Decision on Doe Run Peru to come during first round of creditor meetings - expert

Friday, August 27, 2010

The decision by creditors of Lima-based Doe Run Peru to restructure or liquidate the company will be made during one of the first creditor meetings, which could be held in 1H11, Guillermo Puelles, an expert in restructuring procedures, told BNamericas.

Creditors have until September 27 to file for recognition of their debts with competition regulator Indecopi. It could take 4-6 months to confirm the debts.

"Right now it is important to see who the creditors are and which ones are going to be registered by Indecopi," said Puelles, who works at Lima-based law firm Rodrigo, Elias & Medrano. "[Indecopi] will assign a percentage of voting rights to each creditor."

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Indecopi will then call a meeting for approximately one month later.

"And there, the first important decision in the case is going to be made, which is whether to restructure or liquidate Doe Run Peru."

During the meeting, Doe Run Peru will have an opportunity to present to creditors its own opinion and recommendations.

"What usually happens is that the corporation presents some general guidelines about the main proposal," Puelles said. "You don't have to approve a plan right there, just first to decide if you want to restructure or to liquidate. The plan itself, which is more detailed, can be approved later on."

A detailed plan could take creditors an additional three months to finalize. "But the whole process may take longer, it really depends on how the process moves."

The plan to restructure or liquidate Doe Run Peru will require the support of two-thirds of the voting rights in the creditors meeting.

However, if Indecopi approves a related party creditor, such as Ira Rennert - head of the New York-based Renco Group which has a 99% interest in Doe Run Peru - that holds more than 50% of total credits, the creditor meeting will be split in two and major decisions will require the approval of both groups.

The decision to include related party creditors in the process requires greater analysis of their debt than non-related creditors. "There is a different treatment for related parties. Indecopi will have to review with a more careful standard the nature, the existence and the legitimacy of the related party credit."

In terms of debts to government tax agency Sunat, Indecopi will only grant voting rights to Sunat for tax debts that are final, definitive and non-appealable. Otherwise, the tax debts will be registered as contingent debts for purposes of the proceeding, Puelles said.

If the creditors decide to liquidate Doe Run Peru, first priority rights are for workers and social obligations.

"Next come creditors who have securities, guarantees and liens over the property of Doe Run Peru. Then comes tax obligations and the last priority is for all the other unsecured creditors."

The company suspended operations at its smelter in La Oroya last year when it ran into financial difficulties as a result of the global financial crisis.

Built in 1922 by the Cerro de Pasco Corporation and acquired in 1997 in a privatization process by St Louis-based Doe Run, the plant is known for having caused serious lead contamination around La Oroya.