Brazilian Chamber approves differentiated rules for corporate bankruptcy proceedings during the pandemic.

The Chamber of Deputies plenary approved this Thursday (21) Bill 1397/20, by deputy Hugo Leal (PSD-RJ), which creates transitional rules for companies in judicial reorganization and also to try to prevent other companies in difficulty from reaching this point, prior to bankruptcy. The proposal will be sent to the Senate.

The measures cover situations that have occurred since March 20 of this year, and some will remain in effect until December 31, 2020, the date foreseen for the end of the state of public calamity due to the Covid-19 pandemic. However, they do not apply to contracts and obligations arising from cooperative acts carried out by cooperatives with their members.

According to the approved substitute bill, authored by Representative Isnaldo Bulhões Jr. (MDB-AL), for 30 days, counted from the effective date of the future law, judicial or extrajudicial executions of guarantees, legal actions involving obligations that matured after March 20, 2020, bankruptcy decrees, unilateral termination or actions for contract review are suspended.

Furthermore, the collection of late payment penalties stipulated in contracts in general and those resulting from the non-payment of taxes is suspended during this period. The suspension does not apply to obligations arising from contracts signed or renegotiated after March 20, 2020, to those arising from salary-related credits, and to cooperative contracts.

The project creates the Insolvency Prevention System, applicable to any debtor, whether a sole proprietor, private legal entity, rural producer, or self-employed professional.

During this time, the debtor and their creditors may seek, through extrajudicial and direct means, to renegotiate their obligations, taking into account the economic and financial impacts caused by the Covid-19 pandemic.

According to Hugo Leal, the project opens up the possibility of negotiation between legal entities during a time of pandemic and economic downturn. "If there is no suspension, everything will go to court, and then companies will enter into receivership or bankruptcy," he pointed out.

Bulhões highlighted that Brazil will join the ranks of the 75% of the most developed countries that have taken action to address the economic difficulties faced by businesses.

Preventive negotiation
After 30 days, if no agreement has been reached, the debtor who proves a reduction of 30% or more in their revenue, compared to the average of the last quarter of the previous year, will be entitled to the preventive negotiation procedure.

This procedure will be carried out before the court specializing in bankruptcy. Acceptance of the request, which may be submitted within 60 days, guarantees the continuation of the suspension initially obtained for another 90 days.

Creditor participation in preventive negotiation sessions will be optional, and it is the debtor's responsibility to inform them by any suitable and effective means about the start of negotiations.

During the pre-trial negotiation period, the debtor may obtain financing to fund its restructuring and preserve the value of assets.

If there is a request for extrajudicial or judicial reorganization, the entire suspension period foreseen in the project will be deducted from that foreseen in the Bankruptcy Law (Law 11.101/05), of 180 days, which refers to the suspension of judicial executions of debts.

And any financing eventually obtained by the debtor will not be included in the list of outstanding debts.

Bankruptcy Law
For proceedings initiated or amended during the period of validity of the future law (December 31, 2020), the text changes some rules to facilitate judicial reorganization.

In the case of out-of-court restructuring, tax and labor credits, those linked to fiduciary assignment (leasing, for example), and advances on foreign exchange contracts for export are excluded.

One of the amended rules allows for a reduction in the quorum of creditors who agree to the out-of-court restructuring plan for its approval. Instead of 3/5, only half plus one of the creditors of each type of credit will be required.

The creditor may present the agreement of at least 1/3 of the creditors and commit to reaching the quorum of half plus one within the following 90 days.

Approved plans
For judicial or extrajudicial reorganization plans that have already been approved, regardless of a resolution by the general meeting of creditors, the bill allows the debtor to not comply with the measures stipulated in those plans for 120 days.

Bankruptcy cannot be declared while the law is in effect (December 31, 2020).

New plan
Bill 1397/20 authorizes debtors with a judicial or extrajudicial reorganization plan already approved to present a new plan, with the right to an additional 120 days of suspension of judicial enforcement of the debt and guarantees.

The new plan will be subject to approval by the creditors, deducting what has already been paid under the previous plan to calculate the amount to be paid and to determine the creditors' votes according to the type of credit.

Total due
By the end of the year, the value of protested bills that can lead to a debtor's bankruptcy will increase from 40 minimum wages (approximately R$ 40,000) to R$ 100,000.

Restrictions are also eased. The debtor may file for judicial reorganization even if they have filed another request in the last five years, and in the case of extrajudicial reorganization, even if they have filed it in the last two years.

Microenterprise
Regarding the special judicial reorganization plan for micro and small businesses, as provided for in the Bankruptcy Law, it must provide for payment in up to 60 monthly installments, and may allow for discounts or reductions, and, if applicable, monetary correction will be limited to the Selic rate. There will be a 360-day grace period to pay the first installment, counted from the filing of the judicial reorganization request or its amendment according to the project rules.

Suspended actions
Bulhões' text also suspends administrative acts of cancellation, revocation, or impediment of registration or recording of a taxpayer identification number that is under judicial review within the scope of the recovery process.

Source: Chamber of Deputies News Agency