Dutch Foundation wins significant victory for Petrobras shareholders and investors
STAMFORD, Connecticut – (COMMERCIAL THREAD) – International Securities Associations & Foundations Management Company (ISAF)
On May 26, 2021, the Rotterdam District Court ruled that the Stichting Petrobras Compensation Foundation (SPCF or Fondation) has standing to seek declaratory judgment in the Netherlands on behalf of global investors who have purchased Petrobras securities in Brasil. Bolsa Balcão SA or B3 – Brazil (formerly BM & FBOVESPA) and related markets of the European Union as well as certain obligations prior to July 28, 2015.
Created in 2016, the SPCF has been in active litigation on these issues with Petrobras since January 2017. The first major decision conferring jurisdiction on the Foundation was a provisional decision rendered in September 2018. Since the provisional decision of 2018, the litigation has progressed significantly . on procedural modalities and technical details concerning the statute of the Foundation.
The Dutch court ruling effectively rejects the defendants’ request to dismiss the case. With this final and favorable ruling on the Foundation’s standing, litigation will now focus on the merits of the case and whether Petrobras violated applicable laws, thereby causing damage to shareholders. The Petrobras share price declines related to the Dutch litigation occurred over several months in 2014 and 2015. It was revealed during this period that for many years Petrobras made fraudulent and misleading statements to investors regarding (i) company books and records, (ii) valuation of company assets, and (iii) related bribe and bribe programs discovered by Brazilian federal law enforcement in 2014 – the widely reported Lava Jato Opera scandal.
In summary, the main lessons to be learned from the decision of May 26, 2021 in Rotterdam are:
1) The Court totally rejected the argument of the Petrobras defendants that investors in Petrobras who bought shares on the B3 and linked markets in the EU are not entitled to seek redress in the Netherlands under article 58 of the Petrobras statutes – the so-called Petrobras arbitration clause.
a. The Rotterdam court in particular took issue with Petrobras’ spurious attempts to make the argument for the requirement of arbitration in the Rotterdam court when in fact the same defendants argued the exact opposite in a proceeding. arbitration in Brazil – a contradiction for which the Foundation provided evidence to the Court during the last oral hearings held in Rotterdam in January 2021.
b. The Court also noted that a broad interpretation of the arbitration clause would result in shareholders being denied access to an independent national court. As access to an independent tribunal is a fundamental right, any statutory provision which would cut off this path must be clear and unambiguous. The court determined that this was not the case since Brazilian courts have twice ruled that article 58 of the articles of association only applies to the internal operations of the company. As the Foundation’s case did not relate to a dispute relating to the internal functioning of the company, the court ruled that the arbitration clause did not apply.
vs. Therefore, the facts presented by the Foundation led the Court to overturn its earlier provisional ruling on the applicability of Article 58 and confirmed the Foundation’s position that the category of Petrobras investors should include all eligible investors. and not exclude a subset of investors domiciled in Brazilian or Portuguese-speaking jurisdictions.
2) The Court ruled that investors in Petrobras who are currently actively engaged in arbitration proceedings or separate disputes for the same facts in Brazil or elsewhere are excluded from the world class of investors for whom the Foundation in the Netherlands Bas pleads.
3) The Court affirmed that the Foundation represents a sufficiently broad class of investors and that the collective action process in the Netherlands is an effective vehicle for pursuing the claims of the eligible and aggrieved class of global investors.
4) The Court set a date of September 1, 2021 for the Foundation to submit its additional arguments and facts regarding the merits of the case and in particular the arguments that support the Foundation’s allegations that Petrobras violated the rights of investors under the laws of various jurisdictions. as previously determined by the Rotterdam Court.
Petrobras faces potential liability of several billion euros
Now that the Dutch court has ruled that the Foundation has standing to bring declaratory legal action in the Netherlands, the Petrobras defendants are exposed to increased liability. In the United States, Petrobras settled claims of U.S. investors on certificates of deposit (ADR) and certain bondholders through a $ 3 billion (€ 2.5 billion) settlement. The American free float ADR (American Depository Receipts) is a Receipt linked to the underlying Petrobras Shares equivalent to approximately 15% of the global public shares issued by Petrobras.
Excluding the underlying ADR shares and shares held by the Brazilian government and Brazilian government agencies, the remaining public equity float of Petrobras, or “The Rest of the World”, is about 30% – or double the free float of shares held via ADR investors.
In the US ADR and bond litigation, investors claimed damages of more than $ 13 billion (10.6 billion euros) for which Petrobras proposed a settlement of $ 3 billion mainly allocated to ADRs / shareholders . The alleged liability incurred by “the rest of the world”, mainly the international and Brazilian direct shareholders of Petrobras and certain bondholders represented in the Netherlands, by extension, could exceed 20 billion euros (24.5 billion USD) – a decisively important potential liability notwithstanding the liability of Petrobras. recent report of a strong financial position.
In the next phase of the litigation in the Netherlands, the court will seek to determine whether Petrobras has violated anti-corruption and securities laws outside the United States, in particular under the laws of several countries of the United States. ‘EU and Brazil. The fact that Petrobras has already admitted to violating US laws, which are similar to those of many countries in this area, further supports the thesis that Petrobras faces significant legal risks and associated damages to shareholders in the United States. Low. Among other things, Petrobras entered into a non-prosecution agreement with the US Department of Justice (DOJ) in 2018. The statement of facts in the DOJ deal claims that Petrobras’ defendants admit violations of US anti-prosecution laws. -corruption and US securities laws. as summarized in the press release from the US DOJ regarding the criminal sanction of 853.2 million USD (697.3 EUR) paid to the DOJ, the United States Securities and Exchange Commission (SEC) and the Brazilian authorities (https: //www.justice.gov/opa/ pr / petr-leo-brasileiro-sa-petrobras-agrees-to-pay-more-850-million-fcpa-violations).
ISAF management congratulates the Foundation for this favorable result for the global investors of Petrobras. Although the Court has already ruled that the Foundation has standing to represent all eligible shareholders, ISAF management encourages all eligible investors who have not yet actively joined the Foundation to do so before the next hearings which will begin on September 1, 2021.
Further information on the dispute is available at www.pbcompensation.com. The SPCF asked ISAF to coordinate all administration with investors, including funding all litigation costs so that investors can participate only in emergencies with no upfront costs. You can find more information about ISAF at www.isafmanagement.com. Petrobras investors who purchased shares on B3 before July 28, 2015 can begin the ISAF and Foundation registration process on the ISAF website.