On October 20, 2011 a Uruguayan Court decided for the International Finance Corporation (IFC) and the Inter-American Investment Corporation (IIC) in a case filed by two bondholders of Granja Moro SA.
For decades, Granja Moro was the most important company in the poultry sector in Uruguay. In 1991, both the IFC and the IIC became minority shareholders of the company as part of a financing deal.
In late 1997, a fraud was unveiled involving several of the company’s top managers and members of the Board of Directors. The indebtedness of Granja Moro amounted to more than USD 50 million.
Missions from the Inter-American Development Bank (IDB) and the World Bank were sent to Uruguay. In early 1998, the company filed for bankruptcy, which was finally declared in 2002. In the following years, the participants in the fraud were sentenced and convicted of criminal charges.
In 2004, bondholders that had purchased bonds issued by Granja Moro in 1997 brought a claim against Granja Moro, the IFC and the IIC. The bondholders argued that they were misled in the prospectus, and that the IFC and the IIC should be held liable for the obligations of Granja Moro, both on the grounds of their participation in the company’s activities and of their duties as shareholders who had a right to appoint a member of the Board of Directors.
The IFC filed motions to dismiss based on the lack of jurisdiction of the Court and the expiration of the statute of limitations and also challenged the claimants’ case on its merits. The IFC argued that the claimants’ case was based in accusing the IFC and the IIC of being responsible for a fraud, when they were actually its victims.
The ruling established that there was no evidence of the participation of the IFC and the IIC in the fraud and that the content of the prospectus could not be attributed to a willful act on their part. Their participation in the company was that of a minority shareholder and creditor and in no way that of a controlling shareholder.