Elements of Bankruptcy Law and Business Rescue in Brazil
By Luiz Fernando VALENTE DE PAIVA, Vice-Président of TMA, Sao Paulo, Brazil. Co-head of the corporate restructuring team of Pinheiro Neto Advogados
Culminating more than a decade of
debates, the Brazilian government enacted the Nova Lei de Falências e Recuperação de Empresas, Law N° 11,101 (“Brazilian
Bankruptcy Law” or “BBL”),[1] which was published on 9 February 2005 and
came into effect on 9 June 2005. It was the first major overhaul of Brazil’s
corporate insolvency laws in sixty years. The BBL replaced the previous
bankruptcy law, i.e. Decree-Law 7,661 (“Prior Bankruptcy Law”), which had been
in force since 1945. The BBL represents a significant change in the principles
and in the form of activity of the various players involved in bankruptcy and
reorganisation processes in Brazil. Most ancient practices are now abandoned as
society increasingly adapts itself to the new stimuli incorporated into the
Brazilian legal system by the BBL, which has completed a decade in 2015.
One of the primary aims of the BBL
is to provide financially distressed but economically viable companies with the
opportunity to restructure their operations through market-based solutions
directly negotiated with creditors. The public policy underlying the reforms is
expressed in article 47 of the BBL, which states that the new law seeks to make
it possible for debtors to overcome their economic and financial crises while
maintaining the production source, the employment of workers, and the interests
of creditors, thus enabling debtors to continue the operation of their
businesses, preserve the social function of their companies, and foster
economic activity[2]. Other
important goals include maximising the value of the debtor’s assets for
the benefit of creditors and achieving flexible and equitable treatment among
creditors[3].
The previous statute had numerous fundamental weaknesses, such as
prohibiting debtors from negotiating plans of reorganisation directly with
their creditors. Under the Prior Bankruptcy Law, a negotiation could be
sanctioned with what was referred to as an “act of bankruptcy.”[4] These acts automatically
opened the door to a bankruptcy petition against the debtor, which could be
decreed independently of the debtor’s economic condition – that is to say, even if it were
solvent. It also granted debtors a very limited debt discharge. For example,
the concordata was the sole
court-supervised reorganisation proceeding under the Prior Bankruptcy Law.[5]
The debt discharge available to debtors pursuing a concordata was restricted to a statutorily prescribed percentage of
unsecured claims[6],
and since the concordata was based on
the principle of par conditio creditorum,
a debtor was required to provide identical treatment to all interests of
different creditors. Consequently, few debtors were able to
shed sufficient amounts of debt to restructure their operations successfully.
Consequently, bankruptcy liquidations comprised the vast majority of insolvency
proceedings under the former law. Another glaring deficiency of the Prior
Bankruptcy Law was the absence of incentives for debtors to reorganise with speed
and efficiency.
Another shortcoming of the Prior Bankruptcy Law was
the limited safeguards for secured creditors in a bankruptcy liquidation where
insufficient assets existed to pay all claims in full. Unlike the layers of
protection afforded to holders of secured claims under the US Bankruptcy Code,
the Prior Bankruptcy Law generally prevented secured creditors in Brazil from
enforcing pre-petition guarantees or redeeming the collateral securing a loan.
The primary source of this problem was the priority scheme for claims.
Under the Prior Bankruptcy Law, secured claims were
placed lower in priority than two classes of potentially unlimited claims – labour
claims (first priority) and tax claims (second priority). Since labour claims
and tax claims are frequently enormous in Brazil, there were generally few
assets remaining in a debtor’s estate to satisfy secured claims. As a result,
Brazilian lenders incurred tremendous losses due to loan defaults in
bankruptcy. Furthermore, the Prior Bankruptcy Law failed to protect purchasers
of assets in bankruptcy from successor liability.
