Brazilian Senate approved the Bill of Law No. 4,458/2020, which modifies the Brazilian Bankruptcy Law
The Senate approved, on November 25, 2020, the Bill of Law No. 4,458/2020, which modifies Law No. 11,101/2005 (Brazilian Bankruptcy Law).
The main changes are the following:
- Stay period: the period of suspension of enforcement proceedings against the debtor and seizure/pledge measures against the debtor for 180 days, counted from the decisions authorizing the Judicial Reorganization Proceeding, may be extended for the same period only once, on an exceptional basis, provided that the debtor did not contribute to the non-compliance with the time lapse.
- Essential assets: the Judicial Reorganization Court has jurisdiction to determine the suspension of seizure/pledge measures that fall on capital assets, essential to the maintenance of the business activity.
- Presentation of alternative judicial reorganization plan by creditors: creditors may submit an alternative proposal to the plan filed by the debtor if, after the termination of the stay period, there has been no deliberation on it, or to substitute a plan rejected by the Creditors Meeting. If the Creditors Meeting rejects the plan, the Judicial Administrator will put to vote the possibility of presenting an alternative plan within 30 days. In other words, the rejection will no longer result in the automatic decree of liquidation. Once such possibility is approved, creditors representing more than 25% of the credits or 35% of the present credits in the Creditors Meeting may submit an alternative proposal, which will be voted in the Creditors Meeting in accordance with the quorums already established in the current law.
- DIP Finance: the judge may, after hearing the Committee of Creditors, if such committee had been elected, authorize financing agreements to the debtor to fund their activities and the expenses of restructuring or to preserve the value of assets. These financing agreements may be guaranteed by fiduciary lien of assets and/or rights, owned by the debtor or third parties, belonging to the debtor long-term assets. The further modification of the decision that authorized the financing may not alter its bankruptcy remote nature or the guarantee constituted, if the amount has already been disbursed.
- Sale of UPIs: the law expressly authorized: (i) the electronic auction, in person or hybrid; (ii) the organized competitive process, promoted by a specialized agent or any other means admitted by court. The object of the sale will be free of any lien and there will be no succession of the bidder in the debtor's obligations of any nature, including, but not limited to, those of environmental, regulatory, administrative, criminal, anti-corruption, tax and labor nature. It should be emphasized that the sale of assets or granting of guarantee may not be annulled after the consummation of the transactions.
- Procedural and substantive consolidation: the debtors that meet certain requirements provided for in Article 48 of the Brazilian Bankruptcy Law (and that are part of a group under common corporate control) may request judicial reorganization proceeding under procedural consolidation. With regard to substantial consolidation, regardless of the Creditors Meeting, the judge may authorize it, exceptionally, only when there is interconnection and confusion between the assets or liabilities of the debtors of the group of companies, in a way that it is not possible to identify their ownership. In such case, there must be the occurrence of at least two (2) of the following hypotheses: (i) existence of cross guarantees; (ii) control or dependency relationship; (iii) total or partial identity of the corporate structure; and (iv) joint operation in the market among the applicants.
- Transnational insolvency: Brazil has been adopting the text of the United Nations Commission on International Trade Law (UNCITRAL) model law, proving for international cooperation (chapter VI-A) and regulating cooperation between judges and national and foreign authorities in the event of transnational insolvency.
- Agribusiness: the regularity of rural activity by a legal entity can be proven through the Tax Accounting (ECF), or through the accounting system that eventually replace the ECF, delivered on time, provided it is done for the two years required by the law. If the farmer is an individual, the proof can be based on the Digital Accounting Book of the Farmer (LCDPR), or through the accounting system that eventually replace the LCDPR, and by the Income Tax Declaration of Individuals (DIRPF) and balance sheet.
- Derivatives: the Bill provides that the request for judicial reorganization will not affect the exercise of early maturity and offsetting rights in the context of repurchase agreements and derivatives, so that these operations may be matured in advance, provided that this is previously agreed in the agreements entered into between the parties or in regulation. Measures that imply the reduction of guarantees or their foreclosure requirements , the restriction of exercise of rights, including early maturity for non-performance, and the compensation provided for in the contract or in regulation are prohibited.
- Mediation: new provisions were included seeking to encourage conciliation and mediation, in any degree of jurisdiction. However, mediation on the legal nature and classification of credit claims, as well as on voting criteria in creditors meeting, is prohibited.
- Fresh start: significant modifications were added in connection with the bankruptcy procedure aiming to speed up the collection process and sale of assets and payment of creditors, with special emphasis on the rehabilitation of the debtor to a new business activity (fresh start). According to Bill, the debtor’s obligations will be extinguished in four different cases: (i) if, after the collection of the bankruptcy state, it is possible to pay 25% of the unsecured creditors; (ii) if it is not possible to liquidate the assets or there are no assets to support the legal expenses and judicial administrator’s, which should be reported by the judicial administrator immediately after collection (Article 114-A); (iii) if all assets are liquidated and creditors paid (Article 156); (iv) after a three-year period from the date of the bankruptcy decree, regardless of the liquidation of assets to pay creditors. In the event of any of the above, the debtor may request a declaration of extinction of his obligations, including labor debts.
The text will be submitted to the approval of the President.