Autodrome - recovery plan challenged by small creditors

Autodrome Judgement is due this week on the acceptance or rejection of Parkalgar’s ambitious recovery plan for the Autódromo Internacional do Algarve.

The recovery plan presentation in late October highlighted three facts; firstly the plan was heavily biased towards the two main creditors, Banco Comercial Português, and Bemposta with the unsecured creditors being offered 30% against the main creditors’ 100%.

Civil engineering company Bemposta is well known to the management of Parkalgar as the two companies once shared premises in Portimão.

Secondly the plan depends heavily on the sale of the unfinished apartments at the racetrack, which may be an ambitious aim, and lastly, the handling of the recovery plan process has disadvantaged at least four creditors who have written to the court to complain.

These four creditors of Parkalgar, the Autódromo operating company run by Paulo Luis do Carmo Pinheiro, have written to the Portimão Court to reject the terms of the recovery plan that the judge currently is pondering, the way the plan was presented and to allege that the main two creditors should not be allowed to vote.

GP2, Siemens, Deloitte and Prosegur have all sent similar lawyer’s letters to the Court, a summary of the main point follows:

First, the creditors formally reject the recovery plan presented by Parkalgar as according to the recovery plan legislation, any company proposing such a plan must have a good chance of remaining active long enough to carry out the debt repayments agreed.

The second principle of the legislation is that, "throughout the procedure, the parties must act in good faith, in finding a constructive solution that satisfies all involved."

The group of four claims not to have been contacted by Parkalgar’s management during the entire process of negotiation. The only time they were contacted by Parkalgar was on the 25^th of October.2012, to be invited to a presentation of the official recovery plan the next day, when a ‘yes’ or ‘no’ vote was called for to adopt, or not to adopt the recovery plan.

A call for a meeting to present the recovery plan is not a negotiation, they claim, a negotiation implies an effective engagement by all parties, not just a choice of two options

The recovery plan presented appears to be a result of negotiations between Parkalgar and its two main creditors, BANCO COMERCIAL PORTUGUÊS, S. A. and BEMPOSTA, S. A. and not a result of any discussion with the many other creditors, including the dozens of unsecured creditors.

This violates the recovery plan rules, especially as any creditor based outside Portugal may have additional difficulty as the process is in Portuguese, a language that the legal representatives of the some creditors may not understand. It is necessary to explain the process to overseas lawyers, and the procedures and steps that need to be taken before any lawyer can make an informed decision and advice their client.

Parkalgar knew this very well and informed negotiation could not take place in the time period it allotted.

There have already been judgements for seizure of assets which Parkalgar’s management has managed to delay with the filing of unfounded counter-claims.

The recovery plan presented by Parkalgar is only really beneficial to the two creditors mentioned above. The bank and Bemposta get 100% of what they are owed and the smaller, unsecured creditors get 30%, if the plan is approved by the court and if planned sales of apartments are achieved.

The solution presented in the recovery plan was only negotiated between Parkalgar, the main bank and Bemposta. With a disregard for the interests and claims of other unsecured creditors the proposal is a plan, tailor-made just for these two creditors.

In fact, it is closer to an insolvency plan, maintaining the activity of the debtor, rather than a recovery plan, since secured creditors are clearly benefitting to the detriment of the unsecured creditors who recover only a tiny part of monies owed over a long time period.

In light of the above, the recovery plan process so far clearly goes against the legislation as no legally defined negotiations have taken place.

From an analysis of the data sheets outlining the claims of the two main creditors, it appears that the monies they are owed, both before and after the recovery plan, are equal, hence the vote on the plan’s viability should not include these two creditors, they are not entitled to vote and the Court should refuse their approval.

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It remains to be seen whether these seemingly legitimate allegations will affect the judge’s decision.