By Vitor Ferrari

This text aims to bring to the table the discussions addressed in the Bill (“PL”) that intends to amend the Judicial Recovery Law (“LRF”), in force since 2005 and which has served as a useful tool in maintaining the activities of indebted companies, due to the political and commercial crisis experienced in recent years.

The changes listed below aim to renew the legal procedure, a fact that may directly affect debtors and creditors, beneficiaries and affected parties respectively, and even affect the Magistrate's own performance in conducting the process.

Therefore, in a brief summary we highlight some of the points of attention discussed in the project that, if confirmed by legislators, will bring considerable changes to the recovery procedure.

* Change in the jurisdiction rule – The project intends to concentrate Judicial Recoveries (“RJ”) in the capitals of the States of the Federation, which, in theory, have specialized courts regarding recovery and bankruptcy matters. Thus, if the RJ has liabilities exceeding 300,000 (three hundred thousand) minimum wages, currently worth R$1,400,000,000, the specialized courts of its capitals are competent for the case. This determination clearly affects debtors and creditors greatly, given the need to travel to perform acts and the total disregard for the difficulties that will be imposed on the Court regarding the verification of the act by its agents;

* Official Acts and their availability on the Internet – It was agreed that all acts must be made available on the Internet, giving full publicity to all interested parties. However, it should be noted that the availability itself cannot and should not simply replace the Official Acts published in the Official Gazettes, but rather function and integrate the information concomitantly. Therefore, by virtue of the project, if approved, the official acts must be made available and remain accessible on websites maintained by the Judicial Administrator on a mandatory basis;

* Change in the start of the counting and applicability of the stay period. Duration period – The purpose of the modification of the Law is to ensure that the period of security against lawsuits and executions granted to the creditor is immediately applied at the time of filing the Judicial Recovery, a fact that currently depends on the approval of the processing of the Judicial Recovery. This measure can be understood in a positive way, given that the Debtors normally need to depend on the approval of the processing in order to stop the restrictive measures adopted by the creditors. Also, but no less important, is that, according to the project, the 180-day period is no longer in effect, and the stay period would last until the end of the Judicial Recovery. We believe that this point will end up being modified due to pressure from financial creditors, given that, by merging the legal texts, all actions and executions related to credits prior to the filing of the RJ (art. 6 of 11.101/05) would result in the suspension of the credit enforcement measures until the 2 years following the approval of the recovery plan (cf. art. 63 of 11.101/05).

* Changes in the way the Judicial Administrator (”AJ”) is appointed – The aforementioned text proposes that a true dispute procedure be opened between professionals and companies that operate in the area, and that the appointment after said procedure may be questioned by creditors, the Debtor and the Public Prosecutor's Office, with the Magistrate being responsible for the appointment and the determination of fees. Thus, not only the debtor could oppose the appointment of the AJ, or the determination of his/her fees, but also creditors, a fact that may result in the exponential growth of Appeals before the Specialized Chambers of the Courts of Justice throughout the Country, simply due to disagreement regarding the person of the AJ, or even the remuneration attributed to him/her.

This proposal tends to drive away qualified and experienced professionals in the area, who will be replaced by companies that, over the years, have been becoming widespread as Administrators in RJs throughout the country.

* Changes to the Judicial Recovery Plan – The project itself brings changes to the legal procedure as a whole, but it pays more attention to what is established in the Judicial Recovery Plan, as it not only changes the deadline for its presentation, increasing it, but also includes in this document, which is extremely important to the entire procedure, the classification of credits and creditors. Furthermore:

Deadline – The aforementioned deadline for submission would be extended from 60 to 90 calendar days1 after the filing of the Judicial Recovery;

Creditors and Classification of Credits – The classes as known are extinguished by the project, which establishes that the classes will be defined as established by the judicial recovery plan itself. In a manner that is not yet regular, the proposal still provides that the creditors of each class must have equivalent interests, arising from the nature or importance of the credit, or from criteria established and justified by the debtor at the time of presentation of the plan, a fact that must be approved by the Judge.

Voting on the Plan would not depend on the Debtor's consent – In total contradiction to what is established in Law No. 11,101/05, if the legal term has ended without a general meeting of creditors having been held, it would be possible to put to a vote a plan that does not obtain the express consent of the debtor, in our view, in total disregard of what is established and protected by the LRF today. However, the following requirements for such voting would be: (A) it has the written support of creditors representing more than one third of the total credits subject to recovery and who have negotiated in good faith; (B) it does not assign new obligations to the debtor's partners; and (C) it does not imply a sacrifice of the debtor's partners' capital greater than that which would result from liquidation in bankruptcy. The fact is that today, such provision benefits only and exclusively financial creditors, putting the legal principles of Judicial Recovery at risk.

* Reduction of the Debtor's Rights – In addition to the aforementioned regarding the possibility of voting on PLRJ without the consent of the Debtor, the most interested party in the Judicial Recovery, the Bill also imposes a ban on the distribution of profits or dividends from the Company to its partners and administrators, prioritizing the payment of creditors.

* Monetary update in Judicial Recovery – According to the project, the subject credits will be updated from the recovery request until the granting of the judicial recovery plan, by the savings account index. This does not occur today, since the credits are frozen until the date of granting of the judicial recovery.

Despite the above points, there are other relevant points that deserve special attention, which will be subject to specific analysis given their importance in terms of their impact on the recovery procedure. Points that require individual attention:

* AGC in the Bill (Note);

* Abusive Vote (Text);

* Legal acts and procedural deadlines in the Bill (Note);

Therefore, without prejudice to all of the above, we can conclude that the Project, despite being innovative, deals with the issue of maintaining business activities extremely coldly, making the judicial recovery procedure a measure to simply reduce damages in a short space of time, without taking into account that the Recovery of a Company in clear financial difficulty demands time to resume its regular duties and fulfill its obligations.

If the aforementioned project proceeds in this direction, it could result in clear harm to all those involved, whether debtors or creditors, in addition to other people affected by the legal procedure, contradicting the principles of preservation and maintenance of economic activity, enshrined in art. 47 of law 11.101/05.

Finally, today the Bill is under the priority processing regime of the Coordination of Permanent Committees (CCP) of the Chamber of Deputies, requiring the creation of a special committee for the matter.