For example, the previous statute did not contain a
provision comparable to §363 under the US Bankruptcy Code nor to article 60,
single paragraph, of the BBL, which generally authorises the sale of a debtor’s
assets “free and clear” of all interests. Rather, investors purchasing assets
through insolvency proceedings in Brazil were saddled with successor liability
for labour claims and tax claims related to such assets that accrued during the
debtor’s period of ownership. Because the actual amounts of such claims were
not generally known or capable of accurate estimation at the time of a sale,
investors avoided purchasing assets from debtors. Consequently, the Prior
Bankruptcy Law hampered the development of any meaningful market in Brazil for
the sale of assets in bankruptcy[7].
The BBL is guided by the basic principle that debtors
generally possess greater social value as a going concern than they do from the
piecemeal sale of their assets through forced liquidations. Accordingly, a key
component of the BBL is the creation of two new legal proceedings, the Recuperação Judicial (“Judicial
Reorganisation”) and the Recuperação
Extrajudicial (“Out-of-Court” or “Pre-package Reorganisation”), both of
which authorise debtors to obtain court confirmation of reorganisation plans
negotiated directly with their creditors. The introduction of these two new
reorganisation options is an acknowledgement in Brazil that the role of the
courts in overseeing corporate insolvency proceedings should be limited to
clearing the obstacles that prevent debtors from achieving market solutions to
financial and economic crisis, with the Superior Court of Justice’s
acknowledgement of the courts’ role being limited to review of the lawfulness
of the chosen procedures[8]. In other words, the BBL
recognises that the judiciary is not the best body to find the means of reorganisation for a company in
distress, and limits its role (when compared to the Prior Bankruptcy Law) to
conducting the process of negotiation between debtors and creditors in
accordance with the terms and within the limits prescribed by law.
The BBL represented a leap ahead in the Brazilian
bankruptcy legislation and brought it closer to the best bankruptcy laws in
force, such as that of the United States and of certain European countries. In
short, it provided debtors with more effective mechanisms to protect their
business (as compared to the old concordata)
and with greater flexibility in designing reorganisation strategies. It
also increased safeguards for secured creditors; broadened creditors’
involvement in the reorganisation process; and improved creditors’ ability to
recover their credits. Additionally, it turned acquisitions of parts of
distressed companies increasingly attractive, by furthering their legal
security through a free and clear acquisition structure.
Despite the improvements
introduced by the BBL, it is a fact that several factors have contributed to
the difficulties and uncertainties that arose in the initial period of
application of the BBL: (1) the Judiciary’s poor understanding of its new role;
(2) the fact that few judges were specialised in bankruptcy, reorganisation
practices and economic aspects involved in insolvency proceedings; and (3) the
fact that, since the bankruptcy law is federal, its application is a duty and a
function of the courts of the states (Brazilian political subdivisions), which
results in the judges of small legal districts having to apply it. Within the
Brazilian territory, these uncertainties will undoubtedly be overcome as these
new legal tools and regimes are used repeatedly.
Brazil has no unified legislation to regulate
insolvency regimes. There are two basic regimes: one for business companies and
sole proprietorships and another for non-business associations and companies
and natural persons (including consumers).
The BBL regulates out-of-court reorganisation,
judicial reorganisation and bankruptcy for companies and businesspersons. The
insolvency of natural persons or non-business associations is ruled by the
Brazilian Civil Code (“CC”); the rules of insolvency procedure are set forth in
the Civil Procedure Code (“CPC”).
Financial institutions, in turn, are only
partially subject to the regime set forth in the BBL, since in addition to not
being allowed to claim the protection of a judicial or extrajudicial
reorganisation, they can only be adjudged bankrupt after having been submitted
to an intervention and/or extrajudicial liquidation conducted by the Central
Bank of Brazil in the manner prescribed in Law No. 6024 of March 13, 1974.
There are also some legal entities that are not
subject to any of the abovementioned regimes but rather to extrajudicial
liquidations established in the specific laws that regulate their respective
activities, such as, for instance, the law that governs cooperatives’
activities.
