Publicado em 30/11/2020

Brazilian Senate approves bill to amend the Bankruptcy Law

On November 25, 2020, the Federal Senate approved Bill of Law 4.458/2020, which amends Brazilian Bankruptcy Law (Law No. 11,101/2005).

The purpose of the amendments is to provide greater legal certainty for the judicial recovery, extrajudicial recovery and bankruptcy proceedings, as well as to align Brazil with the best international practices in cases of transnational insolvency, according to the opinion of the reporting senator Rodrigo Pacheco.

Although the official version of the final text of the Bill is not yet available, based on legislative discussions, it is possible to identify that the Bill must include in the Law issues decided by the courts over the last fifteen years, such as the judicial recovery of rural producers, the rules for consolidation by more than one debtor, among others.

In addition, the Bill intends to innovate by regulating financing to insolvent debtors (DIP financing), transnational insolvency, conciliation and mediation in judicial reorganization, by providing for measures to speed up bankruptcy proceedings and by admitting the usage of electronic means  to carry out general creditors’ meetings and disposal of assets.

The main changes are indicated below:

• DIP financing – the Bill regulates in detail the financing granted to the debtor during the judicial recovery proceeding, stating that the judge may authorize its granting as well as the guarantees to be provided by the debtor or by third parties. Also, in case appeal, possible overruling of this decision after disbursement by the lender shall not affect the extra-bankruptcy nature of the claim and the guarantees.
• Assets’ disposal – the Bill modifies four essential points of the Law: (i) the object of the disposal may include the full sale of the debtor or the partial sale of assets or rights of any nature, tangible or intangible, isolated or together, including equity; (ii) sales through competitive process promoted by a specialized agent, or through any other modality approved under the Law, are now admitted; (iii) the provision for the absence of succession of the acquirer now expressly includes obligations of an environmental, regulatory, administrative, criminal, anti-corruption, tax and labor nature; and (iv) the sale not provided for in the judicial recovery plan for assets of the debtor’s non-current assets is now subject to a specific challenge procedure by creditors, which includes voting in a meeting to be called, provided that certain conditions are met (such as the provision of security equivalent to the total amount of the proposed sale).
• Transnational insolvency – the Bill innovates by providing rules based on UNCITRAL’s Model Law on Cross-border Insolvency, with mechanisms for international cooperation, in line with the regulations of the United States of America (Chapter XV of the Bankruptcy Code) and other countries.
• Alternative creditors’ plan – creditors now have the prerogative to present an alternative judicial recovery plan, in certain circumstances (such as the rejection or lack of deliberation of the plan presented by the debtor within the legal term, among others).
• Prohibition on profits and dividends distribution – Until the approval of the judicial recovery plan, the debtor is prohibited from distributing profits or dividends to partners and shareholders.
• Consolidation – Joint requests for judicial recovery by more than one debtor are now subject to express treatment under the Law, which admits autonomous recovery plans (procedural consolidation) or an unitary plan (substantial consolidation), subject to certain conditions. The Bill also provides that the judge may authorize substantial consolidation, which has been the subject of controversy in case law.
• Rural producer – the individual rural producer may prove to be engaged in the activity for more than two years (legal requirement) by presenting a cash book and income tax statement (DIRPF). If the total amount of credits subject to the recovery does not exceed BRL 4,8 million, the rural producer may use the special procedure applicable to micro and small businesses already established in the Law, which essentially provides for payment in thirty-six monthly installments, with maximum grace period of one hundred and eighty days as of the date of the judicial recovery request.
• Medical cooperative – the Bill now allows medical cooperatives operating a health care plan to use the recovery mechanisms of the Law.
• Conciliation and mediation – conciliation and mediation are encouraged, both before and during the judicial recovery proceeding. As a rule, such methods do not suspend legal terms, unless there is a consensus or court order to the contrary.
• Protection of capital goods – the judge overseeing the judicial recovery proceeding holds jurisdiction to decide on the suspension of constriction acts by extra-bankruptcy creditors on capital goods essential to maintaining the debtor’s activity
• Bankruptcy proceeding – the Bill establishes several changes in the bankruptcy proceeding, aiming to speed up the sale of assets, payment of creditors, rehabilitation of the bankrupt individual, preservation of economic and social benefits resulting from business activity.
• Judicial administrator – the judicial administrator’s prerogatives and duties have been amended, with emphasis on the obligation to maintain an electronic address with updated information and main copies of the proceedings, in addition to the obligation to sell all assets of the bankruptcy proceeding within a maximum of one hundred and eighty days of collection, under penalty of removal.
• Labor claims – the Bill provides for the suspension of labor foreclosures brought against a subsidiary or jointly liable person to the debtor in judicial recovery until the plan is ratified or converted into bankruptcy. In addition, the maximum period of one year for payment of labor creditors subject to judicial recovery now may be extended for up to two years, if approved by the majority of creditors and if guarantees for payment of the full amount of credits deemed sufficient by the judge are presented. Labor claims are subject to adjustment in extrajudicial recovery proceedings, as detailed below.
• Stay period – the protection for the debtor resulting from the suspension of lawsuits and attachment on his assets for a period of one hundred and eighty days is now extendable for an equal period, only once by the judge. After this period, creditors will have the option to present an alternative plan (as described above), which causes a new suspension for one hundred and eighty days, or to resume the attachment against the debtor’s assets.
• Termination of judicial reorganization – the judge may determine the termination of judicial reorganization up to a maximum of two years from the date of its concession, regardless of the possible grace period, which goes against the case law that had been forming under the Law currently in force.
• Extrajudicial recovery – the Bill changes relevant points seeking to encourage the use of extrajudicial recovery, including (i) the suspension of lawsuits and attachment of assets exclusively in relation to the types of credit covered by the plan, provided that it is proven that the application has the support of 1/3 of creditors, (ii) the possibility of including labor claims, provided that there is collective negotiation with the union of the respective professional category, (iii) reduction of the homologation quorum, for the purpose of binding the entire class, from the current 3/5 for more than half of the credits of each species subject to the plan.

The Bill is expected to proceed to presidential sanction in the coming days.