Energy: Injunctions to mitigate insolvency risk

In Nordic Power Partners P/S & Ors v Rio Alto Energia, Empreendimentos E Participacoes LTDA & Ors [2025] EWHC 2875 (Comm), the Commercial Court reconfirmed its willingness to grant interim relief to an energy investor in the context of international projects (here related to Brazil). Specifically, this decision provides an interesting insight into steps that can be taken to prevent funds being received by a party that may soon become insolvent (which risks creditors being left without a satisfactory remedy once a dispute is resolved). The payment into escrow ordered by the Commercial Court should protect sums in the event of an insolvency. 

Facts

Parties and corporate structure

Nordic Power Partners P/S (“NPP”) is a company registered in Denmark and is a joint venture between European Energy A/S and the Danish Climate Investment Fund. NPP Brazil I K/S (“NNP Brazil I”) and NPP Brazil II K/S (“NNP Brazil II”) are related companies (together with NPP the “Claimants”).

Rio Alto Energia Empreendimentos e Participações Ltda. (“RAE”), is the owner of Fundo de Investimento em Participações Rio Alto – Multiestratégia de Responsabilidade Limitada (“FIP Rio Alto”) (together the “RAE Parties”).

In turn, Fundo de Investimento em Participações Conjunto Coremas – Multiestratégia (“FIP Coremas”) is owned by NNP Brazil I, NNP, Brazil II and FIP Rio Alto. As such, FIP Coremas was in effect a joint venture company between the NNP group and RAE group.  FIP Coremas is the owner of “NewCo”, which owns a series of SPVs each with interests in one of three solar power plants in Brazil (the “Projects”).

Governing agreements

The parties’ relationship was governed by a Cooperation Agreement dated 23 December 2016 the “Cooperation Agreement”) which was amended on 13 March 2018 (the “First Amendment”). The First Amendment changed the distribution of sale proceeds to prioritise the Claimants. Clause 2.2 provided that:

“[a]ll net proceeds, income, gain, profits or other monetary value arising out of or in connection with the Projects… shall be distributed and attributable to the Parties in the following order and priority: a) The NPP Parties shall receive an amount corresponding to the Actual Investment after Brazilian Taxes. b) Following the NPP Parties’ receipt of the Actual Investment …” (the “Waterfall Mechanism”).

Clause 2.3 added that “…For the avoidance of doubt, RAE and its Affiliates shall in no event be entitled to receive any proceeds, income, gain, profit, remuneration or other form of payment… prior to the NPP Parties receipt of the Actual Investment …”.

A subsequent Second Amendment included a Clause 2.1 which stated the following:

“… RAE shall take any and all actions, or shall cause the member of FIP RAE’s Investment Committee to take any and all actions, to:

…

f) take any and all other actions, as required for the compliance of… (iii) RAE’s obligations and liabilities under the Cooperation Agreement, as amended herein, including but not limited to:

… (y) the approval of distribution of proceeds by FIP RAE to RAE as soon as FIP RAE has received proceed from FIP Coremas for RAE to fulfil its payment obligation to the NPP Parties under the Cooperation Agreement …”

The Cooperation Agreement was governed by English law and contains an English jurisdiction clause

The Claimants went on to rely on Clause 2.1 of the Second Amendment to argue that the RAE Parties must take all steps necessary to ensure compliance with the Waterfall Mechanism.

The relationship between NPP Brazil I, NPP Brazil II and FIP Rio Alto is governed by a Quotaholders’ Agreement dated 17 August 2018 (the “Quotaholders’ Agreement”). The Quotaholders’ Agreement is governed by Brazilian law and contains an arbitration agreement providing for ICC arbitration seated in London.

The dispute

On 24 January 2025, NNP and FIP Coremas entered into a Sale and Purchase Agreement for the sale of Newco to a third-party buyer. The sale proceeds would be paid into FIP Coremas and subsequently distributed by TMF Brasil Serviços de Administração de Fundos LTDA (“TMF”). FIP Rio Alto held 13.85% of the quotas (i.e., shares) in FIP Coremas (being the ultimate owner of the Newco entity) leading it to assert an entitlement to 13.85% of the sale proceeds (the “Disputed Proceeds”), equating to approximately USD 8 million. The Claimants maintained:

1. They were entitled to 100% of the sale proceeds in priority to the RAE Parties by virtue of the First Amendment; and
    
2. in any event, because they had exercised rights under a Quotaholders’ Agreement (dated 17 August 2018) to acquire FIP Rio Alto quotas in FIP Coremas, thereby entitling them to any portion otherwise payable to FIP Rio Alto.

Two injunction applications were brought to prevent the Disputed Proceeds being distributed to the RAE Parties pending the outcome of English court proceedings under the Cooperation Agreement and an ICC arbitration under the Brazilian law-governed Quotaholders’ Agreement. The injunctions were sought on the basis that the RAE Parties were undergoing a group restructure making it likely that the Claimants could subsequently not recover any sums found owed to them. Therefore, the Claimants argued that the Disputed Proceeds should not be paid to the RAE Parties before any such determination was made and instead that the Disputed Proceeds should be held in escrow.

