PGFN attempts to release lawsuits and collect billions in debt from companies in receivership.

Brazil's Attorney General's Office for the National Treasury (PGFN) will attempt, based on the new Bankruptcy and Reorganization Law, to recover the more than R$ 100 billion owed in taxes by companies undergoing judicial reorganization. Last week, just days after the law came into effect, prosecutors filed a request with the Superior Court of Justice (STJ) to release all enforcement actions against these taxpayers.

These proceedings have been suspended nationwide since 2018. The 1st Section opted to stay the tax enforcement proceedings when it decided, in that year, that it would rule, on a repetitive basis, whether the assets of companies undergoing judicial reorganization could be seized.

There are over three thousand cases stalled in the first and second instances awaiting this judgment — solely in relation to the collection of federal taxes.

This discussion exists because tax debts are not addressed in the recovery process. Collection is done through a separate channel — the tax enforcement action — and, in this process, the Public Treasury can request the seizure of the debtor's assets and funds.

It often happens that the judge overseeing the bankruptcy proceedings interferes. This is seen, for example, in cases where the seizure of a particular asset could harm the payment plan of individual creditors—who are subject to the bankruptcy proceedings—or because that asset is considered essential for the company's operation.

The First Section of the Superior Court of Justice (STJ) will therefore decide whether or not companies undergoing judicial reorganization that are in an irregular situation with the tax authorities (do not have a Tax Clearance Certificate) can have their assets seized. However, there is no date yet scheduled for this judgment.

The issue will be analyzed through three appeals (REsp No. 1,694,316, REsp No. 1,694,261 and REsp No. 1,712,484) — all under the reporting of Minister Mauro Campbell — and the decision, when issued, will serve as guidance for judges throughout the country.

For the PGFN (Attorney General's Office for the National Treasury), however, the situation has changed since the new law (No. 14,112) came into effect. In the petition addressed to Minister Campbell, the prosecutors cite paragraph 7-B of article 6. This provision allows tax enforcement proceedings to continue during the judicial reorganization process and stipulates that the reorganization judge may only release assets and values considered essential to the company's operation if they indicate other assets and values to replace them.

Filipe Aguiar, one of the prosecutors who signed the petition, says that, given how the jurisprudence has been constructed, it has become practically impossible for the Union to recover the amounts owed to it.

“A tax haven has been created within the judicial reorganization process,” he states. “First, judges began exempting companies from presenting the tax clearance certificate, and then they started preventing seizures. This caused companies to lose interest in regularizing their situation. There are companies in judicial reorganization that don't pay a cent. This even creates a competition problem in the market.”

The prosecutor hopes that, with the new law, debtors will approach the National Treasury to arrange payment plans for their debts or attempt individual negotiations through so-called tax transactions—in which discounts of up to 70% on interest and penalties are granted.

The new law provides for a special payment plan for companies undergoing restructuring. These companies can choose between two options: paying their debts in up to 120 installments or using tax losses to cover 30% of the debt and paying the remainder in up to 84 installments. However, those that opt for the payment plan or agreement and fail to make the payments risk having their bankruptcy declared.

Companies undergoing judicial reorganization have accumulated debt of R$ 106.5 billion, according to a survey conducted in November by the PGFN (Brazilian Federal Attorney General's Office). Of this total, only R$ 8.9 billion are in good standing (the taxpayer has provided collateral for the debt or has joined an installment plan, for example).

Prosecutor Marcelo Kosminsky, who co-signed the petition with Filipe Aguiar, reports that the compliance rate, "of a mere 8.38%", is far below what is seen for companies in general. The total debt of active legal entities is R$ 1.3 trillion. Of that total, R$ 429 billion is in good standing, which generates an average rate of 32.2%.

“We hope that the suspension of actions will end and that judges will apply the new law, since it was the subject of discussion between the government, companies, lawyers and the Judiciary itself,” says Kosminsky.

Among lawyers who work for companies undergoing restructuring, however, the issue of asset seizure is being understood differently. “It will have to be analyzed on a case-by-case basis. The tax authorities, which are not subject to the judicial reorganization process, cannot harm all other creditors,” says Juliana Bumachar, partner at the law firm Bumachar Advogados Associados.

According to Ricardo Siqueira, a partner at the law firm RSSA Advogados, when deciding on the seizure of assets, Article 186 of the National Tax Code (CTN) must be taken into account, which prioritizes labor claims over tax credits in the order of preference for payments. "Workers are subject to judicial reorganization and their payments cannot be compromised due to tax enforcement. If this happens, the tax authorities will end up having an illegal advantage," he says.

The lawyer also understands that paragraph 7-B of article 6 of the new law, which allows the bankruptcy judge to only replace the seized asset, only applies to seizures carried out before the judicial reorganization process.

Source: Valor Econômico