Under Peruvian law, there is a procedure called "restructuring of assets", by which creditors of a company can ask the Peruvian agency, INDECOPI (a self-governing body parallel to the judiciary but under the administrative arena) can request restructuring of the company and seek to be appointed to a board of creditors that will administer the company that is declared to be restructuring.

Generally, the largest creditors are companies related to the company ‘in restructuring” and are those who comprise the board of creditors, ie, they continue to administer the company.

Yesterday the Peruvian Government issued an emergency ordinance which changes the rules of the board, and establishes that related companies that cannot be part of the board of creditors and shall not vote on the management restructuring.

This new rule is rumored to be directed at the Doe Run Company, a St. Louis, Missouri-based company which owns a lead smelter and refinery in La Oroya, Peru. Under Doe Run's ownership of this metallurgical complex, La Oroya has become officially one of the 10 most polluted places on earth. Nearly 100% of the children of La Oroya have blood lead levels that exceed the level considered hazardous by world standards, including those of the CDC and the World Health Organization. The Doe Run Company, in turn, is owned by New York-based Renco Group, whose owner is Ira Rennert. Rennert and the Renco group have been responsible for the pollution of various sites in the United States.

The emergency degree issued yesterday by the Peruvian government suggests that the US-based Doe Run Company may lose control of the Peruvian complex. The following is an article (translated into English) that appeared in the Peruvian newspaper, El Comercio, yesterday.

NEW RULES OF THE GAME FOR LA OROYA

Doe Run Smelter may not manage the company

The protagonists in the difficult situation of Doe Run, the Government, the company in question, and the mineral suppliers, are still playing, slowly, their chips. The last move made yesterday, by the Government, was to issue an emergency decree modifying the conditions for companies that might enter into a restructuring process, which could be precisely the case for Doe Run.

The mining company, owner of the smelter and refinery in La Oroya, maintains a debt of more than $100 million with its providers of concentrates and $20 million with others companies that provide it services. However, the principle debt is to its American parent, Doe Run Resources (Renco Group), to which it owes $156 million.

Creditors of the mining company were fearful that the Renco Group would request the insolvency of Doe Run Peru before Indecopi. According to the amount of debt, this allows new control of the company through a board of creditors that are appointed to administer the company.

Emergency Decree 61-2009, issued yesterday, decreed that creditors considered related to the debtor may not request the insolvency of the company or vote at a creditors’ meeting, the body that administers the company in restructuring.

The minister of Energy and Mines, Pedro Sanchez, said that this rule has not been given specifically for the Doe Run case. He argued that this is a generic standard, because in a crisis situation many companies seek restructuring before Indecopi.

However, several government sources indicated that this was a provision designed to prevent Doe Run from “declaring insolvency, taking the money itself, and leaving.”

Executives of the mining company analyzed the scope of the decree yesterday afternoon. The manager of community relations and current spokesman for Doe Run, Jesus Perez, said that they were evaluating the issue, without giving further details.

SPANISH STANDARD

Hugo Silva Quintanta, bankruptcy specialist and partner of Rodriguez, Diaz, and Medrano, explained that the Government’s emergency decree is no an isolated rule, as this applied in Spain.

“It is because in many cases, the related creditors hinder the process, impede restructuring, or generate fictitious restructurings,” said Silva Quintana.

Fernando Martinon, partner of Muniz, was against the rule because it cuts illegitimately into the rights of the related companies. He said that, regardless of the Doe Run issue, there exist companies and shareholders that present capital to related companies, which lose their political rights, since they could not vote at a meeting of creditors.

GOING TO INDECOPI?

For Doe Run to enter into any restructuring, each company to which the company owes 50 UIT (S/ .177.500) can ask for a declaration of insolvency before Indecopi.

Ricardo Trovarelli, general manager of Cormin, one of the creditor companies of Doe Run, said that they were not interested in declaring Run Peru insolvent because it would virtually freeze their debt.

He also said that creditors would have to put money back into the smelter and refinery to get it on tract. “The debt would be charged when the company profits, it would take a long time,” he said.

Jose Miguel Morales, legal representative of the Buenaventura Mining Company, which is also a creditor of Doe Run Peru, said that the mineral providers would meet with Doe Run Peru next Monday, but will define the agenda today.

Minister Pedro Sanchez said that so far, they have not received any proposal to modify the Environmental Management and Adaptation Program (PAMA) of Doe Run, whose completion is due in October. The minister that he expects to receive today Doe Run’s proposal to become operational again.

MORE INFORMATION

The two problems of the mining company:

The mining company faces two problems.

• The first is the financial aspect: it has debts, and the banks are unwilling to provide working capital.
• The second problem is the performance of its PAMA, which requires investing $70 million. According to the mining company, it can not fund it still.

Labels: Doe Run, emergency decree, La Oroya, Peru, Renco, Rennert