By: Vitor Antony Ferrari and Ivan Kubala

Before the enactment of Law No. 14,112/20, extrajudicial recovery was already considered an alternative tool for companies that were in a momentary financial crisis, but the scenario in which they found themselves did not reflect such great pressure from creditors on the Company's cash flow in order to justify the use of the judicial recovery institute, whose effects for the parties involved are broader.

Furthermore, this modality, currently provided for in articles 161 to 167 of Law No. 11,101/05, has always been more flexible and faster, allowing, for example, a partial renegotiation of the liabilities of the Company Under Reorganization, through a type of selection of creditors subject to the financial restructuring plan proposed by the company in crisis.

In fact, to avail of extrajudicial recovery, the company must meet the same requirements for judicial recovery, that is, it cannot be bankrupt, it cannot have obtained a judicial recovery grant less than 5 years ago, and it cannot have been convicted, or have a director or partner convicted, for any of the crimes provided for in the law.

On the other hand, the institute allows the debtor company to prepare a restructuring plan for one or more classes of creditors, or even just a specific type of creditor within a specific class, which allows the company numerous possibilities for renegotiating its debts.

Furthermore, if the debtor company is successful in negotiating with the creditors holding the debts it intends to renegotiate, judicial approval will be sufficient for the proposed plan and adhered to by the creditors to take effect. Even if the company manages to obtain the adhesion of only a portion of the creditors it intends to submit to the recovery plan, the measure may be granted, provided that it has the adhesion of more than half of the credits of each type covered or, if it has the agreement of only 1/3, it will have the opportunity to reach the quorum of more than half within 90 days from the request.

Before the changes introduced at the beginning of 2021, the quorum was 3/5, that is, the new rules made the debtor company's alternatives for obtaining extrajudicial recovery more flexible, while establishing clearer and more objective rules for this purpose.

Furthermore, two attractions were introduced for this modality, which were not allowed in the previous rules, namely, application of stay period (period of suspension of actions and executions against the debtor company) for subject creditors and the possibility of including labor creditors in the extrajudicial recovery plan, provided that there is collective bargaining with the union of the respective category.

On the other hand, tax creditors, fiduciary owners, commercial lessors, sellers or prospective sellers of real estate through irrevocable contracts, sellers holding reservation of ownership, and credits arising from advance payments of exchange contracts for export (art. 161, §1º) continue to be excluded from extrajudicial recovery.

Finally, with the changes brought by Law No. 14/112/20, the institute appears to have been improved, bringing greater legal certainty to those involved and allowing greater freedom in negotiations between debtors and creditors, consolidating itself more firmly as an alternative within the options considered by companies that need to use a plan to reorganize their debts and maintain their activities.

Other details of this type of recovery can be consulted with our professionals, who have been following the impact of the new LRF on the positions of State Courts and Superior Courts, in order to always guide our clients in accordance with the most up-to-date rules on the subject.