By: Vitor Ferrari, Ivan Kubala and Nicoly Crepaldi

After a series of deficit financial statements and suffering from the theft of electricity, Light SA, the holding company that manages Grupo Light, and its concessionaires requested, based on law 13.140/2015, the Mediation Law, before the Court of Rio de Janeiro, the granting of Precautionary Relief in an Antecedent Nature.

The request aimed to suspend the enforceability of the Light Group's obligations towards any financial creditor of the group in order to prevent the use of legal measures against the creditor companies, which would create a "cascade effect", worsening the Group's financial condition. Furthermore, the idea was to allow the readjustment of the Light Group's obligations, as well as collective and consensual mediation with the group's financial creditors.

The request was submitted to the 3rd Business Court of the city of Rio de Janeiro, what, highlighting the possibility of mediation in judicial recovery processes, granted the Plaintiffs' request, considering it valid, since it seeks to avoid the economic worsening of the companies. Therefore, the judge in charge ordered the suspension for a period of 30 days, which may be extended for the same period, in accordance with the mediation process.

However, the judge's decision was harshly criticized by legal experts, and especially by the companies' creditors, who understood that the Light Group, albeit indirectly, benefited from a procedure present in the Bankruptcy and Reorganization Law. However, the use of recovery procedures is expressly prohibited for public companies, or providers of public services, such as electricity concessionaires.

They argue that the Light Group uses the mediation procedure in a simulated manner, since, with the granting of the suspensions of enforceability of financial obligations, it would receive a kind of stay period, institute provided for in the Bankruptcy and Recovery Law which suspends the enforceability of obligations for 180 days, protecting the company.

In order to further upset the creditors, and in total disagreement with the recovery legislation, the group's holding company requested judicial recovery, and its dealerships requested an extension of the effects of the request in order to protect them.

The request was accepted by the Rio de Janeiro courts, which understanding that the legal requirements are present, granted the processing of the judicial recovery of Holding Light SA, while its concessionaires will be within the process and with extension of the effects granted to the holding company.

It is important to clarify that the controversy has not been settled, since a series of appeals were filed in the case records by creditors, who seek to annul the decisions in favor of the now Recovering Companies. The most frequently raised arguments are the violation of Law 11.101/05; the simulation of the request by the group's holding company, which seeks to benefit the dealerships; and the ineptitude of the initial petition, since, according to many creditors, there was no compliance with the requirement of express mention of the main request – judicial recovery.

This is a completely new case in Brazilian law. During the validity of the Bankruptcy and Reorganization Law, no public service concessionaire of such importance had a request for judicial recovery granted. The specific mechanisms applied to these companies were always used.

If the request is successful and the decision is upheld, there will be a true turning point not only in Brazilian recovery law, but also in terms of relations between creditors and public service concessionaires.

With the collaboration of Luís Felipe Simão