The partners are clashing over management and control of the pulp producer in two ICC arbitrations and one at B3’s CAM, alongside ongoing litigation in regular courts
10/07/2024
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A third arbitration in the Eldorado case, held in secrecy, has ordered the pulp producer to pay its shareholders, J&F Investimentos and Paper Excellence, the minimum mandatory dividend required by Corporate Law for 2023 within ten days, with continued profit distribution where applicable, until the end of the proceedings, Valor found.
In this latest development of the six-year dispute between the partners, the tribunal also ordered the freezing of Paper’s shares in Eldorado.
The decision, issued on Friday (4), comes from a newly formed arbitration tribunal at the International Chamber of Commerce (ICC), created last year at the request of J&F.
This is the second arbitration proceeding related to Eldorado at ICC Brazil. The first, initiated by Paper against J&F in 2018, resulted in a unanimous win for the Asian partner in 2021 but has been suspended since September 20 following a ruling by the Brazilian Court of Appeals for the Fourth Circuit (TRF-4). J&F is currently contesting the award in the court system.
Following Friday’s ruling, Eldorado will have to distribute up to R$560.5 million in profits—nearly half to each shareholder—in the coming days. This amount represents 25% of the pulp producer’s net profit of R$2.35 billion last year.
As reported by Valor in May, Paper, which owns 49.41% of Eldorado’s shares, voted at an April meeting to distribute 100% of the pulp producer’s 2023 net profit. However, J&F, which holds the majority on Eldorado’s board, allocated R$105 million for legal and tax incentive reserves while retaining the remaining R$2.24 billion. According to sources familiar with the dispute, Eldorado failed to distribute the required 25% of its profits to shareholders, as mandated by Brazilian Corporate Act.
Additionally, in a March 3 ruling, the arbitration tribunal prohibited Paper from transferring its shares in Eldorado—whether through sale or as collateral for financing—until the arbitration concludes. The tribunal also ordered Paper to reimburse J&F for any dividends received if J&F prevails in this dispute.
The two partners, J&F—owner of JBS—and Paper, controlled by Indonesian businessman Jackson Wijaya, have been locked in a legal battle over control of Eldorado since mid-2018. The company was valued at R$15 billion in the sale and purchase agreement signed in September 2017, but Paper has accused the Batistas of deliberately obstructing the purchase of the remaining shares.
After losing the first arbitration at the ICC, J&F initiated a new proceeding at the same tribunal, seeking to nullify the contract. The Batista holding company argues that Paper misrepresented facts when signing the agreement, alleging, among other points, that Paper failed to secure the necessary approvals from Congress and the National Institute of Land Reform and Colonization (INCRA) to finalize the transaction in Brazil.
This is the same argument supporting a popular lawsuit filed in May last year by Luciano José Bulligon, former mayor of Chapecó, with the Brazilian Court of Appeals for the Fourth Circuit (TRF-4), the appellate court for the South region. This lawsuit eventually led to the suspension of the first arbitration at the ICC. Mr. Bulligon is invoking legislation governing foreign purchases of rural land in Brazil in an attempt to annul J&F’s sale of Eldorado to Paper.
In addition to the two arbitrations at the ICC, Paper and J&F are also clashing at the Market Arbitration Chamber (CAM) of B3, where the dispute revolves around the management of Eldorado.
Paper declined to comment, and J&F had not issued a statement by the time this article was published.
In a statement to the market on Friday (3), Eldorado confirmed the order to pay the mandatory minimum dividends for 2023. The company also noted that if this third arbitration results in the annulment of the 2017 sale agreement, Paper will be required to return the dividends received to J&F. “Furthermore, the arbitration court prohibited shareholder CA Investment (Paper’s company) from transferring Eldorado shares it owns until a final decision is reached in the ongoing arbitration, which will be duly recorded in the company’s books,” the statement read.
*By Stella Fontes — São Paulo
Source: Valor Internarional