Finally, there are laws that regulate other
matters but that produce profound effects on the activity or the reorganisation
of companies in distress. Supplementary Law No. 118, which
amends and adds new provisions to the National Tax Code (Law No. 5,172 of 25
October 1966) so that it conforms with the BBL is a case in point.
Because of their importance, this work will address only the first two
regimes mentioned above, contemplated by the BBL and by the Civil Code, with
emphasis on the former.
Brazilian law establishes the following types of security for immovable
property:
– Mortgage: The debtor (or a third party on its behalf) grants right in rem to the creditor for immovable property. If the debt is not paid, the
creditor can ask the court to sell the mortgaged property (at a public auction
or by adjudication), and the proceeds are used to pay the amount owed.
– Antichresis pledge: With this specific type of pledge, the debtor
transfers possession of income-earning property to the creditor, who can retain
it and receive any income from it until the debt is discharged. The property
can belong to either the debtor or a third party.
As for movable property, a pledge is the type of security prescribed by
law.
– Pledge: Movable property is transferred by a debtor (or a third party on its
behalf) to the creditor (or its representative) as security for a debt. Stocks,
rights and credit instruments (such as trade acceptance bills and promissory
notes) can also be pledged.
The types of security above entitle their holders to be treated as
creditors guaranteed by a security interest in the event of judicial or
extrajudicial reorganisation or even bankruptcy of the debtor.
– Fiduciary Lien: In addition to these types of security, Brazilian law
grants certain privileges to the creditor holding a fiduciary lien over movable
or immovable assets or a fiduciary lien over rights to movable assets,
particularly negotiable instruments. The claims held by these creditors are not
subject to judicial or extrajudicial reorganisation or to bankruptcy of the
debtor because the respective creditors have the right to claim return of the
secured assets to satisfy their credits through sale of the respective
security.
In a fiduciary lien, title to movable and immovable property is
transferred to the creditor. The debtor can retain physical possession of the
property and legal title is returned if and when it pays the debt in full, as
agreed in the contract. Rights and credit instruments can also be subject to a
fiduciary lien in transactions carried out under the National Financial System.
This type of security is also available for immovable property.
§ 2 – ReguAlegreyary
framework[11]
Insolvency proceedings, especially those governed by
the BBL, as well as civil insolvency proceedings, fall under the exclusive
authority of the state courts. Each Brazilian state has its own state courts
and, as a rule, most Brazilian cities have state courts. Judges in small
judicial districts rule over all types of disputes, including those involving
family law, criminal law and insolvency. In larger judicial districts, where
there are more judges, there is usually a certain degree of specialisation,
with judges being granted authority to rule over more specific matters.
However, very few judicial districts have judges specialising in insolvency
matters (e.g. Rio de Janeiro) and few appellate courts (which decide appeals
filed against first-instance decisions) have specialised chambers to review
insolvency matters (e.g. Sao Paulo).
Thus, considering that, as a rule, the authority to process an
insolvency case falls on the court in the judicial district where the main
establishment of the debtor is located or in his domicile (in cases dealing
with consumer insolvency), most insolvency cases are decided by judges not specialised
in insolvency matters.
There is also no specific regulation for insolvency professionals in
Brazil. It is incumbent on the judge to appoint the trustee and set his fees,
subject to certain criteria prescribed by law. Under the BBL, the trustee is not
appointed by one of the largest creditors, as happens in civil insolvency
proceedings (and in bankruptcy proceedings governed by the repealed Bankruptcy
Law). The current rule, as stipulated in the BBL, determines that the trustee
must be a reputable professional, preferably a lawyer, economist, business
manager or accountant, or a specialised legal entity and will serve as the
legal agent of the debtor’s estate.
