By: Vitor Ferrari and Ivan Kubala

Originating from the American jurisprudential system, Substantial Consolidation is a mechanism for resolving the insolvency of business groups through the unification of their debts and creditors. Its objective is to unify the assets and liabilities of companies in an economic group so that all companies in the group are liable to creditors, who consequently assume the risk of the business group as a whole, and not just of the direct debtor company.

Currently, the Brazilian legal system does not have express regulations for this practice, however, national jurisprudence has ratified this possibility, basing the understanding on article 113 of the Code of Civil Procedure, the text of which provides for the possibility of multiple parties entering into court appearing on the same side of the procedural relationship, whether active or passive, as in the present case.

Following the amendment of the Judicial Reorganization Law in December 2020 by Law 14,112/20, both Substantial Consolidation and Procedural Consolidation were regulated, based on the consolidated jurisprudence of our Courts.

Substantial consolidation is provided for in art. 69-J, and requires compliance with at least 02 (two) cumulative requirements, namely:

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 applicants.
Therefore, it is understood that business companies from the same business group can file for judicial recovery jointly.

Another possibility for Substantial Consolidation to occur is the disregard of the legal personality of the companies undergoing recovery that make up the business group due to patrimonial confusion, fraud against creditors or misuse of the companies' purpose. When it comes to economic groups in which there is patrimonial confusion and interdependence of activities, it is necessary for all companies in the group to participate jointly in the judicial recovery in order to overcome the economic crisis that afflicts them and to recover the companies through the maintenance of business activities, which makes Substantial Consolidation imprescriptible.

This change seeks to solve a common problem previously encountered by this group when it comes to Substantial Consolidation, which is their gathering into a single group through a unified list of creditors. The problem arose when the competent judge judged that one of the companies in the group did not meet the necessary qualifications set forth in Law 11.101/05 to enter into judicial recovery, which would lead to its exclusion from the process, harming its creditors.

Substantial consolidation is another tool that, if properly applied, can assist in judicial recovery processes, being beneficial both for the companies under recovery and for the creditors. However, the lack of legal regulation in the Brazilian legal system leads to obscurantism on the subject, which, due to the legal uncertainty created, is no longer applied.

With the collaboration of Luis Felipe Simões