Alerts
Covid-19 | Bill proposes modifications to Brazilian Bankruptcy Law
The Bill of Law (BL) n. 1.397/2020 was presented on 4/2/2020 proposing to counter the economic impacts of the Covid-19 pandemic with new provisions under Brazilian Bankruptcy Law (11,101/2005).
The BL sets forth emergency and transitory provisions which would remain in force until 12/31/2020 or until the end of the official state of public calamity related to the pandemic.
In order to “prevent insolvency”, the BL provides for a 60 days suspension of unilateral termination of agreements, enforcement of guarantees (mortgages, fiduciary or personal guarantees), bankruptcy or eviction decrees, any enforcement lawsuits concerning obligations overdue after 3/20/2020 and charging penalties of any kind. After such period, the minimum debt amount for a bankruptcy decree would be BRL 100 thousand.
Moreover, the BL provides for a new “preventive negotiation” proceeding, available to the debtor able to prove suffering a 30% decrease in revenues, applicable to any party, either a person or a corporation, exerting economic activity, regardless of formal registration or business nature.
The new procedure would consist basically of the suspension of enforcement of obligations against the debtor for 60 days, during which the debtor should carry out a debt restructuring with each of his creditors. Creditors’ participation would not be mandatory and only adherent creditors would be bound.
New financing agreements would be exempt from Court’s authorization, and carry the benefit of not being subject to a judicial or extrajudicial restructuring proceeding filed later, or being classified as priority under bankruptcy.
The BL also includes measures to help debtors already under judicial or extrajudicial reorganization, such as the suspension of the enforceability of obligations stated in approved plans for 120 days, with the possibility of presentation of a new plan including claims originated after the initial filing.
Finally, the BL provides that, as long as it is in force, certain creditors’ rights would be suspended, such as the collection against guarantors, the release of 50% of collectibles extended as guarantees, among others.
This BL is still subject to debates and potential modifications until it is voted and eventually comes into force. Our team will continue monitoring this matter closely.
