Recognition of the BVI Scheme of Arrangement for a subsidiary of Brazil’s Constellation Oil Services group by the US Bankruptcy Court marks the success of a US$1.5+ billion restructuring.
It is the culmination of the restructuring of the former Queiroz Galvão Oil & Gas group, whose troubles began with restrictions placed on the group because of its role in corrupt practices revealed by the Operation Car Wash (lava jato) investigation, and which saw the novel appointment of “light-touch” provisional liquidators for the first time in BVI.
On 30 March 2020, the Bankruptcy Court of the Southern District of New York granted recognition to the provisional liquidator of the BVI company Olinda Star Ltd, and gave full force and effect to its BVI Scheme of Arrangement.
The US Courts had previously granted Chapter 15 recognition to the Brazilian judicial administrator of the other Constellation Group companies that were the subject of the restructuring. All of these other companies were the subject of a Court approved restructuring (recuperação judicial) in Brazil. Despite being a direct subsidiary of one of those companies, however, Olinda had been excluded from the Brazilian procedure by the courts in Rio de Janeiro on the basis that, as a BVI company with assets located outside of Brazil, it did not have a sufficient connection with the jurisdiction to be part of the process.
As Olinda had guaranteed and secured New York law governed notes issued by Constellation due in 2024, the restructuring – which relied on the issuance of new notes and the provision of new guarantees and security – could not succeed unless and until Olinda’s prior obligations had been compromised.
The Olinda restructuring scheme of arrangement was approved by a creditors’ meeting in New York in February, but the scheme required recognition in New York to ensure that Olinda’s prior obligations were compromised under the law governing the notes.
Now that it has been recognised in New York, the scheme can be filed with the BVI Registrar of Corporate Affairs, at which point it will become effective.
Harneys acted for the majority noteholder creditors in the restructuring, with Milbank and E Munhoz as onshore counsel. Eleanor Fisher of EY acted as the scheme administrator and one of the two provisional liquidators of the BVI subsidiaries.
Taken together with its role advising in the OAS restructuring, the successful conclusion of the Constellation restructuring affirms Harneys’ position as the first choice offshore for LatAm, and for insolvency and restructuring.