Put Victor Antony Ferrari and Ivan Kubala – 15/06/2020

Judicial recovery has established itself as a very useful tool for companies that are experiencing temporary economic and financial difficulties, but have a chance of recovery and resuming their growth, in order to preserve their activities, the employment of workers, their social function and the interests of their creditors.

However, the company that intends to avail itself of the aforementioned institute needs, in addition to fulfilling some requirements so that its judicial recovery process can be granted, to observe some rules for preparing its judicial recovery plan, because although it is considered a legal transaction entered into between the debtor and creditors without the intervention of the Judiciary on its material content, it is subject to legality control promoted by the competent Judge, which may result in the denial of the approval of a plan, even if approved at a General Meeting of Creditors.

One of these rules, which has been much discussed, is enshrined in art. 54 of Law No. 11,101/05, and establishes that credits derived from labor legislation or arising from work accidents must be paid within a maximum period of 1 (one) year. Therefore, a judicial recovery plan that provides for the payment of labor creditors in a period exceeding 1 (one) year, in theory, even if approved by the creditors, will encounter obstacles in the legality control carried out by the Judiciary and will probably not be approved by the competent Magistrate.

Despite the literal meaning of the law and the purpose of the aforementioned rule, depending on the situation of the company undergoing judicial recovery, many with significant labor liabilities, this deadline may become impractical, especially in the current economic situation in which the country finds itself, resulting from the COVID-19 pandemic.

In fact, this rule, when compared to other provisions of the same law that allow for various forms of recovery (discounts, installments, sale of assets, etc.), proves to be a real obstacle to completely viable companies. It is no wonder that its flexibility has been widely discussed by the Judiciary.[1].

However, some Magistrates, in addition to applying the rule with absolute rigor, have interpreted the aforementioned provision in such a way as to create more obstacles, out of step with the legislation and completely deviating from the primary objective of the recovery institute, which is to preserve the company.

In addition to the limited term for payment of labor credits, the Judiciary has also interfered in the form of payment of these creditors, on which the judicial recovery law does not impose limits, on the contrary, it provides for various means of recovery, as already mentioned above.

For example, if a judicial recovery plan provides for payment of labor creditors within 1 (one) year by means of payment in kind of credit instruments, it is assumed that it is covered by special legislation, since it complies with art. 54 of the law (maximum term of 1 year) and falls within the list of means of judicial recovery, which allows payment in kind as a form of payment of credits subject to judicial recovery (art. 50, item IX, of Law No. 11,101/05).

The same occurs in other payment alternatives for this class of creditors, such as payment in kind for a property.

It is important to highlight that not even labor legislation imposes limits on the form of payment of credits recognized in court rulings, with it being common to replace payment in kind with other means, such as the execution of an agreement involving payment in kind or the award by the labor creditor of movable and immovable property in forced execution.

Therefore, a plan approved by creditors that provides for an alternative form of payment for the labor class should not be subject to interference from the Judiciary, firstly because it does not have any legal impediment, secondly because the sovereignty of the decision of the general meeting of creditors, which accepted payment in the agreed form, that is, by means of payment in kind, must be respected.

However, this is not what has been seen in the Judiciary, which has been constantly going beyond the limits of controlling the legality of the judicial recovery plan, directly and indirectly interfering in the creditors' deliberation in order to prevent the approval of judicial recovery plans that are absolutely viable, from an economic and financial point of view, and, consequently, the overcoming of the crisis faced by companies, leading them to inevitable bankruptcy, contradicting the main objective of the law, the preservation of companies.

Our office has highly qualified professionals to defend the interests of small, medium and large companies that are in a delicate financial situation and need to resort to the judicial recovery process, mainly so that they can overcome the crisis they are facing, in accordance with the legislation and preventing abuses practiced by the Judiciary from preventing the preservation of their activities and the resumption of their growth.

[1] TP No. 2025/SP (STJ)