São Paulo Court of Justice facilitates the sale of a company undergoing restructuring.

A ruling by the São Paulo Court of Justice (TJ-SP) authorizes the sale of shares in a company undergoing judicial reorganization—with a transfer of control—without the need for creditor approval. The judges state in their decision that this does not constitute an alteration of the payment plan and that what matters to the creditors is the fulfillment of the obligations assumed by the debtor, regardless of who manages it.

Lawyers working in the field say that, this time, the court proved to be much less rigorous than in previous trials. They claim there are cases of companies that, in addition to submitting the business to their creditors, had to present documentation in court and undergo a whole process of analyzing their ability to pay and manage their debts.

This "bureaucracy," in the lawyers' view, ends up delaying the deal and harming the company, which needs new money to stay in the market.

The decision was issued by the 1st Reserved Chamber of Business Law. It occurred in the recovery process of Cajuru Indústria e Comércio de Alimentos, known by the brand Gold Meat (appeal no. 2160442-08.2020.8.26.0000).

The company had appealed a lower court decision that mandated prior notification from the judicial administrator, required the contract to be made public and all creditors informed, and also required deliberation at a general meeting. This dispute involves an option contract to purchase 80% of the company's shares.

The court-appointed administrator disagreed with the contract because the company's partners and the investment fund interested in the acquisition agreed to a payment lower than the market valuation—approximately R$ 800,000 less. He also pointed out to the judge of the first instance that the contract did not stipulate that the investment proceeds would be used to fulfill the company's recovery plan.

The rapporteur for the case at the São Paulo Court of Justice (TJ-SP), Judge Fortes Barbosa, says that there was "a mistaken interpretation" of the contract. "In addition to outlining the sale of a shareholding and the transfer of majority control, it provides for an agreement whereby the acquiring party undertakes to invest an amount far exceeding the total agreed upon as the price of the shares," he states.

Furthermore, the decision highlights that "the market valuation, in the case of a company undergoing judicial reorganization, does not correspond to the value equivalent to the paid-in share capital," and, according to the judge, the current crisis context must also be taken into account.

Fortes Barbosa adds that the transfer of shares in a limited liability company constitutes a legal transaction between private individuals, which is governed by the rules of the Civil Code, regardless of whether or not there is a change in corporate control.

“The agreed-upon economic content is not subject to the control of creditors or the Judiciary,” he says. “There is no proposal to alter the approved recovery plan. What matters to the creditors is the fulfillment of the obligations assumed by the company undergoing recovery, regardless of who manages it.”

The decision was also influenced by the fact that the creditors, when approving the payment plan at the general meeting, validated a "generic" clause authorizing, in advance, "corporate reorganization operations." Valor was unable to locate a representative of Gold Meat to comment on the decision.

Ricardo Siqueira, a specialist in the field and partner at the RSSA law firm, says the decision is important because, although the market has always argued that the Bankruptcy and Reorganization Law (No. 11,101 of 2005) does not prevent the sale of shares, some judges required the consent of creditors. "The decision clarifies this once and for all," he states. "What would be the point of keeping partners eternally tied to a business?"

Lawyer Paulo Bardella Caparelli, a partner at the Viseu law firm, agrees. "There are no restrictions in law," he says, adding that transactions involving "distressed asset funds"—which operate precisely in the search for and negotiation of companies in financial crisis—are very common.

For companies in recovery, he states, "it is extremely advantageous." "Because it attracts new money to the business. A new partner who believes in the company and is willing to invest, pay creditors and taxes, and create jobs."

The understanding reached in the Gold Meat case represents a victory for the legal security of corporate transactions in this context of "distressed assets," says Paulo Trani, partner at the law firm Abe Giovanini. "It guarantees greater predictability and non-interference by the Judiciary in economic conditions."

Source: Economic Value