The novel coronavirus is generating an increasing volume of debt restructurings of facilities entered into between Brazilian companies and foreign lenders.
From lenders’ perspective, it is important that restructurings of the original debt’s terms and conditions are documented properly, both under the laws of lenders’ jurisdiction (ex. New York) and borrowers and guarantors’ jurisdiction.
The importance of holding strong debt restructuring documentation under local law (in this case, Brazil) is that lenders should always have in hands solid Brazilian law documentation in order to enforce their rights where borrowers and guarantors, and most of their assets, are located.
There are a number of successful cases supporting this approach.
One document that has proven to provide legal support to foreign lenders in local courts is the “debt confession agreement”. Debt confession may be built as a clause added to the restructuring agreement or as an independent legal instrument.
The key is that debt confession must (i) observe law format and substance requirements, and (ii) be prepared with objective and clear language, so that it becomes an undisputed instrument to demand the debt in court without the risk of legal challenges by borrowers and guarantors.
If the above is followed, foreign lenders should have a document widely accepted by Brazilian judicial system in all levels and that provides creditors the right to demand in courts the underlying debt and seek to attach debtors and guarantors’ assets through a fast track proceeding.