by: Vitor Ferrari and Ivan Kubala
All judicial procedure follows a rite to promote predictability and increase the legal security of the act. The Judicial Reorganization is not an exception, however, it is subject to a specific procedure, provided in the “Lei de Recuperações Judiciais e Falências”, Law 11.101/05.
First, it is important to clarify who is the target of a judicial reorganization procedure: companies that have been hit by financial crises and has no possibility of paying its debts, although their activities are regular. It is the case of Lojas Americanas: Although the business activity is going normally and its stores remain open throughout the county, the company found itself with a billionaire loss in its financial statements, being impossible to pay the amount under current conditions.
Aiming the maintenance of the entrepreneur activity, the company´s social function and generation of jobs, the Brazilian legislator has created a law whose text determinates a special procedure for the indebted company to be able to pay its debts, stay in business, and later overcome the economic crisis.
The first step in a judicial reorganizations process is to file for judicial reorganization itself. At this stage, the company´s representatives address the Judiciary explain the reasons why the reorganizations must be granted. For this, it is important to emphasis that several assumptions must be present, and it is not possible for all companies to have their requests granted.
As soon as the competent court receives the request and, observing the presence of all conditions, grants the judicial reorganization, the company is officially a rehabilitating company. At this stage the magistrate in charge will also appoint a trustee, a kind of longa manus, whose function is supervising the events within the judicial reorganization process, organizing it, and reporting the accomplishments to the magistrate in charge.
After judicial reorganization is granted and the trustee is appointed, a period of immunity from collection and enforcement is granted: the stay period. During 180 days, extendable only once for up to 180 days, all debts that the company had until the date of granting of the judicial reorganization are suspended and cannot be collected from the receiver.
During the first 15 days of the stay period, there is a deadline for creditors to file claims and disagreements as to the amounts of the claims to be included in the judicial reorganization to be resolved through administrative channels.
Then, 45 days after the list of creditors submitted by the debtor, the trustee will publish its list of creditors, with a 10-day period for objections. However, these will be settled within the judiciary.
Once the list of creditors is concluded, the rehabilitating company must present its Judicial Reorganization Plan (60 days after granting of judicial reorganization). At this stage, the receivership company shows the creditors in detail how it intends to pay its debts and whether it requires a discount on the amount of the credits, the famous haircut.
Once the judicial reorganization plan is presented, the creditors have 30 days to present their oppositions, defending their views and interests.
The General Meeting of Creditors is then proposed, within 150 days after granting of the petition for judicial reorganization. At this time, the creditors will also question both the trustee and the reorganization company on various aspects, and, after reaching the minimum number in each class of creditors, voting on the judicial reorganization plan begins.
This is the critical point of judicial rehabilitation, if there is an effective approval of the judicial rehabilitation plan presented, the judge will homologate it, at which time it becomes effective, and the credits start being paid within the pre-established dictates. Thus, the company maintains its activities in full operation and is no longer subject to executions on the debts included in the plan.
Nevertheless, if the plan is not approved by a certain number of creditors in each class, according to the provisions of the judicial rehabilitation and bankruptcy law itself, and it is not possible for the judge to force approval, the process will be blocked, and then the judicial rehabilitation will be converted into bankruptcy, which is the end of the company and its economic activity.
The moment is a real turning point in the reorganization process. It is necessary, therefore, that it be conducted by lawyers who are specialists in the area and have the necessary expertise to circumvent possible objections by creditors, so that the plan may be effectively homologated by the court.