The use of mediation to solve problems with creditors is gaining momentum among indebted companies, especially those in legally-backed financial restructuring. Renova Energia has chosen to try this alternative a few days ago, as well as Hotel Maksoud Plaza and department store chain Le Postiche.

The measure can be a fast, low-cost solution for debtors and creditors. Agreements reached through mediation are ratified by judges and considered a ruling. The litigation ends at that point, reducing expenses with attorney’s fees, court costs and the several appeals that would come with a lawsuit.

Disputes taken to higher courts can take years – sometimes decades – to end. With mediation, they usually take only a few months. In the case involving Le Postiche, for example, the agreement was ratified in the same month.

Le Postiche, Maksoud and Renova Energia have all filed for bankruptcy protection in São Paulo courts. Mediation was indicated by the judge or the trustee of these cases, and the measure only went ahead because the parties – debtor and creditor – agreed to try and cut an agreement.

Power generation company Renova, for example, agreed to sit at the table with Brazil’s national grid operator ONS to discuss payments owed to 237 transmission firms. The negotiations are just beginning.

In March, Judge Paulo Furtado, of the 2nd Court of Bankruptcy of the city of São Paulo, appointed a specialized chamber, Med Arb RB, for the case. They will try to reach a decision by consensus with the help of a mediator.

The use of mediation in corporate disputes, in general, has been happening for a long time in Brazil and abroad – especially in the United States. But it is slowly being adopted for legally-backed financial restructuring. The first case in Brazil was that of Oi.

The phone carrier was allowed by Judge Fernando Viana, of the 7th Business Court of Rio, to use mediation in 2017. Agreements were reached with more than 50,000 creditors – most of them holding credits of up to R$50,000 – through an online platform developed by the think tank Fundação Getulio Vargas.

“It worked very well. But people were skeptical that it would work for other cases. Oi’s reorganization case is the largest in Latin America,” said Samantha Longo, with the law firm Longo Abelha Advogados, who worked on the case.

There is more talk now about mediation in the financial restructuring market after the National Council of Justice, a public institution that aims to improve the work of the Brazilian judicial system, published recommendations to judges. The first was at the end of 2019 and others came in 2020 – when the pandemic hit.

But experts say the turnaround came with the reform of the Bankruptcy and Judicial Recovery Law (No. 11.101) in early 2021. The rule now provides for the use of mediation, including as a pre-procedural step, with the right to benefits that were previously only allowed within the proceedings – such as the suspension of collection actions against the debtor for 60 days.

Le Postiche, a handbag and luggage retailer, decided to try this path in July 2021. It used mediation with property owners where some of the brand’s stores operated. The company agreed to hand over the rooms and the landlords, in exchange, considered the debts settled.

Without an agreement, the debt would remain within the reorganization process – to be paid according to the plan approved in a creditors’ meeting, with the possibility of discount and payment in installments – and the owners would have difficulty in recovering the properties immediately.

“Mediation has to be analyzed on a case-by-case basis and used in those cases in which it is really necessary and can work,” said Julio Mandel, with law firm Mandel Advocacia, which works in the company’s reorganization.

The agreement with the lessors was ratified in the same month by Judge Andréa Galhardo Palma, from the 2nd Regional Business Court in São Paulo.

In the case of Maksoud, mediation was used in a landmark dispute: the ownership of the iconic building in São Paulo where the five-star hotel operated for 42 years.

There had been litigation since 2011, when businesspeople Jussara and Fernando Simões, siblings and shareholders of Simpar, bought the property for R$72 million – R$137 million in updated values – in an auction by the Labor Court. Hidroservice, the holding company of the Maksoud group, questioned the validity of the auction in court and had been holding on the property.

During the reorganization process, after the recommendation of the trustee, the parties agreed to try an agreement through mediation. It worked.

It was agreed that the loser would not have to pay the attorney’s fees to the prevailing party. And they fixed an incentive clause to vacate the property. The Simões brothers committed to pay an extra R$59 million and Maksoud, in exchange, would deliver the building on time.

With these amounts, Maksoud will be able to settle its reorganization plan and pay tax debts, and it still has money left to continue its activities, which are now more related to real estate services and management.

The agreement cut in five months was ratified by Judge João de Oliveira Rodrigues Filho, from the 1st Bankruptcy Court of São Paulo.

But the case is not yet closed. The brothers Claudio and Roberto Maksoud, sons of the hotel’s founder, Henry Maksoud, filed an appeal in court questioning the sale price of the building, which, according to them, is worth R$300 million.

Because of this situation, the company took a little longer than expected to deliver the building. This, today, is already done. The current phase is the registration of the letter of sale in the real estate registry. According to interlocutors, the registration is expected to be completed later this month.

With this step completed, the amount collected in the auction is made available to the company. The extra R$59 million, foreseen with the incentive clause to vacate the property, will only be released when the São Paulo Court of Justice confirms the agreement ratified by the trial court.

“They usually say that mediation is an alternative method. But, as said by high court judge Paulo de Tarso Sanseverino, of the Superior Court of Justice, it is, in fact, the appropriate method to reduce litigation. The parties are able to solve the situation in a much less stressful manner,” said Elias Mubarak, head of Med Arb RB.

The chamber is specialized in mediation, arbitration and other conflict resolution methods related to corporate insolvency. Before founding Med Arb RB, Elias Mubarak worked, individually, as a mediator. He conducted the agreement involving Maksoud and the Simões brothers, and also the one between Le Postiche and real-estate landlords.

“The road is long, and we are at the beginning of it,” he said, in relation to the consolidation of this method in judicial reorganization. According to Mr. Mubarak, there is an incentive to the practice, especially from judges of specialized courts.

Paulo Furtado, of the 2nd Court of Bankruptcy of São Paulo, said that mediation has been used to bring the debtor and creditors closer together in the construction of the payment plan, for example, and also in bilateral situations. “It has been a fruitful path,” he said.

The judge is following five cases. Among them, that of Renova Energia. He is even studying another indication of the use of mediation in this process. This time, to deal with the leasing of land where the company’s wind power towers are installed. “Mediation can facilitate the understanding of the creditors, the owners of the land, of how corporate reorganization works.”

Renova Energia did not immediately reply to a request for comment.

Source: Valor International

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