By: Vitor Ferrari and Ivan Kubala

All judicial proceedings follow a specific procedure, in order to ensure predictability and increase the legal certainty of the case.. Judicial Recovery is not an exception, however, it is subject to a specific procedure provided for in the Judicial Recovery and Bankruptcy Law, Law 11.101/05.

Firstly, it is important to clarify who is the target of the judicial recovery procedure: companies hit by major crises., so they see no possibility of paying off their debts, even though they are operating regularly. This is the case of Lojas Americanas: despite the business operating normally and its branches remaining open throughout the country, the company has found itself with a billion-dollar hole in its accounts, making it impossible to pay this amount under the current conditions.

Seeking to maintain business activity, the social function of the company and the generation of jobs, the Brazilian legislator created a law whose text determines a special procedure so that the indebted company can pay off its debts, remain in operation and, subsequently, overcome the economic crisis.

The first step in a judicial recovery process is to request the judicial recovery itself. At this stage, the company's representatives go to the Judiciary explaining the reasons why the request for recovery should be granted. To this end, it is important to highlight that a series of assumptions must be present, and it is not possible for all companies to have their requests granted.

As soon as the competent Court receives the request and, observing the presence of all requirements, grants judicial recovery, the company is officially under recovery. At this stage, the judge responsible for the case will also appoint a judicial administrator, a kind of long hand of the magistrate whose role is to supervise events within the judicial recovery process, organizing it and reporting the facts to the magistrate.

After the judicial recovery is granted and the judicial administrator is appointed, a period of immunity against charges and executions is granted: stay period. For 180 days, extendable once for up to 180 days, all debts that the company has up to the date of approval of the judicial recovery are suspended, and cannot be collected from the company under recovery.

In the first 15 days of stay period, There is a deadline for qualifying creditors and disagreements regarding the amounts of credits to be included in the judicial recovery must be resolved through administrative channels.

Then, 45 days after the list of creditors is presented by the debtor, the judicial administrator will publish his list of creditors, with a period of 10 days for objections. However, these will be resolved within the judiciary.

Once the list of creditors has been completed, the company under recovery must present its Judicial Recovery Plan. (60 days after the approval of the judicial recovery). At this stage, the company under recovery shows creditors in detail how it intends to pay its debts and whether it requests the granting of a discount on the value of the credits, the famous hair cut.

Once the judicial recovery plan has been presented, creditors have 30 days to present their objections, defending their points of view and interests.

The General Meeting of Creditors is then proposed to be held within 150 days after the request for judicial recovery is granted. At this time, creditors will also question both the judicial administrator and the company under recovery on a variety of aspects, and once the minimum number of creditors in each class has been reached, voting on the judicial recovery plan will begin.

This is the critical point of the judicial recovery process. If the presented judicial recovery plan is effectively approved, the judge will ratify it, at which point it will come into effect and the debts will begin to be paid within the pre-established terms. This way, the company will continue to operate its activities in full and will no longer be subject to enforcement actions on the debts included in the plan.

However, if the plan is not approved by a certain number of creditors in each class, in accordance with the provisions of the bankruptcy and judicial recovery law itself, and it is not possible for the judge to force approval, the procedure will be hindered, and then the judicial recovery will be converted into bankruptcy, which will be the end of the company and its economic activity.

This is a true turning point in the recovery process. It is therefore essential that it be conducted by lawyers who are specialists in the area and have the necessary expertise to overcome possible objections from creditors, so that the plan is effectively approved by the Court.  

With the collaboration of Luis Felipe Simão.