the repayment proposal is expected in the coming weeks. In this article, Debtwire’s legal analyst team describes the proceeding for the approval of a debt restructuring plan without a creditor meeting, which is newly adopted into Brazilian bankruptcy law.
Source: Debtwire Restructuring Database
A consensual plan after a long period of litigation
The plan reflects the terms of an agreement reached two months ago by the involved parties. Under the agreement, certain of the company’s financial creditors will receive new notes in place of prepetition notes, in addition to payments both in kind and in case. Additionally, the plan provides for the payment in full for employees (labor claimholders) holding up to BRL$1,500,000, microenterprise creditors and unsecured critical vendors.
Click here to view the amended debt restructuring plan.
The company, its shareholders and bondholders have been involved in several disputes since the in-court restructuring process was commenced in April 2021, which includes litigation over post-petition funding, impairment of claims stemming from the 2015 environmental disaster, and shareholder’s right to vote on alternative creditor-proposed plans, among other battles.
After the original reorganization plan presented by the company was rejected in April 2022, both Ultra (supported by bondholders) and two workers’ unions (supported by the company and the shareholders) proposed alternative repayment proposals, which have been challenged via several motions and appeals filed by each of the different parties, until an agreement was finally reached at the conciliation proceeding held by the 21st Civil Chamber of the Minas Gerais Court of Appeals.
Source: Debtwire’s Restructuring Database
Alternative plan approval proceeding – creditor meeting unnecessary
In order for the debt restructuring agreement to be valid against all creditors impacted by the bankruptcy, in principle, a creditor meeting should be scheduled for plan voting, following its attachment to the lawsuit. However, the proposal was presented along with evidence of support from the majority of impaired creditors in all classes, which will seemingly make the meeting and the vote unnecessary, in line with Brazilian bankruptcy law requirements.
This alternative plan sanctioning mechanism was introduced in the country’s bankruptcy regime via a major reform that was signed by the country’s former president in late 2020, and became valid in early 2021. According to novel Sections 39, § 4, I and 45-A, § 1 of the law, a creditor meeting for a plan voting proceeding may be replaced with documents that evidence the support of the majorities of creditors.
In this case, dissident creditors could eventually object to the plan, but such objections could only refer to matters regarding (i) plan approval quorums; (ii) violation of any proceeding established in the law; or (iii) illegalities on either the plan restructuring proposals or the documents that evidence the creditor plan support, as set forth in Section 56-A, § 3 of the law. Rulings accepting plans approved through this proceeding may be appealed as well.
Samarco was the first case in which alternative creditor-proposed plans were presented, but it would not be the first case in which a debt restructuring plan is approved by creditors and confirmed by court without a creditor meeting.
In Renova Energia, an amended plan – allegedly filed to restructure only secured claims – was sanctioned by the court, based on consenting letters presented by the majority of secured creditors. An unsecured creditor appealed the decision, claiming that their claims had also been indirectly affected as a result of the amended plan approval.
The Sao Paulo appellate court rejected the appeal and confirmed the plan acceptance ruling, thereby ratifying the validity of the evidence of creditor plan support without the need of a creditor meeting.
Source: Debtwire’s Restructuring Database
Conclusion – alternative approval of an alternative plan
In this context, Judge Adilon Claver de Resende, of the Second Corporate Court in Belo Horizonte, State of Minas Gerais, is expected to decide whether to confirm the consensual plan within the next few weeks, after stating a deadline for both the Judicial Manager and the Public Prosecutor to present their legal opinions on the matter. For the Debtwire legal analyst team, the plan acceptance and the closing of Samarco case is now just a matter of time, as the strong plan support from its creditors and shareholders leaves little room for litigation.
As the first high-profile case commenced after the major reform in Brazilian bankruptcy law was enacted, the Samarco bankruptcy worked as a stage for discussions of several unprecedented issues specifically stemming from the litigation mentioned above, which contributed to the development of related case-law, and may ultimately result in an improvement of the country’s insolvency system. If our expectations materialize, Samarco will also be marked as the first case in which an alternative plan was approved via an alternative proceeding.
 Specifically, for Classes I and IV, of which the plan approval is required only in terms of headcount, the court documents filed on 28 and 29 July evidence a support of 1128 (or 54.5%) of labor claims (Class I), and 118 (or 72.4%) of microenterprise claims. Additionally, for the unsecured claims (Class III), in which the plan must be approved by majorities in terms of both headcount and amounts, the plan is supported by 540 (57.6%) creditors, holding a total amount of roughly BRL 17.06bn in claims. Secured claims (Class II) would also require approval in terms of both headcount and amounts, but there are no secured claims impaired by Samarco process.