In the judicial reorganisation proceedings governed by
the BBL, the trustee acts as a mere inspector of the debtor’s activity, not
interfering in any way with the decisions relating to the debtor’s management,
regardless of its notable influence in the procedure. In bankruptcy and civil
insolvency, however, the trustee is responsible for managing the assets and
defending the interests of the bankrupt.
The judge reviewing the cases governed by the BBL or civil insolvency
cases does not interfere with the engagement of other professionals involved in
the proceeding, whether lawyers and/or financial advisors of the debtor or
advisors of the creditors. On the other hand, the creditors must pay the
expenses of their representatives, including expenses relating to the
creditors’ committee.
As noted above, the insolvency of natural persons (which includes
consumers) or non-business associations is ruled by the CC, and the rules of
insolvency procedure are set forth in the CPC. These rules only apply to
natural persons and to non-business entities; merchants, business companies or
company insolvency events are governed by specific legislation (“BBL”).
An individual (“Debtor”) becomes insolvent when his debts are greater than his
assets. Differently from the BBL, where insolvency is held to occur when the
business entity or merchant does not meet its payments obligations as and when
due, the insolvency of natural persons follows an economic concept where the
assets vs. debts relation is key to determine whether
a Debtor is insolvent.
The law is lacking in effective rescue mechanisms
for the debtor, which is required to liquidate its assets to pay its
liabilities. The only rescue remedy available to the insolvent debtor is weak
and of almost no practical use, as it requires the agreement of all creditors
and may only be triggered at a certain point of the insolvency proceeding, a
phase that, in practice, occurs many years after the insolvency is adjudicated.
For the Debtor and his creditors, the effects of insolvency are similar
to those in the liquidation of a business entity. In fact, a declaration of
insolvency triggers the composition among all creditors on equal condition (par conditio
creditorum), observing any distinctions in terms of
credit quality. Upon declaration of insolvency, a Debtor’s assets and
obligations make up the insolvency estate (“Estate”). The declaration of
insolvency also causes an acceleration of the Debtors’ obligations, and the
Debtor is removed from management of his own assets until the Estate is
entirely paid. All of the Debtors’ assets[13] are collected and
liquidated, and the proceeds are earmarked for payment of the Estate.
The insolvency court appoints a trustee from among the major creditors
of the Estate (“Trustee”). It is incumbent on the Trustee, acting under the
insolvency court supervision: to manage, gather and sell Estate assets; to
represents the Estate in any type of judicial or extrajudicial proceeding; to
adopt all measures necessary to defend the Estate’s interests; and to settle
Estate claims. The Trustee is entitled to fees as determined by the insolvency
court. The Trustee must use the proceeds of asset liquidation to settle all of
the Estate obligations.
The Estate comprises all the credits held against the Debtor, and the
ranking of creditors is quite similar to the ranking established by the BBL –
except for the absence of a cap on the privilege given to labour credits, and
for the fact that tax credits rank above secured credits (please see item 6.1.3
for the treatment given to creditors under the BBL). If the proceeds available
at the Estate for distribution to a certain class of creditors are insufficient
to fully serve and pay all claims of that specific class, these funds must be
proportionally distributed and allocated among the creditors according to the
value of their claims in the respective class.
As a rule, the Debtor is discharged only upon settlement of all claims
against the Estate. If the asset liquidation proceeds are insufficient to
settle the entire Estate, the Debtor will remain liable for outstanding debts
during five years from the liquidation closing decision. During this period,
any asset acquired by the Debtor will be part of the Estate and liquidated to
pay the remaining creditors.
In short, the law does not provide the debtor with efficient rescue
remedies or with a fresh start. As a result, the debtor ends up being placed on
the margins of society, seeking informal jobs (if a natural person) that allow
him not to declare his income, having no access to financing instruments, and
no longer acquiring assets in his name. On the other hand, because the outcome
of the civil insolvency proceeding usually generates no or practically no
percentage of credit recovery for creditors, they end up by opting against
initiating a civil insolvency proceeding
against a debtor when there are no assets to be
pledged to satisfy the individual enforcement carried out by the respective
creditor. These factors make of civil insolvency a remedy practically not used
in Brazil.
