Put: Victor Antony Ferrari and Ivan Kubala

Substantial Consolidation is the union of rights and obligations of all the Companies Under Reorganization that make up a recognized Economic Group of Companies, which are now treated as a single entity, without, however, implying the definitive union of the legal personalities of the Companies, producing effects only in relation to the judicial recovery process. 

Prior to the enactment of Law 14,112/2020, which amended Law 11,101/2005, Substantial Consolidation should expressly be recognized by Creditors in AGC, and this position was defined by Case Law, since there was no express legal provision. 

Today, we have the institute defined in the Law, and, despite the possibility of recognition by Creditors in AGC remaining, the Judge may also exceptionally, regardless of the holding of a general meeting, authorize the substantial consolidation of assets and liabilities of debtors that are part of the same economic group. 

Thus, companies that are undergoing judicial recovery in the same process, as an economic group, and that are found to have interconnection and confusion between the debtors' assets or liabilities, so that it is not possible to identify their ownership without an extensive analysis, in addition to the occurrence of at least 2 (two) of the following hypotheses, may have Substantial Consolidation recognized: 

I – existence of cross guarantees;      

II – relationship of control or dependence;   

III – total or partial identity of the corporate structure; and  

IV – joint action in the market between the applicants. 

Again, we emphasize that today the recognition of substantial consolidation results in the grouping of all assets and liabilities of the Companies that make up the Economic Group, which will be treated as if they belonged to a single debtor.  

Furthermore, as a consequence, it is important to highlight 2 points: 

1º Substantial consolidation will result in the immediate extinction of surety guarantees and credits held by one debtor against another.    

2nd Substantial consolidation will not impact the real guarantee of any creditor, except with the express approval of the holder. 

As a final result of the Substantial Consolidation, the Companies that make up the Economic Group will present a unitary plan, which will specify the means of recovery to be employed and will be submitted to a general meeting of creditors to which the creditors of the debtors will be summoned, applying the rules of deliberation and approval, and the rejection of the unitary plan will consequently imply the conversion of the judicial recovery into bankruptcy of the debtors under substantial consolidation. 

Thus, it is concluded that the new provisions on Substantial Consolidation included by Law 14,112/20 bring favorable provisions with the aim of accelerating the recognition by the Judiciary of the Economic Group and its responsibilities, generating relevant procedural savings for the benefit of all those involved in the Judicial Recovery procedure.