In the body led by Hugo Sánchez there is an expert who has the task of daily monitoring the airline’s judicial process so that national creditors can exercise their rights in foreign court.
On the one hand, there are the shareholders of Latam Airlines. At the other extreme, the company’s creditors. In the middle is Judge James Garrity Jr. of the bankruptcy court for the Southern District of New York, where the airline’s financial reorganization process takes place. But there is another actor that has been kept under absolute secrecy: the Superintendency of Insolvency and Re-entrepreneurship of Chile.
The body led by Hugo Sánchez proposed a coordination protocol between the courts of Chile and the United States (which is pending approval), and also appointed an expert to carry out daily monitoring of both processes. Everything – according to the state entity itself to DFMAS – so that national creditors can exercise their rights in foreign court.
After availing themselves of the reorganization procedure in North America, Latam’s lawyers went to the Chilean courts to have this trial recognized and thus protect themselves against any eventual lawsuit in the country for any breach of their obligations. The request has already been accepted.
The State Defense Council – which claims US $ 17 million in debts from Latam – affirmed that there are no guarantees that the company will cancel its obligations to Chilean creditors. Therefore, he asked the local justice to appoint an overseer in the reorganization process in the United States.
The request was rejected by the judge of the Second Civil Court. However, the magistrate warned that – if new antecedents are presented – he could revoke or modify the recognition of the procedure.
It was in this instance that the magistrate, Gustavo Cerón Seguel, officiated at the Superintendency of Insolvency and Re-entrepreneurship to find out his opinion regarding the process being carried out abroad.
The first response of the body was to suggest to the local justice the establishment of a coordination and cooperation protocol between the Chilean court and the Bankruptcy Court of the Southern District of New York. This, the agency maintained, in order to better protect the purpose established in article 299 of Bankruptcy Law 20,720, which, among other objectives, seeks to promote an equitable and efficient administration of cross-border insolvencies that protects the interests of all creditors, national or foreign, and other interested parties, including the debtor.
After its presentation, the company itself made a formality proposal for a protocol, which is based on recommendations from international institutions such as the American Law Institute and the Interntional Insolvency Institute.
As the technical body in charge of ensuring the correct processing of bankruptcy proceedings, the superintendency recommended that the local justice approve the firm’s proposal, with some caveats: in order to safeguard the impartiality of the translations submitted, it suggested that expressly indicate that the interpreter made available to the court must be one who appears on the payroll that the Santiago Court of Appeals maintains for this purpose. In addition, to give greater clarity to the protocol, he recommended expressly indicating that the debtor must make a translator available to the court, for the communications that the magistrate deems necessary, both written and verbal with their counterpart in the US.
As explained by the superintendency, since there is no bankruptcy reorganization procedure in Chile, it sees “its powers of inspection limited”, since there is no verifier in charge of the case in our country, on whose act the supervisory powers of this entity fall.
However, he said that, in his role as a regulator and in attention to international good practices in matters of Cross-Border Insolvency, he decided to carry out a daily monitoring of the cases in the different jurisdictions, which is in charge of the lawyer Rocío Vergara Sassarini.
“The intention of our service is that once this protocol is approved, the national court can have fluid communication with foreign courts, mainly to protect the access of national creditors in accordance with article 312 of Law 20,720”, said the body.
In his opinion, by achieving coordination between the judicial headquarters, conditions could be established so that national creditors can exercise their rights in the foreign court, since Article 312 of Chilean law is replicated in the same way in the legislation of States. States in paragraph 1513 of Chapter 15 of the Bankruptcy Law of that country.
Sale of assets or merger
When reporting its results for the first semester, a period in which it reported losses of US $ 3.01 billion, the management of Latam Airlines detailed the options it had on the table before filing for Chapter 11 of the United States Bankruptcy Code last May.
“The company evaluated both an out-of-court restructuring with creditors and a bankruptcy proceeding,” said the company, which opted for the reorganization in New York. Currently, it is awaiting the decision of Judge James Garrity Jr. The US magistrate must rule on whether or not to go ahead with the proposal promoted by Latam, which raises a total financing of US $ 2.45 billion, and in the that the Cueto family, Qatar Airways, both major shareholders of the company, would become creditors of the airline for US $ 900 million.
But nothing is closed yet. “There is no guarantee that the company can successfully exit Chapter 11,” the Santiago-based airline said in its first half results. There he also specified the effects that he would face in case of not generating additional working capital or raising extra financing: “It is possible that you may not be able to restart operations currently suspended as a result of the Covid-19 pandemic, sell assets or celebrate a merger or another. combination with a third party, any of which could negatively affect the value of their shares, or render them worthless ”.
So far this year – and as a result of the pandemic, which forced all the world’s airlines to leave a large part of their aircraft fleet on the ground – Latam’s shares have accumulated a drop of over 80%.