The BBL offers two alternatives for insolvent companies to obtain court
confirmation of reorganisation plans negotiated directly with their creditors,
via recuperação judicial (judicial
reorganisation), which is somehow similar to the Chapter 11 protection of the
United States Bankruptcy Code (“US Bankruptcy Code”) and recuperação extrajudicial (out-of-court reorganisation). The BBL
also preserves a revised falência (bankruptcy
liquidation), which is analogous to Chapter 7 proceeding under the United
States Bankruptcy Code.
– Who may petition for bankruptcy or
reorganisation:
Every business company and business person
labelled as “debtor” qualifies for bankruptcy and reorganisation.
Government-owned entities and mixed-capital companies do not fall within the
regimes prescribed by the BBL. The “de
facto business entity” may have its bankruptcy declared, but cannot apply
for judicial or out-of-court reorganisation.
– Who may not petition for bankruptcy or
reorganisation:
Government-owned or
private financial institutions; Public
or private financial institutions; Credit unions; Purchasing
pools; Private pension entities; Health care
plan companies; Insurance companies;
Special savings companies; Any other comparable entities.
Liquidation aims to end a debtor’s business activities by preserving and
optimising the company’s goods, assets, and production sources so that they can
be used to settle debts in a stated order of priority (BBL, article 75). It is
a procedure analogous to Chapter 7 under the US Bankruptcy Code.
Liquidation may be requested if a company fails to pay its debt[14] as and when due.
Alternatively, an applicant can prove that the debtor has committed an act that
characterises its bankruptcy, within a certain period established by law,
unless that act is part of a judicial reorganisation plan. Acts that
characterise a bankruptcy include:
Failing to pay, set aside or attach assets within
twenty-four hours in enforcement proceedings;
Liquidating assets prematurely; Making payments fraudulently; Conveying,
or attempting to convey, any assets to a third party (which may include other
creditors) with the object of delaying payments or defrauding creditors; Transferring
an establishment to a third party (which may be a creditor) without the consent
of all creditors and without reserving sufficient assets to settle all liabilities;
Simulating the transfer of a principal establishment with the purpose of
circumventing the law, or harming a creditor; Giving or increasing a guarantee
to a creditor for an existing debt, without reserving sufficient assets to
settle all liabilities; For an individual
business debtor: absenting himself without leaving a qualified representative
with sufficient funds to pay creditors; abandoning an establishment ; or
attempting to hide the location of his place of domicile, his headquarters or
his principal establishment from the authorities; and/or Failing to
perform an obligation under a judicial reorganisation plan within the required
period.
A financially distressed company may voluntarily file for bankruptcy
liquidation if it demonstrates that its business is unfeasible. In practical
terms, debtors only opt for bankruptcy when their economic activity is no
longer viable, or is beyond recovery. Even so, lawyers recommend voluntary
bankruptcy only in exceptional cases,
because of the risks existing in Brazil with regard to personal liability of
officers and shareholders for labour, taxation and social security obligations
or for damage to the environment and consumers, also considering that the
authorities will investigate into mismanagement and bankruptcy crimes once
bankruptcy is decreed.
Once a petition for involuntary bankruptcy is filed with the court, the
debtor must pay the debt owed, and/or submit a defence, within ten days. To
avoid liquidation, the debtor may also file for judicial reorganisation within
the same period (please see item 6.2.1 below).
If a defence is not filed or is rejected and/or the debtor has not paid
the debt, a bankruptcy decree is granted, and a court-appointed trustee will
replace the debtor’s directors and officers.
