Put: Vitor Antony Ferrari and Ivan Kubala

The new wording of the Judicial Recovery Law (Law No. 11,101/2005), amended by Law No. 14,112/2020, came into force two months ago and has already generated several discussions, one of which is about its application to the processes that were in force at the time it came into force, which may have a positive or negative impact on the numerous companies and business groups that sought help from the institute and remain in judicial recovery.

The question regarding the application of the new wording to current processes is answered in article 5 of Law No. 14,112/2020, which establishes that, subject to the procedural rule, the law will be applied immediately to pending processes.

However, the wording of the aforementioned article refers to the general rule, since the following provisions point out some exceptions, which will only be applied to requests for Judicial Recovery and decree of Bankruptcy after the new Law came into force.

Therefore, the rules set out in articles 56 and 49, which specifically deal with the possibility of creditors submitting a judicial recovery plan, as well as the subjection of credits in judicial recovery, will only be applied to requests for judicial recovery after the new legislation comes into force.[1].

Despite the clarity of the rules set out in the new regulation, some situations may give rise to questions from debtors, creditors and financiers.

For example, a financing creditor who entered into a financing agreement with a company undergoing judicial recovery before the new law came into effect, under the premise that in the event of bankruptcy, its credit would benefit from a priority classification. However, given the change in the order of classification of credits in bankruptcy, any conversion of the financed company into bankruptcy will result in a lower classification.

In the example cited, the financing was carried out before the new Law came into force, but as it has effects on both Judicial Recovery and bankruptcy, it may be questioned whether the application of the new credit classification order, in this case, should or should not be applied to the extent that the financing was carried out under the previous rules.

On the other hand, there is also the exclusion of some credits arising from rural activity from the effects of judicial recovery, but this rule only applies, in theory, to judicial recoveries filed after the new Law came into force.

It turns out that the provisions referring to the aforementioned credits were inserted into the new Law because rural producers were expressly included as legitimate parties to the request for judicial recovery.

However, there are judicial recoveries, filed before the new Law came into force, in which the legitimacy of the rural producer to seek reorganization proceedings is still being discussed. From the moment the legitimacy of the rural producer is recognized, in these cases it may be questioned whether the credits expressly excluded from the judicial recovery may or may not be subject to its effects.

Therefore, the new Law undoubtedly provides guidance on how and when it should be applied to processes that were already underway before it came into force, but in unique situations there will certainly be questions and it will be up to legal practitioners to resolve them in accordance with the rules of interpretation, doctrine and jurisprudence.

[1] The other rules provided for in the aforementioned article 5 apply to the institution of bankruptcy.