Avianca Case ( Oceanair )

1. Avianca Case (Oceanair) Francisco Satiro

2. Background Decree 669/1969 (Militarydictatorship) Art. 1º - companiesthat explore anyairlineservicesoraeronauticinfrastructure are prohibitedoffiling for concordata Law 7565/1986 BrazilianAeronauticCode Art. 187 – companiesthat explore anyairlineservicesoraeronauticinfrastructure are prohibitedoffiling for concordata SAFETY REASONS POLITICAL REASONS

3. 2005 – Law 11.101 – New Insolvency Regime Inspiredby World Bank andUncitral Works Reorganization YES GOING CONCERN VALUE? Diistressed company NO Liquidation

4. LAW 11.101 – Airlines treatment Art. 198 Thosewhowereprohibitedoffiling for concordataaccordingtospecificruleswhenthis Law come into force are prohibitedoffiling for judicial or extrajudicial reorganization. Art. 199. Article 198 does notapply for thecompaniesreferredtoby art. 187 of Law 7565/1986 Since 2005 AirlineCompanies in Brazilcan file for judicial reorganization

5. LAW 11.101 – Airlines treatment Airlines operations in Brazil are basedon contratual rights (Authorizations, slots, aircraft leasing, etc). Liquidationwaistthosecontractualrights. High ongoingconcernvalue. 1st Case

6. LAW 11.101 – Airlines treatment Art. 199. (...) Paragraph 1. In judicial reorganizationandliquidationofcompaniesreferredto in themainsectionofthisarticle in no eventshalltheexerciseofrightsderivingfromrentalcontracts, leasing oranyothertypeofaircraftleaseor its partsbesuspended. (amendedby Law 11.196/2005)

7. LAW 11.101 – Characteristics 1. Lenght Too long Debtorpresentshis/herreorganizationplan Acceptanceby Judge PlanApproval / not FilingbyDebtor 412 days 35 days 60 days stay No stay Source NEPI/PUC

8. LAW 11.101 – Characteristics 2. No DIP financingefficientprovision Quite difficult for debtorstogetcreditduringthe procedure: • No incentives (privilege for new money) • No debtxequitymechanism • Saleofclearassetstakes too long 412 days 35 days 60 days stay No stay Source NEPI/PUC

9. LAW 11.101 – Characteristics 3. DebtorSurvival • Protecting “essencial assets” during procedure Art. 49. (...) Paragraph 3 - In the case of a creditor holding the position offiduciaryownerofmovableorimmovableproperty, lessor, ownerorpromisingsellerofpropertywhoserespectiveagreementscontainanirrevocabilityorirreversibilityclause, includingretentionoftitle, hiscreditwillnotbesubmitedtotheeffectsof judicial reorganizationandhispropertyrights over thecontractualpropertyandconditionswillprevail, subjecttotherespectivelegislation, butanysaleorclawbackofessentialassetsfromthedebtor's establishment notbeallowedduringthesuspensionperiodrefersto § 4 of art. 6 ofthis Law.

10. LAW 11.101 – Characteristics 3. DebtorSurvival • Protecting “essencial assets” during procedure Art. 6º Paragraph 4. In the judicial reorganization, thesuspensionreferredto in theheadofthisarticleshallin no case exceedthe non-extendableperiodof180 (onehundredandeighty) daysfromtheacceptingofthereoganizationpetition, restoring, aftertheexpirationoftheterm, thecreditors’ righttoinitiateor continue theiractionsandexecutions, regardlessof judicial pronouncement.

11. LAW 11.101 – Characteristics 3. DebtorSurvival • Protecting “essencial assets” during procedure Courtsallowedlongertermstoprovideutilitytothe Law. No 180 dayslimittokeepessentialassets(1). There are other cases – art. 57, art. 76, etc. (1) (STJ, REsp 1.272.697/DF, rel. Min. Luis Felipe Salomão, j. 2-6-2015; TJSP, 36ª Câmara de Direito Privado, AI 2087249-96.2016, rel. Des. Maria de Lourdes Lopez Gil, DJ 7-12-2016)

12. Cape Town Convention (Decree 8008/2013) Brazil: Applied art. VIII (Chioceof Law), XII (Insolvencyassistance), XIII (de-registration) AppliedAlternative A Art. XI – waitingperiod– country’schoice (30-60 days).

13. Cape Town Convention (Decree 8008/2013) Brazil: XIII (de-registration) Limit: Constitution: Art. 5º (...) XXXV – thelawshallnotexcludeanyinjuryorthreatto a rightfromtheconsiderationoftheJudiciary;

14. Cape Town Convention (Decree 8008/2013) Brazil: AppliedAlternative A Art. XI – waitingperiod – country’schoice (30-60 days). Brazil = 30 days. (Why????) Long procedure, no DIP, Operationsbasedoncontratcs = no Reorganization Art. XI Decree 8008/13 revoked art. 199, §1º

15. Cape Town Convention (Decree 8008/2013) Article XI — Remediesoninsolvency (...) 2. Upontheoccurrenceofaninsolvency-relatedevent, theinsolvency administrator orthedebtor, as applicable, shall, subjecttoparagraph 7, givepossessionoftheaircraftobjecttothecreditor no later thantheearlierof: (a) theendofthewaitingperiod; and (b) the date onwhichthecreditorwouldbeentitledtopossessionoftheaircraftobjectifthisArticledidnotapply. 3. For thepurposesofthisArticle, the “waitingperiod” shallbetheperiodspecified in a declarationoftheContractingStatewhichistheprimaryinsolvencyjurisdiction.

16. Cape Town Convention (Decree 8008/2013) Article XI — Remediesoninsolvencywasrespected The Judge – andthe Superior Courtof Justice (STJ) - allowedtheadjustmentofthe “waitingperiod” (a local choice, partofthedecree, nottheprotocol). The contentoftheProtocolwaskept.

17. Conclusions - The implementationof Cape Town Conventionhastotakeintoaccountthe local legal environmet. - Creditors in Avianca case gottheiraircraftswithin 90 daysafteracceptanceofthereorganizationproceeding. - Changes in presentBrazilian Law will come soon. Improvements are expected. - Windingupshallnotbetheonlysolution for domestic Airlines in distress.