Draft bill on bankruptcy protection during the epidemic divides experts.

Bill 1.397/2020, which establishes emergency measures through temporary changes to provisions of the bankruptcy law (11.101/2005), has divided the opinion of experts in the field. For some, the proposal will protect businesses during the economic crisis resulting from the coronavirus epidemic. For others, the text will overburden the Judiciary and prolong bankruptcy proceedings for much longer.

The bill was approved by the Chamber of Deputies in a virtual session last week and will now be sent to the Senate. The text provides, for example, a system for preventing insolvency, with immediate legal suspension for a period of 30 days, and a preventive negotiation procedure between creditors and debtors. The measures are valid until December 31, 2020, or for as long as the state of public calamity lasts.

Some view the measures favorably. Lawyer Samantha Mendes Longo, partner at the law firm Wald, Antunes, Vita, Longo e Blattner Advogados, highlighted the possibility of negotiation between creditors and debtors during the epidemic. "The project is in line with legislation from various countries in dealing with the epidemic and values negotiation, the best alternative in this time of crisis," she said.

On the other hand, Judge Paulo Furtado, of the 2nd Bankruptcy and Judicial Reorganization Court of São Paulo, believes that Bill 1,397 encourages litigation, in addition to lacking mechanisms that require the debtor's good faith in preventive negotiation. According to the judge, the proposal "lacks focus," benefiting debtors and leaving creditors in a bad situation, since they cannot sue the debtor in court during the 30-day legal suspension period.

“After the 30-day legal suspension, which acts as a moratorium, if you haven't reached an agreement, you can request preventive negotiation. This must be requested from the judge. But why does the judge have to examine this issue if the negotiation is extrajudicial? The law throws everyone into the Judiciary. What would make more sense: give the debtor a deadline to negotiate, and then the creditor who wants enforcement has to go to the judge and show that they did not receive a reasonable offer. Thus, only the creditor who has verified that the debtor acted in bad faith involves the Judiciary,” he said.

Protection for business owners
According to lawyer Roberto Keppler, founding partner of the law firm Keppler Advogados Associados, the approval of the bill is "providential" and will fill an "important gap in protection for businesses," following economic measures such as the release of funding by BNDES and the renegotiation of liabilities by financial institutions.

“These economic measures, although announced with great fanfare, have not proven successful, since few companies have benefited given the number of requirements imposed for the use of said benefit,” he said. Keppler stated that Bill 1,397/2020 guarantees entrepreneurs better mechanisms for the protection of their activity, including those already in judicial reorganization.

The project, the lawyer stated, allows for the renegotiation of non-bankruptcy liabilities, "which will certainly contribute to fostering the economic environment as a whole, benefiting not only entrepreneurs but all citizens." Samantha Mendes Longo added: "Without dialogue between the main players, the problems arising from breaches of contract will not be resolved in time to save companies from bankruptcy."

Pandemic in the Judiciary
Lawyer Domingos Fernando Refinetti, a partner in the judicial reorganization area at the law firm WZ Advogados, believes that the project will encourage debtors to use the mechanisms as broadly as possible.

“The legal suspension period comes free of charge for debtors because, if during the 30-day moratorium period they do not seek renegotiation, or if they do but do not achieve it, nothing happens and they will have lost nothing, quite the contrary. They then have access to the preventive negotiation period, also free of charge, where, in theory, they will try to achieve what they were unable to achieve before. Only then will their moratorium have lasted at least 90 days, without any obligation to achieve a result,” Refinetti concluded.

According to the lawyer, "it will basically be a health pandemic transformed into a judicial pandemic." Judge Paulo Furtado agrees and predicts a large increase in the number of lawsuits if the bill is passed. "You can't have a bill that encourages litigation under the pretext of negotiation. The judiciary must be the last resort in conflict resolution," he said.

Source: Conjur