By Ivan Kubala, Luis Felipe Meira M. Simão, Nicoly Crepaldi Minchuerri, Vitor Antony Ferrari

One of the great milestones in bankruptcy law in Brazil was certainly the year 2005, due to the enactment of Law 11.101, which revolutionized not only bankruptcy, but also corporate recovery. The purpose of the aforementioned Law was to replace the then-current Bankruptcy Law, Decree-Law 7.661/45, which regulated, among other procedures, the concordat, the predecessor of the current judicial recovery.

Both procedures were aimed at restructuring the company
businesswoman in a situation of economic and financial crisis. However, the concordat was much more restricted, applying only to companies that demonstrated a real possibility of recovery to the Court, which had full power to grant it or not. The current judicial recovery, heavily influenced by the American “Chapter 11” legislation, is more comprehensive, allowing a wide range of companies to use the institute, which will be granted if there is express agreement from the creditors as well.

The judicial recovery brought dynamism and versatility to the legislation, enabling other forms of payment of debts, which increased the success rate of the procedure. However, it is necessary to mention that the concordat was not simply abolished from the legal system: some provisions were maintained, such as the extension of payment deadlines and the possibility of remission of debt amounts, which, although not expressly stated in the current Law, can still be addressed in the Judicial Recovery Plan.

Furthermore, the new procedure changed the conditions for granting the bankruptcy: in the old bankruptcy, one of the prerequisites was the absence of protested titles against the alleged claimant, which made it very difficult to use the institute, since a business corporation in the midst of a financial crisis was at the mercy of its creditors. This requirement was waived for granting bankruptcy protection. However, new requirements were imposed: today, the company under bankruptcy is required to submit a Judicial Recovery Plan within 60 days of the date of granting the bankruptcy protection request, in which it must describe in detail how the payment of credits will be made to each class of creditor.

The latter highlights another change, responsible for making judicial recovery more comprehensive and enabling better success rates for requesting companies: various types of credits are enabled within the judicial recovery process, not only unsecured credits, as was customary in the concordat.

Finally, another major change that has contributed to the speed and transparency of the
The judicial recovery procedure was the replacement of the figure of the “Commissioner”, present in the concordat, by that of the “Judicial Administrator”. The former was, according to the legal text, one of the largest creditors of the company under recovery, and could easily influence the company under recovery in favor of his interests and to the detriment of the interests of the other creditors. In the figure of the Judicial Administrator, the opposite is true: he is necessarily a suitable person and a third party to the judicial recovery, appointed with the duty to monitor compliance with the plan, so that there is no overlapping of interests.

In short, it can be seen that the change in legislation was very beneficial for Brazilian bankruptcy law. The new procedure is more complete, versatile, dynamic and transparent, in addition to being available to a wider range of companies, which will have greater chances of success.