Multinational LATAM companies in distress: Chapter 11 or Chapter 15 of US Bankruptcy Code – opportunities and pitfalls

Cristobal Raby

Prieto, Santiago

craby@prieto.cl

Thursday 3 November 2022

Session Co-Chairs

Tomás Araya Bomchil, Buenos Aires

Fernando Martinot Estudio Martinot Abogados, Lima

Speakers

Guillermo Fontes Demarest Advogados, São Paulo

Susana Hidvegi-Arango Former Superintendent of Bankruptcy Proceedings, Bogota

Lisa Schweitzer

Ricardo Reveco Carey y Cia, Santiago

The panel's conversations started with a brief opening that remarked on the importance of the United States Bankruptcy regulation for the region, especially considering airline cases and other bankruptcy cases in the US, such as Gildemeister and Corp Group.

The panellists agreed with the idea that Chapter 11 gives companies much better asset protection. However, as the procedure is not well known by creditors, they usually do not see it with optimistic eyes, especially because of the costs involved.

The panellists also agreed to recognise that Chapter 11 gives companies other sources of financing, such as debtor-in-possession (DIP) financing, which turns this procedure into a good opportunity to obtain cashflow and pursue normal operations once the procedure is terminated. However, the predominant opinion was that companies should analyse matters case by case to determine whether it is convenient to apply for Chapter 11 under the US regulation because the most important thing to consider is the sanity of the company and, of course, that involves the relations with all stakeholders (employees, management, creditors, etc).

Susana Hidvegi-Arango from Colombia told the audience that, in Colombia, Chapter 11 is very uncommon, especially because of banks. She said that banks cannot assume that kind of risk. She remembered the case of a Canadian company who demanded guarantees over assets situated in Colombia, but the company asked for $50m to be removed from the guarantee in order to protect local creditors. Along the same line, in her opinion, the courts in Colombia do recognise the Chapter 11 procedure, but they do not allow that procedure to affect employees' labour and social security rights, much in line with Latin American protection standards.

Ricardo Reveco from Chile explained that, in Chile, Chapter 11 procedures are unusual; although, in the last few years, there have been cases (LATAM and Corp Group). Creditors, in general, do not like this procedure because they lose control of the company. Considering the aforementioned discussion, Reveco said that it will be common to see clauses in credits that prohibit the activation of any procedure in the US.

Regarding the LATAM Airlines procedure, in Reveco's opinion, the experience was good. The Chilean courts recognised the procedure in a few days because they established that the interests of the creditors were in Chile, but Reveco agreed that the most important thing is to analyse matters case by case because not all bankruptcies are the same.

In her remarks, Lisa Schweitzer said that companies should always analyse all the options. In her opinion, Chapter 11 gives a company very solid asset protection and it is an option because everybody knows, in some way, how the procedure will end. Negative comments on Chapter 11 were the costs, the fact that the entire procedure is public and that all stakeholders can participate.