Gathering and appraisal of the debtor’s assets (including real
properties or movable assets subject to in rem guarantees) must occur
promptly after the trustee is appointed. The debtor’s assets must be realised
in an expeditious manner to maximise value (preferably, as a going-concern or
in blocks) and the proceeds will be earmarked to pay the creditors claims.[15] The debtor’s assets and liabilities make up the
bankruptcy estate.
Once a schedule of assets has been prepared, assets are sold. The court
orders this to be done by public auction, sealed bids or public proclamation,
depending on the advice provided by the trustee and by the committee of creditors
(if there is one). The risk of tax, labour and social security succession does
not apply to any judicial sale carried out under bankruptcy proceedings
(Article 60, single paragraph, of the BBL and Supplementary Law No. 118).
Creditors are paid in the statutory order of priority set forth under article
83 of the BBL.
The shareholders and senior managers of a bankrupt company can be
personally liable for labour, social security and tax obligations, depending on
the type of company, and the conduct and
actions of the senior managers.
The bankruptcy court verifies the liabilities of
partners, controllers and officers of a bankrupt company, irrespective of
whether assets have been liquidated or whether there is any evidence showing
that the debtor's assets are not sufficient to meet liabilities. The court can,
on its own initiative or at the request of interested parties, order that the
defendants' private assets (at a value sufficient to cover the damage caused)
be frozen, until a liability is eventually determined. A criminal investigation
into the commitment of bankruptcy crimes may be instated.
The corporate veil can be disregarded so that shareholders (including
parent companies) and senior managers can also be held liable for the company's
debts in cases of fraud, abuse of control or equity confusion.
Certain acts performed during the voidability period (termo legal) (except when performed in accordance with the judicial
reorganisation plan) are declared ineffective or revoked in relation to the
bankruptcy estate, regardless of whether the parties were aware of the
financial condition of the debtor or had the intention of defrauding creditors.
These include, among others: payment of debts not yet due; payment of due debts
in a manner that is not provided for under the respective instrument; creation
of a security interest for an existing debt.
Completed transactions can be undone if they were performed
fraudulently, irrespective of the period which has elapsed since their
occurrence.
All debts become due at the time of bankruptcy.
If this is before the due date in the original agreement, interest owed is
reduced proportionately. All foreign currency-denominated claims are converted
into domestic currency, at the exchange rate on the date of the bankruptcy
decree. Debts due by the date of the bankruptcy decree are offset against
claims in favour of the debtor, with priority over all other creditors;
agreements to settle National Financial System obligations can be terminated early by the
non-bankrupt party; and claims in favour of the debtor can be offset against
claims in favour of the non-bankrupt party.
All creditors (excluding the tax authorities) must prove their claims,
or prove any discrepancy vis-à-vis the list of creditors presented by the
debtor, within 15 days of a bankruptcy decree. The trustee then prepares a
general list of creditors within 45 days, after which creditors may file an
opposition to the list within 10 days. The general list of creditors is then
ratified by the court.
1.
Pursuant to article 83
of the BBL, creditors subject to bankruptcy liquidation are paid on a rateable
basis in the following order: Labour (capped at 150 minimum wages per creditor)
and occupational accident claims;
2.
Secured
claims up to the amount of the encumbered asset value;
3.
Tax claims (except tax
penalties);
4.
Special privilege
claims;
5.
General privilege
claims;
6.
Unsecured
claims ;
7.
Contractual fines and
pecuniary penalties for breach of administrative or criminal laws (including
those of a tax nature); and
8.
Subordinated
claims.
The BBL specifically excludes from bankruptcy liquidation any claims or
assets: Related to the owner of a fiduciary lien on movable or immovable assets
(alienação/cessão fiduciária); Arising from a leasing agreement; or Derived
from advances of money on an export exchange contract (Adiantamento sobre Contrato de Câmbio – ACC).
