Put Victor Antony Ferrari – 26/05/2020

Bill 1397/20 was approved by the Chamber of Deputies, which creates rights and modifies the requirements of the Law on Judicial Reorganizations and Bankruptcies, on a temporary basis, for companies undergoing judicial recovery and also to try to prevent other companies in difficulty from resorting to the remedy that is often the option to avoid bankruptcy. The proposal now goes to the Senate.

The measures brought in the project prioritize and protect situations that have occurred since March 20 of this year, and are in force until December 31, 2020, the date scheduled for the end of the state of public calamity due to the Covid-19 pandemic.

One of the points brought by this project, already modifying the original text, is that for 30 days, counting from the validity of the future law, judicial or extrajudicial executions of guarantees, legal actions involving obligations due after March 20, 2020, the declaration of bankruptcy, unilateral termination or contract review actions would be suspended.

Furthermore, the collection of late payment fines provided for in contracts in general and those arising from non-payment of taxes would also be suspended during the period mentioned above. However, the suspension would not apply to obligations under contracts signed or renegotiated after March 20, 2020, those arising from salary credits and cooperative contracts.

The law also provides for the creation of an Insolvency Prevention System, applicable to any debtor, whether an individual entrepreneur, a private legal entity, a rural producer or a self-employed professional (these are referred to by the Bill as “economic agents”). Thus, within a period of up to 90 days, the debtor and creditors will be able to seek extrajudicial renegotiation of their obligations taking into account the economic and financial impacts caused by the Covid-19 pandemic.

The aforementioned project aims at preventive negotiation, highlighting that, after 30 days of suspension of executive and constrictive acts, if there was no agreement, the debtor who proves a reduction equal to or greater than 30% in its revenue, compared to the average of the last quarter of the previous year, will be entitled to the preventive negotiation procedure.

The negotiation procedure will be carried out before the specialized bankruptcy court, which may render the specialized courts unviable given the large number of companies that may avail themselves of the aforementioned pre-reorganization procedure. The request, which may be submitted within 60 days, guarantees the continuation of the suspension initially obtained for another 90 days, granting, in theory, 180 days counting the suspensions provided for.

The participation of creditors in preventive negotiation sessions is optional, and it is up to the debtor to be notified to appear and begin negotiations.

During the preventive negotiation period, the debtor may take out financing to fund its restructuring and preserve the value of its assets. Such financing obtained by the debtor will not be included in the list of pending credits, and, apparently, even if the company comes to avail itself of a request for Recovery after the preventive negotiations accompanied by the specialized Court have begun.

On the other hand, if the negotiation in question is unsuccessful, and is preceded by a request for extrajudicial or judicial recovery, the entire suspension period provided for in the project will be deducted from that provided for in the Recovery Law, of 180 days, which refers to the suspension of judicial executions of debts.

Specifically regarding Companies already in Judicial Recovery, with processes initiated or amended during the period of validity of the future law (December 31, 2020), the text changes some rules to give effect to the judicial recovery previously processed.

Initially, the Bill foresees some relevant changes in the extrajudicial recovery procedure, but they still do not cover tax and labor credits, those linked to fiduciary alienation (leasing, for example) and advances on exchange contracts for export.

The most relevant change is the reduction of the quorum of creditors who agree with the extrajudicial recovery plan for its approval. Instead of 3/5, only half plus one of the creditors of each type of credit will be required.

Furthermore, the Debtor may present the agreement of at least 1/3 of creditors and commit to reaching the quorum of half plus one within the following 90 days, in order to subsequently have its recovery plan approved by the Court.

As for Recovery Plans already approved, whether judicial or extrajudicial, regardless of the decision of the general meeting of creditors, the Bill allows the debtor not to comply with the measures provided for in these plans for 120 days.

Bankruptcy cannot be declared while the law that is in force until December 31, 2020 is in force, removing the validity of article 73, paragraph IV, which deals with non-compliance with the Judicial Recovery Plan.

Bill 1397/20 authorizes the debtor with a judicial or extrajudicial recovery plan already approved to present a new plan, with the right to an additional 120 days of suspension of judicial executions of the debt and guarantees, thus renewing or granting a new plan. stay period.

The new plan will be subject to approval by creditors, deducting what has already been paid under the previous plan to calculate the amount to be paid and to determine the votes of creditors according to the type of credit.

Bankruptcy requests, until December 31, 2020, will have as a floor the value of protested securities from which the debtor's bankruptcy can be requested, increasing from 40 minimum wages, just over R$ 40,000.00, to R$ 100,000.00.

Finally, the Bill amends the provisions of Article 48 of Law 11,101/05, meaning that a company that has already availed itself of an RJ or REJ may file a new request for judicial recovery even if it has filed another request in the last five years and, in the case of extrajudicial recovery, if it has filed it in the last two years.

Finally, Bill 1379/2020 also suspends administrative acts of cancellation, revocation, or impediment to registration or enrollment of a tax payer number that is under judicial discussion within the scope of recovery.

The text is sent to the Senate as a matter of urgency for approval or partial modification and, subsequently, for sanction or veto by the President of the Republic.

Let us await the next steps of the Project and the approval of its final text for a new analysis.