Convenção da Cidade do Cabo e recuperação judicial no Brasil

Por Ricardo Bernardi.

As extensively released in the press, the Brazilian air carrier Oceanair – Linhas Aéreas Ltda. (known as‘ ‘Avianca’) filed for judicial reorganization, which is a debtorin-possession court supervised reorganizationproceeding authorized under the Federal Law nr. 11,101 (‘Bankruptcy Law’).
Upon the filing of such reorganization proceeding, Avianca specifically sought a Court order suspendingmeasures intended to repossess aircrafts financed by the company, what for the first time put on test theenforcement by Brazilian Courts of the provisions and remedies set forth under the Cape Town Convention onInternational Interests in Mobile Equipment vis-à-vis the protective principles of the Bankruptcy Law.
As background, in December of last year foreign creditors managed to repossess and export a few aircrafts leasedto Avianca, in most of the cases based on orders issued before the judicial reorganization was accepted by thelocal Court.
However, on February 1st, 2019, after hearings between the parties involved, the Judge responsible for thejudicial reorganization proceeding rendered a decision suspending the adoption of any measure intended to eitherrepossess the aircrafts or cancel its registration with the Brazilian Aeronautical Registry, what under the CapeTown Convention could be accomplished based on the Irrevocable Deregistration and Export RequestAuthorization (IDERA).
Though the decision recognized the importance of the Cape Town Convention – specially to keep Brazil as aState qualified for the OECD discount, the Judge considered that the underlying principles of the BankruptcyLaw, i.e., the preservation of viable companies and the protection of its social purpose, should prevail over theimmediate repossession of the aircrafts.
Such decision resulted in the suspension of repossession measures authorized under the Cape Town Conventionand the article 199 of said law.
Some of the foreign financiers have filed interlocutory appeals addressed to the State Court of Appeals, but afinal decision is currently pending
Legal framework applicable to the Court order sought by Avianca
Generally, upon accepting a judicial reorganization request filed by the debtor, the Judge is required to determinea ‘stay’ of enforcement of proceedings against the company, which then has 180 days to negotiate areorganization plan with its major creditors.
Though the stay order affects a large range of debts, both secured and unsecured, the Bankruptcy Law as rule setsforth that such order should not affect certain types of agreements, such as finance lease agreements ortransactions secured by chattel mortgages or fiduciary assignments, pursuant to the article 49

Notwithstanding the general rule above, based on the principle of preservation of viable business, Courts mayexpand the effects of the stay order to bar the enforcement of chattel mortgage and lease transactions in situationsin which the possession of assets is essential to preserve debtor’s activities during the stay period, so this could inprinciple authorize the Judge to suspend the effects of repossession measures within such period.
However, the article 199, paragraph 1st , sets forth that rights arising from aircraft and aircraft engine leases arenot subject to the judicial reorganization of air carriers and cannot be suspended or in any way affected by thejudicial reorganization, what would therefore protect foreign lessors and secured lenders from the effects of stayorders and other measures implemented under judicial reorganization proceedings.
This provision of the Bankruptcy Law was included as a result of the very negative impacts caused in theaviation financing market in Brazil, when the local carrier Varig filed for judicial reorganization in the past andcreated several obstacles for the enforcement of remedies by foreign financiers.
Therefore, the decision of the Judge in Avianca’s judicial reorganization is a clear violation not only to theprovisions set forth under the Cape Town Convention – including the right to utilize the IDERA to deregister theaircrafts, regardless of any Court decision – but also of the rules of the Bankruptcy Law itself.
This outcome is one more example of a failure from Brazil to apply rules provided for under internationalconventions to which the Country is a signatory.
Conclusion
Brazil is widely known for having a very complex legal system, which constantly requires a systematic review ofdifferent laws and precedents for the purposes of evaluating best alternatives and risks associated with litigation,especially when dealing with the financing of high-value assets, such as aircrafts.
The developments of the judicial reorganization proceeding involving Avianca is a very concerning outcome,since it unveils a first glance on how Brazilian Courts may interpret and hence enforce the provisions of the CapeTown Convention in an insolvency scenario.
The existence of a reliable Court system is one of the bases for any financier to decide on the conditions that willbe offered to a debtor based in another jurisdiction. The undisputed failure to comply with the provisions of theConvention – as shown in this case – can negatively affect the level of trust in the Brazilian legal system, whatmay result in the increase of costs for Brazilian aircraft operators to seek financing from foreign sources.
The filing of the appeals by the foreign financiers, in Avianca’s case, will be a good opportunity for Brazilianhigher courts to reflect on the importance of enforcing the remedies

Publicado originalmente em Ingles no site https://www.lexology.com/library/detail.aspx?g=97a39fc8-8473-41ce-a516-a2315f280070