Insolvency, Arbitration, and the Odebrecht Corruption Scandal

By: Hunter Grasso, 2L


In 2016, Brazilian construction and contracting firm Odebrecht SA pled guilty to a charge of conspiring to violate U.S. foreign bribery laws. The charge stemmed from allegations that the firm paid hundreds of millions of dollars in bribes to Brazilian public officials to secure valuable infrastructure contracts. These contracts included major public works projects like roads, bridges, airports, power plants, and oil pipelines. Ultimately, Odebrecht signed the largest anticorruption settlement in history; the firm agreed to pay between $2.6 billion and $4.5 billion to authorities in Brazil, the U.S., and Switzerland. This scandal sent shockwaves throughout Latin America and the Caribbean, implicating presidents, politicians, and prominent business-people. Somewhat unsurprisingly, Latin American countries like Argentina, Colombia, and Peru cancelled most, if not all pending contracts with Odebrecht. This led to years of financial hardship for the firm.

In June 2019, Odebrecht filed for bankruptcy protection in Brazil with the goal of restructuring its $13 billion debt. The firm’s largest creditors are Brazilian state-owned banks and lenders, which means that Brazilian taxpayers would be impacted if the banks cannot recoup their loans. Two months later, Odebrecht filed for chapter 15 bankruptcy, seeking U.S. recognition of the Brazilian bankruptcy. Odebrecht’s most valuable asset is the controlling share of its petrochemical subsidiary, Braskem SA. Odebrecht offered shares in Braskem as collateral on loans from its primary creditors. In its Brazilian bankruptcy filing, Odebrecht successfully obtained a judgment blocking the primary creditors from taking possession of the shares. On appeal, the court ruled in favor of the creditors. Odebrecht has appealed this decision.

As of February 2020, Odebrecht’s financial situation has not improved. Odebrecht has now taken Peru to arbitration over the country’s cancellation of an oil pipeline contract, in which the firm invested $2 billion. Peru cancelled the contract in 2017 amidst the firm’s corruption scandal. Odebrecht indicated that the purpose of the arbitration is to recoup the money that was invested in the project so that the firm can use it to pay its creditors. On the heels of the arbitration, Peruvian President Martín Vizcarra’s entire ministerial cabinet has resigned.

Years after being “settled,” the Odebrecht corruption scandal continues to have a social, political, and economic impact throughout Latin America. The effect that the scandal has and will continue to have on the people of Latin American is undeniably troublesome. Barring any unforeseen circumstances, it is unlikely that Odebrecht’s creditors will receive more than a fraction of what they are owed. However, if the court gives the primary creditors permission to take possession of the Braskem shares, there will likely be nothing left to satisfy the other creditors. The next major event in the bankruptcy proceeding is the creditors’ vote on the new restructuring plan, which is scheduled for late March. This vote—if it is not postponed again—will likely be the best indication of what can be expected moving forward.

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