March 23, 2021

The Brazilian National Congress overrules 12 of the 14 presidential vetoes to reform the Judicial Reorganization and Bankruptcy Law

Restructuring and Insolvency

In a session held on March 3, 2021, Brazilian National Congress overrode 12 of the 14 vetoes of the President against the wording of some provisions of the reform of Law No. 11,101/2005 (Brazilian Bankruptcy Law).

Due to the rejection of the vetoes, the Brazilian Bankruptcy Law will now have the following provisions:

1. The UPIs (isolated productive units) will be free and clear of any liability 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;
    
2. Contracts and obligations arising from cooperative acts performed by cooperative societies with their members are not subject to the effects of judicial reorganization;
    
3. The health care plan cooperatives may file for judicial reorganization;
    
4. Provision that income tax and CSLL could be assessed on capital gains arising from the judicial disposal of assets or rights by the legal entity under judicial reorganization, and that the income earned by the debtor will not be computed in the account of the PIS/PASEP and COFINS tax bases;
    
5. Agricultural Titles with physical liquidation and respective guarantees will not be subject to judicial reorganization, in case of partial or full anticipation of the price, or also representing an exchange operation for inputs (barter), and the creditor will be entitled to restitution of such assets that are in the possession of the issuer of the title or of any third party, except in the case of unforeseeable circumstances or force majeure that prevents the partial or total fulfillment of the product delivery.

The only vetoes maintained by the National Congress are the following:

1. Provision that attributes to the Ministry of Agriculture, Livestock and Supply the obligation to define which acts and events are characterized as fortuitous case or force majeure for the subjection of credit originating from CPR in judicial reorganization;
    
2. Provision for suspension of labor executions against the responsible individuals, either jointly or subsidiary.

The text of the rejected vetoes will be forwarded for promulgation by the President of The Republic within 48 hours or, in his or her absence, by the President or Vice president of the Senate, within the same time frame.

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