‎Brazil News

Judge Leonardo Fernandes dos Santos, from the 1st Bankruptcy and Judicial Recovery Court of São Paulo, denied the request from SouthRock Capital, controller of brands such as Starbucks, Subway and Eataly in Brazil, to maintain the continued exploration and operation of stores/cafeterias of Starbucks during the stay period of the judicial recovery.

 

On October 13th, Starbucks International sent a notification of immediate termination of the brand licensing agreement signed between the parties, but SouthRock Capital requested the suspension of the effects of the breach of contract under the argument of benefiting creditors in the requested judicial recovery. . According to a document presented by Thomas Bastos, Waisberg and Kurzweil lawyers, the Brazilian group's debts total approximately R$1.8 billion. Read the report that contains the full request for judicial recovery from the controlling company of Starbucks in Brazil.

 

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The judge considered that even if the essentiality of the brand exploitation contract is established, there is no way to force Starbucks to remain under contract internationally. “In this type of contract, breach can occur for a variety of reasons beyond the issue involving payment, but also, for example, the adequate application of the brand's quality guidelines, for example. Therefore, even if considering the mere discussion of whether or not the open values are competitive, there are other legal factors that may lead the brand assignor to the desire to break the exploitation agreement, therefore revealing a matter whose discussion must take place in the absence arbitration clause or forum election in one of the capital’s business courts”, he stated.

 

 

Regarding SouthRock Capital's request for judicial recovery, the judge appointed an expert to carry out a prior and urgent assessment, with the aim of providing sufficient information for him to decide whether to grant processing of the request. This is because the judge considered that the court does not have a multidisciplinary technical team to analyze the adequacy of the documentation gathered by the debtor company. Furthermore, SouthRock Capital must amend the initial to present the draft notice referred to in art. 52, §1º, items I, II and III of Law 11,101/05, containing the list of creditors together with a summary of the request, including in electronic form.

 

The judge also denied urgent relief to declare the impossibility of retention and/or the obligation to release receivables. SouthRock Capital claims that approximately 80% (eighty percent) of its debt originates from operations that were guaranteed by fiduciary assignments of receivables arising from the revenues of its restaurants. And “in the event of retention of receivables that were the subject of fiduciary guarantee”, the company would have “the entirety of its gross revenue retained and unavailable, making any chance of its recovery impossible”.

 

What does the judicial recovery request of the Starbucks parent company in Brazil say?

Founded in 2015, SouthRock specializes in developing beverage and food brands in Brazil. Its airport store operation, called Brazil Airport Restaurantes, began in 2017 and today has 25 establishments in the country's largest international airports. Under the Brazil Highway brand, the group also manages six food chains on the main highways in the state of São Paulo.

 

SouthRock Capital's largest operation today is the Startbucks coffee chain, whose license was obtained in 2018. Since 2019, SouthRock has expanded the operation of the Starbucks brand in Brazil beyond the São Paulo-Rio axis, opening units in Santa Catarina , Federal District, Rio Grande do Sul, Paraná in Minas Gerais. Today, there are 187 company-owned stores in the country. Monthly, coffee shops earn more than R$50 million in Brazil, which “represents a very significant portion of the group’s cash flow”.

 

In 2022, the group also started to operate the Eataly gastronomy center, in São Paulo, which has more than 8,000 products and 6 restaurants.

 

In the request for judicial recovery, SouthRock cites as reasons for the financial crisis faced by the group the “constant scenario of insecurity” in the country, the economic recession of recent years and, mainly, the Covid-19 pandemic.