Also, article 84 of the BBL establishes that
post-petition claims (créditos
extraconcursais) have preference of payment over all other claims ranked by
article 83 of the BBL. Post-petition claims include the expenses of the estate
during the bankruptcy liquidation. If the bankruptcy liquidation was the result
of a conversion from a judicial reorganisation, the post-petition claims
include the debts incurred by the debtor during the judicial reorganisation. When a claim is guaranteed by a specific asset (i.e, in rem guarantee), the creditor will receive the exact amount
raised by selling the respective asset. The portion of the claim beyond the
respective asset’s sale proceeds could qualify as an unsecured claim.
As a rule, interest is only paid if there are sufficient funds to pay
the principal owed to all creditors; usually, creditors start receiving
payments of the principal within a few months from sale of the estate’s assets.
A contract continues to be performed if the trustee, upon authorization
of the committee of creditors (if any), considers it in the best interests of
the company. If the trustee or the committee determines that continuing a
contract is detrimental to the estate, it must is terminated or set aside.
If the company continues to operate,
particularly if the intention is to sell the business as a going concern, the
jobs are kept and the wages resulting from the services provided after the
adjudication of bankruptcy must be paid on time. Conversely, if the company’s
activity is discontinued as a result of the adjudication of bankruptcy, its
employees will be dismissed and must file the respective labour claim with the
labour courts to have their claims recognised and, after that, file their proof
of credit.
Moreover, creditors holding labour claims make up
a separate class for voting purposes in the general meeting of creditors and
may appoint a representative to sit on the creditors’ committee, if instated.
Finally, creditors holding labour claims may propose to the general meeting of
creditors alternatives for realisation of assets.
The BBL set forth two new rescue proceedings, the recuperação judicial (judicial reorganisation) (item 6.2.2.1 below) and the recuperação
extrajudicial (out-of-court reorganisation) (item 6.2.4 below), both of which
authorise debtors to obtain court confirmation of reorganisation plans
negotiated directly with their creditors.
Judicial reorganisation is a court-supervised
proceeding –
similar to Chapter 11
reorganisations
under the US Bankruptcy Code – aimed to make it possible for a debtor to overcome economic and
financial difficulty, allowing it to maintain its production source, its
workforce, the interests of its creditors, and to preserve the company and its
social function so as to foster economic activity (Article 47, BBL).
Although it is a great step forward in relation
to the former preventive bankruptcy, the process of judicial reorganisation
entails a high cost, may be time consuming, and still generates a whole series
of uncertainties, as the law is relatively new and has been little tested in
certain aspects. Furthermore, if the plan is not approved by the creditors,
there is the risk of bankruptcy being proclaimed.
Judicial reorganisation is, at present, the most
wide-ranging procedure for protection of the debtor, and it is to be
recommended when there is no other viable alternative (informal work-out or
out-of-court reorganisation), or when the effects produced by judicial
reorganisation are not minimally useful to the debtor (the creditors covered by
the plan account for a very small percentage of total liabilities, for
example).
In practical terms, it must be understood whether the debtor has a
viable activity (a requisite for granting reorganisation), and if the plan to
be proposed, once approved, will produce the necessary effects, given that
various groups of creditors will not be covered by its effects. It is necessary
to understand whether the debtor will be able to negotiate satisfactorily with
creditors excluded from the judicial reorganisation and with any essential
suppliers, and how the tax and social security liabilities can be handled.
A petition for judicial reorganisation can be filed with the court by a
debtor (or the surviving spouse, heir or executor of an individual business
debtor), or a partner or shareholder of a debtor company. The creditors –
regardless of their concern about the debtor’s need to submit to a
reorganisation plan – continue to be at the mercy of any initiative taken by
the debtor [17].
The petition must contain a statement of the material causes of the
debtor’s indebtedness and of the reasons for its economic and financial crisis;
further, it must be supported by certain documents, such as:
– Accounting Statements: Accounting statements for the
last three fiscal/financial years, in addition to those drawn up specially to
support the petition, prepared in strict compliance with the applicable
corporate legislation. Such financial statements shall necessarily include: Balance sheets; Accrued income statement; Income statement as from the last
financial/fiscal year; and Management report on cash flow and projection
thereof.