On 15 August 2025, following an ex parte hearing, the RAE Parties, FIP Coremas and TMF were restrained from dealing with or diminishing the sale proceeds (the “Injunction Orders”). The relief sought required the RAE Parties to procure payment of the Disputed Proceeds into escrow and, if they received the Disputed Proceeds, to do nothing with them other than deposit them into escrow.

Decision

The Commercial Court decided that the Injunction Orders be continued.

In reaching its decision the Commercial Court applied the standard American Cyanamid principles (American Cyanamid Co (No 1) v Ethicon Ltd [1975] UKHL 1):

1. There must be a “serious issue to be tried”.
    
2. If there is a serious issue to be tried, will the granting or the withholding of the injunction produce a more just outcome? The court should consider whether damages would be an adequate remedy for both the applicant (where the injunction is not granted) and the respondent (where the injunction is granted).
    
3. The court should consider where the balance of convenience lies if there is any doubt as to the adequacy of damages.
    
4. It may also be appropriate to consider the relative strength of the parties’ cases where there is little difference as to the risk of irremediable prejudice.
    
5. The court should consider preserving the status quo where the factors above are evenly balanced.

The Commercial Court also noted that requests for mandatory relief, such as the relief being sought in this case, is governed by the same principles. In this case a mandatory order would not create a greater risk of injustice as the transfer of the Disputed Proceeds to escrow would work to maintain the status quo with the effect being “more akin to a prohibitory order”.

The Commercial Court took each principle in turn and analysed them against the parties’ arguments.

1. Serious issue to be tried: The Claimants argued that on a proper construction of the Cooperation Agreement, the RAE Parties are required to take all actions to ensure the sale proceeds are distributed as per the Waterfall Mechanism. As such, there was a good and arguable case. A further issue to be tried related to the amount of Actual Investment (see Clause 2.3 of the First Amendment above); in this respect NPP has a compelling case that the Actual Investment exceeds the Sale Proceeds.
    
2. Adequacy of damages: The reorganisation of the RAE group was prompted by the fact that the group was in financial crisis and at risk of defaulting on certain debts. For various reasons, the Commercial Court decided that the reorganisation was unlikely to save the RAE group from insolvency. As such, there was risk that insolvency would mean that they would be unable to satisfy an award for damages. 
    
3. Balance of convenience: There would be irremediable prejudice to the Claimants should the injunction be denied, whereas it was unlikely that the granting of the inunction would, in itself, cause the RAE Parties to go out of business. 
    
4. Relative strength of parties’ cases: The language of the Cooperation Agreement was “clear and unambiguous”. There was therefore a strong likelihood that the Claimants would succeed at trial.
    
5. Preservation of the status quo: The status quo was that neither party was in receipt of the Disputed Proceeds and therefore to maintain this was the safest way forward.

On jurisdiction and comity, the Commercial Court held that the Disputed Proceeds fell squarely within the remit of the English courts. The Commercial Court also refused to defer to, or be constrained by, a later application brought by the RAE Parties in Brazil for injunctive relief that conflicted with the pre-existing English Injunction Orders, characterising that application as an attempt to circumvent the English court’s jurisdiction.

Comment

There are a number of important points from the approach of the Commercial Court:

1. First, and most important, where a counterparty is at risk of insolvency careful thought should be given to protecting monies that might otherwise enter the insolvent estate. Once part of the insolvent estate, any debt will be payable to unsecured creditors on a pari passu basis after higher ranking claims are satisfied. As such the final recovery can be small. The steps taken in this case by the Claimants should prevent the Disputed Proceedings entering the insolvent estate, and open up the prospect of full recovery of any sums properly due from the Disputed Proceeds.
    
2. Second, where appropriate, the English courts are willing to grant injunctions to prevent funds entering an estate that may become insolvent. Such injunctions will not be granted as a matter of course, but will need to satisfy the relevant test in American Cyanamid. That said, provided there is a reasonable issue to be tried, in many cases the balance of convenience and preference to maintain the status quo will favour the solvent potential creditor.  It should be noted that here the order was made in relation to a dispute as to whether the RAE Parties were entitled to the assets at all; in another case where the dispute is less fundamental the outcome may be different.
    
3. Third, attempts to constrain the English courts by seeking measures in other jurisdictions that are likely not the appropriate forum (as viewed by the English courts) will not deter the English courts from acting. Here the existence of Brazilian court proceedings did not prevent the English courts from acting.
    
4. Fourth, the fact that the relevant companies are outside the United Kingdom, or the assets are outside the United Kingdom, is not a reason for the English courts to refuse jurisdiction. Where the parties have elected the exclusive jurisdiction of the English courts, or an arbitral seat in London, the English courts are the appropriate forum for resolving such interim issues.
    
5. Finally, for those that consider that English court interim injunctions might not have extra-territorial sanction, they would be well advised to remember that it is a criminal contempt to breach an injunction, which would (at a minimum) make travel to or through the United Kingdom problematic for businessmen.  As such, interim injunctions of this nature have a real and significant impact.