Venezuela's Imminent Restructuring and the Role Alter Ego Claims May Play in this Chavismo Saga

Abstract

The clock ticking down for investors holding the outstanding debt of the Republic of Venezuela and its state-owned oil company, Petroleos de Venezuela, S.A. (“PDVSA”), may have just struck zero. On Friday, November 3, President Nicolas Maduro kicked off the much anticipated restructuring of Venezuelan debt by announcing that after it makes a $1.1 billion principal payment on PDVSA bonds due on November 2, that it would commence restructuring negotiations with its creditors. Although the Government invited creditors to Caracas on November 13 to jump start negotiations, given the failed policies of the Maduro regime, the limitations posed by U.S. government sanctions and the risks creditors would face in accepting new instruments that could be challenged by a future Venezuelan government, the prospects of any type of restructuring being accomplished anytime soon are quite remote. Should Venezuela fail to cure its existing payment defaults or not make payments during the pendency of any restructuring discussions, which seems to be the government’s intent, one can expect Venezuela’s legion of creditors to turn their immediate attention to scouring the globe for assets held in the name of the Republic and those entities, such as PDVSA, alleged to be the “alter egos” of the Republic. This article discusses the legal framework for pursuing alter ego claims, including the continued efforts by Republic creditor Crystallex International Corporation (“Crystallex”), a Canadian gold-mining corporation, to collect on its $1.4 billion U.S. court judgment against the Republic from the assets of PDVSA, and evaluates the ability of other Republic creditors to pursue a similar strategy. One thing is clear: Crystallex’s efforts to pursue its alter ego claims against PDVSA will be closely watched by Republic and PDVSA creditors alike.