Luxembourg’s Commercial Court is now presiding over a dispute between Pharol, formerly Portugal Telecom, and Rio Forte Investments, a company linked to the collapsed Espírito Santo Group. The court has recognized a notification from Rio Forte’s liquidators compelling Pharol to appear before it, according to statements released by Pharol to the Portuguese securities regulator, the CMVM.
The core of the legal battle revolves around approximately €918.1 million in credit claimed by Pharol from Rio Forte. Rio Forte’s liquidators are seeking a ruling that Pharol’s credit should not be recognized in the insolvency proceedings, and are also requesting the nullification of a €199.6 million payment made by Rio Forte to Pharol in .
This legal action is the latest chapter in a saga that triggered a major crisis for Portugal Telecom, ultimately leading to its takeover by Altice. The initial investment of around €900 million by PT SGPS (now Pharol) in short-term debt instruments issued by Rio Forte proved disastrous when Rio Forte collapsed as part of the wider Espírito Santo Group’s financial implosion.
A History of Legal Challenges
The current proceedings in Luxembourg build upon a series of legal actions already undertaken by Pharol. In , Pharol initiated a lawsuit against its former auditors, Deloitte, alleging failures in their oversight of the Rio Forte investments. The company also sued former PT directors Henrique Granadeiro and Luís Pacheco de Melo, accusing them of approving the €897 million loan to Rio Forte. That figure is close to the €918.1 million now at issue in the Luxembourg proceedings.
Pharol’s claim against Deloitte sought compensation equal to the difference between the €897 million lent to Rio Forte and any amount Pharol might recover through the insolvency proceedings, plus interest. The company accused Deloitte of violating its contractual duties due to the losses incurred on the investments in debt instruments issued by companies within the Espírito Santo Group.
Further complicating matters, Pharol also blamed other directors elected during the – period, as well as unnamed third parties, for the financial damage resulting from the Rio Forte investments and other debt issued by the Espírito Santo Group.
Recent Court Rulings Favor Pharol
Despite the ongoing legal battles, recent rulings have offered some positive developments for Pharol. According to reports, Portuguese courts have recognized Pharol’s total credit claim against Rio Forte and have ruled that Pharol is not liable for a payment to Espírito Santo International (ESI). Specifically, a tribunal recognized a credit of €750 million, and another ruling cleared Pharol of a payment obligation to ESI.
The recognition of the €750 million credit, while less than the full €918.1 million claimed, represents a significant step forward for Pharol in its efforts to recover funds lost in the Rio Forte debacle. The court’s decision to absolve Pharol from a payment to ESI further strengthens its position.
Implications and Next Steps
The Luxembourg proceedings represent a critical juncture in Pharol’s long-running efforts to recoup its losses from the Rio Forte investment. The liquidators’ challenge to Pharol’s credit claim and their attempt to invalidate the €199.6 million payment could significantly impact the amount Pharol ultimately recovers.
The initial hearing in the Luxembourg court is scheduled for . Pharol has stated that this session marks the beginning of the process and that it does not need to take a position on the case until that date. However, the company is actively preparing its defense and gathering evidence to support its claim.
The outcome of this case will not only determine Pharol’s financial recovery but also shed further light on the complex web of transactions and responsibilities that led to the collapse of Rio Forte and the broader Espírito Santo Group. The case underscores the risks associated with complex financial investments and the importance of robust due diligence and risk management practices.
The dispute also highlights the protracted legal battles that often follow major corporate failures, particularly those involving cross-border transactions and multiple stakeholders. For Pharol, resolving the Rio Forte saga remains a key priority as it seeks to move forward and rebuild its financial stability.
