Restructuring and Insolvency
Brazilian Superior Court of Justice admits exceptional direct sale of IPUs - Isolated Production Units
The Brazilian Superior Court of Justice (STJ) decided to exceptionally allow the direct sale of isolated productive units (IPUs) within the context of a judicial reorganization, in order to make viable the sale - as set forth in Article 145 of the Brazilian Bankruptcy Law No. 11,101/2005 (LRF).
The company Delta Construções S.A. included the direct sale of an IPU to a Spanish group as part of its judicial reorganization plan, bypassing the adoption of one of the competitive proceedings provided by the LRF (auction, sealed offers, or tender).
One of the company’s creditors appealed the decision rendered by the Court of the State of Rio de Janeiro (TJ-RJ), which upheld the mentioned reorganization plan.
The STJ maintained that Article 145 of LRF, which allows for alternative methods of sale of assets within liquidation proceedings, is also applicable to judicial reorganizations - provided such sale is approved by the creditors’ meeting.
The Court further asserted that such deviation from the traditional competitive sale mechanisms within the context of a judicial reorganization is an exception that must be expressly justified, with a detailed description of the business conditions in the judicial reorganization plan. The alternative sale, therefore, (a) must be the object of specific voting in the creditors’ meeting, (b) must be approved by a qualified quorum of at least 2/3 of creditors (Article 46, LRF), and (c) must be ratified, subsequently, by the court.
Additionally, the STJ provided examples of circumstances that could justify the exception, such as when the debtor develops a highly specialized activity or if the divestiture involves complex negotiations with high costs to assess its profitability (in which case, buyers would only be interested if granted some guarantee they would be able to consummate the transaction).
In the case at hand, the Public Prosecutor, the Judicial Administrator, and more than 90% of the creditors approved the direct sale, in addition to other peculiarities of the transaction and current political and economic market circumstances, which factored into the decision.
Thus, to summarize the STJ, the exception is admitted in light of the following criteria:
- Exceptional situation, which must be explicitly justified in the proposal submitted to the creditors;
- Business conditions must be thoroughly described in the judicial reorganization plan;
- Judicial reorganization plan must subject this specific matter to a separate vote, which must be approved by a substantial majority of creditors (minimum quorum of 2/3, as provided for in Article 46, LRF); and
- Homologation by the judicial reorganization court.
This is an important precedent regarding the direct sale of IPUs, without subjecting the buyer to universal succession mechanisms. It is relevant because it allows for the bypassing of the main obstacle to the effecting of sales within the context of judicial reorganizations: the competitive sale processes mandated in Article 142 of the LRF, which were often difficult, or even unfeasible, to carry out.