Put Victor Antony Ferrari and Ivan Kubala  – 30/03/2020

As already mentioned in an article published on the subject Economic Pandemic – Debt Renegotiation, Business Preservation and Judicial and Extrajudicial Recovery in Brazil, given the current economic and financial scenario imposed by the pandemic generated by COVID-19, many companies are already being severely affected, so that both those that were already in fragile financial health and those that do not see any means to remain afloat during this period of recession, may avail themselves of the Judicial Recovery Institute to restructure their debts and prepare a plan to maintain their activities, while also preserving their social function.

However, there are companies that are already undergoing judicial recovery and, likewise, will need effective measures to maintain their status, under penalty of having their bankruptcy declared, which goes against the basic principle of the institute, which is the preservation of the company.

Well then. Some measures have already been adopted by companies that find themselves in this situation, but now, more than ever, these and other measures must be reinforced to avoid a true economic collapse, which will certainly affect not only the business community, but all those who depend on it, such as its employees, suppliers and collaborators.

For this reason, legal professionals must be alert and provide their clients with legal options to mitigate the impact that COVID-19 will have on their activities.

Therefore, among the measures to be adopted, we can mention, by way of example, the following:

• Renegotiation of Contracts with Suppliers and Employees, even for a specific period;
• Extension of the Stay Period, extending the period of suspension of Actions and Executions brought against the Companies Under Reorganization, so that they can have the breath to restructure themselves and carry out all the main acts inherent to the Judicial Recovery, aiming at their prompt recovery;
• Release of assets essential to the Activities of the Company Under Reorganization, including those that are fiduciary alienated;
• Readjustment of the Judicial Recovery Plan that is already being implemented.

Although the above topics already coexist to a certain extent with the Judicial Recovery procedure with a recurrence, we focus our considerations on the last item, in which it is important to make some considerations about its possibility-viability.

As is known, the judicial recovery plan is widely discussed between the Debtor and its Creditors, so that, after its approval at the General Meeting of Creditors and ratified by the competent Judge, it will consist of a true contract entered into between the parties.[1].

In this context, given the current economic situation, it should not be forgotten that the theories of unforeseeability and excessive burden, enshrined in the Brazilian Civil Code, apply to these cases, which ensure a readjustment of the contractual relationship, in the face of unexpected situations such as the COVID-19 pandemic, since, as is known, failure to comply with any obligation provided for in the judicial recovery plan may result in the recovery being converted into bankruptcy.

The amendment of the Judicial Recovery Plan after its judicial approval is already provided for by the legislation governing the matter, but must follow the same steps taken for the approval of the original plan, namely: a) publication of the notice to creditors provided for in art. 53, sole paragraph, of Law No. 11.101/05; b) granting of a period of 30 (thirty) days to present any objections; c) submission of the amended plan to the new General Meeting of Creditors, if there is any objection.

It should be noted, however, that in the face of a situation of imminent risk, such as the one we are currently experiencing, it would not be reasonable to require all this bureaucratic and time-consuming procedure to implement changes that are only intended to mitigate the impacts that the pandemic will have over a certain period of time.

For example, if a company needed to suspend payments to creditors or reduce them for a period of 02 (two) months, we believe that there would be no need to carry out all the steps provided for in the LRF, the word of the competent Court being sufficient, vested with the general power of caution enshrined in art. 301 of the Code of Civil Procedure, and weighing the principles of preserving the company and the pact with servant, so that the requested changes could be put into practice.

It is true that this hypothesis is perfectly viable within the 2-year period of supervision of the judicial recovery, provided for in art. 61 of Law No. 11,101/05, for the reasons set out above. However, what if the aforementioned period has already elapsed? Will there be the same flexibility to accept specific and necessary modifications to the plan to face the crisis imposed by the pandemic?

Although the LRF provides that after the aforementioned period has elapsed, any creditor may request specific execution or bankruptcy, not submitting to any modifications to which he/she did not agree, for the same reasons set out above, we understand that, in view of an inexcusable and imminent need, the Magistrate conducting the case may impose on all creditors, including dissenters, the changes requested by the company in Judicial Recovery, with the sole and exclusive purpose of preserving the source of wealth for the effective fulfillment of the Plan established by the parties.

However, guidance from professionals with extensive experience in the area is necessary to analyze each case and instruct their clients on the possibility and viability of measures that are essential to maintaining business activities and overcoming the current economic and financial crisis.

[1] “The judicial recovery plan, approved in a meeting by the will of the creditors under the terms required by the governing legislation, has a markedly contractual nature. As a corollary, the competent court is not allowed to interfere in the specificities of the economic content of the agreement stipulated between the debtor and creditors” (REsp nº 1631762/SP).