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Posco Case in Ceará Exposes Clash Between Billion-Dollar Liabilities and Declared Assets in Brazil, with Dispute Over Values, Accusations of Asset Stripping and Attempt to Reach Holdings Abroad.
Posco Engineering and Construction of Brazil, a subsidiary of the South Korean group Posco, has filed for bankruptcy in the Ceará court and declared having only R$ 109.80 in its checking account to face liabilities that creditors estimate at up to R$ 1 billion.
In the proceedings, the company also listed a piece of land valued at around R$ 1.1 million, a non-functioning Ford Fusion, and just over R$ 4.8 thousand in financial investments, amid accusations of asset stripping and attempts to shield itself abroad.
The company became known in Brazil for being created to handle a single large contract: the construction of the Companhia Siderúrgica do Pecém (CSP) plant in Ceará, a project that has become one of the largest private works in the state.
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The project was commissioned in 2016, the same year Posco Brazil ceased its operations in the country, according to creditor accounts and records cited in reports about the case.
A Billion-Dollar Project, a Company and a Debt Left Behind
The contract for the construction of CSP, as described by creditors and reports, amounted to US$ 5.5 billion, a value that, according to these accounts, was fully paid to the construction company.
Nevertheless, the closure of operations in Brazil did not mean the settlement of obligations to suppliers, workers, and taxes, which underpins the current legal dispute.
Since March 2023, CSP has been controlled by ArcelorMittal, which announced to the market the completion of the acquisition for around US$ 2.2 billion.
However, the change of control did not eliminate the litigation surrounding debts attributed to the construction company responsible for implementing the industrial project.
ArcelorMittal, Purchase of the Asset and Liabilities in Dispute
Why Bankruptcy Became the Center of the Dispute
In the request presented to the Ceará court, Posco Brazil claimed to be going through an “insurmountable crisis” and argued that bankruptcy would be the way forward given the lack of business activity and insufficient assets to cover its debts.
In practice, bankruptcy tends to concentrate collections in a single court and reorganize the processing of actions, which is often questioned by creditors when there is suspicion of insufficient assets.
The company reported in the proceedings a liability of R$ 644 million.
Within this total, it pointed out most as labor debt, in addition to tax amounts, obligations between group companies, and unsecured debts, according to details cited in reports.
However, creditors and collection agencies contest the numbers presented.
There is disagreement mainly over the size of the tax debt, which, according to these contests, could be much larger than what the company acknowledged in the bankruptcy petition.
What the Company Claims to Have to Pay: Land, Broken Car and R$ 109.80
The list of assets reported by Posco Brazil in the proceedings has become one of the most sensitive points of the case.
The list includes a piece of land in São Gonçalo do Amarante (CE), valued at approximately R$ 1.1 million, and a 2015/2016 Ford Fusion described as non-functional and with multiple registered fines.
Additionally, the company declared R$ 109.80 in its checking account and around R$ 4.8 thousand in financial investments.
The disparity between the size of the liabilities and the declared assets fueled the creditors’ reaction.
Attorney Frederico Costa, cited in reports about the case, argues that the company “took the money from the project, sent resources abroad, and left an entire productive chain harmed.”
Accusations of “Shielding” and the Attempt to Reach the Group Abroad
One of the central fronts of the dispute is the accusation that the Brazilian subsidiary would have operated as a “single business” and, after the delivery of the project, would have been kept without relevant assets, complicating the collection of debts in the country.
Creditors point to the bankruptcy as a move to contain the scattering of collections and reduce the effectiveness of enforcement measures in other actions.
In this context, reports indicate that there was a first-instance decision allowing the disregard of the legal personality, a mechanism that can pave the way for collections to advance against companies within the same group, even outside Brazil, depending on the steps and judicial recognition in each jurisdiction.
The Justification Presented: Crisis in the Sector and Lack of New Contracts
On the other hand, the judicial administrator indicated in the proceedings, Farias e Lucena Serviços Administrativos, attributed the crisis to a combination of external factors, such as the recession in Brazil between 2014 and 2016, the effects of the pandemic, and changes in the steel market, including competition from Chinese steel.
As per these statements reported in the case coverage, the initial analysis did not identify, up to that point, direct fraudulent acts by the administrators, without ruling out new investigations.
In the petition cited in reports, Posco Brazil also links its unviability to the non-implementation of a second phase of CSP, which aimed to increase the capacity to produce steel plates.
The company argues that, without expansion and without new contracts, no revenue source would have emerged that could sustain the continuation of operations in the country.
With the company claiming it no longer has active headquarters and presenting limited assets in Brazil, creditors have begun to argue that the discussion around the accountability of parent companies and holdings in the group will become decisive in determining if there will indeed be resources to be recovered in the bankruptcy process.
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