By Vitor Ferrari

The Judicial Recovery and Bankruptcy Law, despite being relatively recent (it came into force in 2005), and which has served as a useful tool in maintaining the activities of companies in debt due to the political and commercial crisis experienced in recent years, has already required some adjustments throughout its existence.

In 2015, after 10 years in force, attempts began to change the text of this Law that replaced Decree-Law No. 7,661, of June 21, 1945, which remained intact for 60 years. These attempts materialized in 2018, with Bill 10,220/18, which has been criticized in its essence by several legal operators.

However, the current government has adopted an urgent regime for the progress of reform projects, and has apparently been guided by the following points:

• Transparency in the judicial recovery process;
• Speed and efficiency in the judicial recovery process;
• Comprehensive treatment of the company's liabilities, taking into account the social impact of the crisis on the company;
• The prestige of the creditors' will;
• Contractual freedom and respect for the availability of private law;
• Debureaucratization and democratization of the judicial recovery process;

The aforementioned urgency regime was adopted at the end of the last half of 2019 and was motivated not only by the text already compiled in PL 10.220/18, but also in the analysis of 06 (six) Projects that change specific texts of the Law in force, listed below:

• PL 10859/2018 – Includes a paragraph in art. 6 of Law No. 11,101, of February 9, 2005, determining that, in tax enforcement, acts that result in seizure of the debtor’s assets must be analyzed by the recovery court, in order to guarantee the principle of preservation of the company. This project consolidates the idea of the Universal Court of Judicial Recovery.
• Bill 1058/2018 – Amends section III of art. 51 of Law No. 11,101 of February 9, 2005, determining that the request for judicial recovery must be accompanied by a complete list of all the debtor’s creditors, whether or not subject to judicial recovery, including tax creditors. This measure aims to provide the Court and interested creditors with complete and adequate knowledge of the debtor’s economic and financial situation.
• PL 11000/2018 – Adds a paragraph to art. 35 of Law No. 11,101 of February 9, 2005, which regulates judicial recovery, stating that changes to the judicial recovery plan must be submitted to the general meeting of creditors. This addition has already been taking place in practice, in the form of approval of a new Recovery Plan.
• PL 3164/2019 – Amends the caput of art. 7 of Law No. 11,101, of February 9, 2005, in order to prevent the Judicial Administrator, during the verification and qualification of credits phase, from constituting or reviewing legal transactions, or, even less, from canceling credits without having the authority to do so.
• PL 5760/2019 – Amends articles 102 and 103 of Law No. 11,101, of February 9, 2005, which “Regulates the judicial and extrajudicial recovery and bankruptcy of entrepreneurs and business corporations”, for the purpose of establishing new rules for disqualifying bankrupts and managing the bankrupt estate.
• PL 4108/2019 – Institutes the Legal Framework for Re-Entrepreneurship by amending Law No. 11,101 of February 9, 2005, which regulates judicial and extrajudicial recovery and bankruptcy and establishes the extrajudicial procedure for closing the activity of micro and small businesses.

As stated, these projects specifically alter the text of the current Law, and it is certain that with their confirmation they will be added to PL 10.220/2018, which drastically alters the legal procedure, affecting debtors and creditors and the Magistrate's own performance in conducting the process.

The following highlights and criticisms remain in this project, which, if approved, will bring relevant changes to the Recovery and Bankruptcy procedures:

• Modification in the rule of jurisdiction – The project aims to concentrate Judicial Recoveries 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, the case will be handled by the specialized courts of its capitals. This determination clearly greatly affects debtors and creditors, 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 made available on the Internet – It was agreed that all acts should be made available on the Internet, giving full publicity to all interested parties. However, it should be noted that the provision 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 should be made available and remain accessible on websites maintained by the Judicial Administrator on a mandatory basis; 

• Change in the start of the count and applicability of the stay period. Duration period- The amendment to the Law aims to ensure that the period of security against actions and executions granted to the creditor is immediately applied at the time of filing for 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.

Still, but no less important, is that, according to the project, the 180-day period is no longer on the scene, with 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 enforcement measures for credits until the 2 years following the approval of the recovery plan (cf. art. 63 of 11.101/05). 

• Changes in the form of appointment of the Judicial Administrator – 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 the 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 changes 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,

Term - Said submission deadline would be extended from 60 to 90 calendar days[1] after the filing of Judicial Recovery;

Creditors and Credit Classification – 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 agreement –In total contradiction to what is established in Law 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 a vote 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, calling into question the legal principles of Judicial Recovery.

• Reduction of Debtor’s Rights – In addition to what has already been mentioned 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 prohibition 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 request for recovery 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. 

It can be seen from the analysis of these last points above that Bill 10,220/18 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, not taking into account that the Recovery of a Company in clear financial difficulty demands time to resume its regular duties and fulfill its obligations.

[1] accepts the recent guidance of the STJ (REsp 1,699,528, Fourth Chamber, Rel. Min. Luis Felipe Salomão, judgment 10/4/2018, decision pending publication), according to which the deadlines of law 11.101/2005 must be computed in calendar days.