– List of Creditors: A complete nominal list of the
creditors including those under an obligation to do or to give, specifying, for
each such creditor, the origin and initial due date of credits.
A petition is not accepted by the court if the debtor:
Has not been doing business regularly for at least two years; Is bankrupt or
has been bankrupt, and the resulting liabilities have not been discharged by
the final decision; Has used judicial reorganisation within the previous five
years; Is an individual business person who has been convicted of certain crimes,
or, in the case of a company, its employees, officers or controlling partners
have been convicted of certain crimes.
The documentation being in order, the court must accept the petition and
processing order is granted (“Processing Order”). After the Processing Order,
all claims (that are claiming an exact amount against the debtor) and
enforcement proceedings against the debtor (except for the enforcement of
tax-related debts) are stayed for a period of 180 calendar days. In principle, the stay
period is non-extendable. However, courts have been allowing its extension upon
certain conditions, notably when the debtor itself is not responsible for the
delay in the reorganisation procedure.
After a notice of the Processing Order is published in the official
gazette, creditors are given 15 days to prove their claims or challenge the
listed claims before the trustee, who is expected to analyse the claims and
publish a notice setting forth the new list of creditors produced by him within
45 calendar days as from the end of the period to present a claim.
The debtor must present a reorganisation plan within 60 calendar days as
from the Processing Order. Once he plan is presented before court, a notice must
be published in the official gazette informing that the debtor has presented a
reorganisation plan.
Since the reorganisation proceeding is based on
a creditor-approved reorganisation plan (and creditors thus play a central role
in this new regime), creditors must approve the reorganisation plan. Therefore,
creditors have 30 calendar days from publication of
the abovementioned notice to file oppositions to the proposed reorganisation
plan.
If the plan is not opposed by any creditor, it is considered approved by
tacit acceptance. However, if any creditor objects to the judicial
reorganisation plan, a general meeting of creditors is convened by the judge to
try to agree on a satisfactory plan. The meeting must be held within 150 days
of the petition being accepted by the court.
If the meeting of creditors rejects the reorganisation plan, the judge
declares the debtor bankrupt. The decision adopted by the meeting of creditors
is sovereign, and the judge only acts if anything unlawful is held to occur.
The debtor’s directors and officers remain in control of the debtor’s
business (unless removed for cause). However, the court will appoint a trustee (administrador
judicial) to oversee the debtor[18]. Under certain
circumstances, a creditors’ committee (comitê
de credores) may be formed to supervise the trustee and the debtor. The
decision on whether to set up a creditors’ committee falls on the general
meeting of creditors.
Please see item 4 above.
The reorganisation plan is a document presented in court by the debtor
under judicial reorganisation, containing an analysis of its financial and
economic condition, as well as evidence of economic feasibility of its
business. The plan should list eligible creditors and must include the
mechanisms for judicial reorganisation of the company and the proposed order
and condition of distributions to creditors.
The BBL provides an illustrative list of the judicial reorganisation
mechanisms that can be adopted by debtors when preparing a reorganisation plan,
which include moratorium, debt restructuring, selling of assets, spin-off,
merger or consolidation of a debtor’s business operations, assignment of shares
or equity holdings of a company, leasing, and even the dismissal of the
controller. The debtor may use a combination of means of reorganisation in the
same plan and make different proposals for different groups of creditors.
The creditors gathered at a general meeting of creditors (“GMC”) to
resolve on the plan may submit proposals to change it. However, the debtor must
give its express consent to any changes proposed before they are included in
the plan to be submitted to the GMC for a resolution.
For resolution purposes, the creditors are
divided into four groups, namely:
1.Creditors with labour-related claims;
2.Creditors secured by collateral;
3.Creditors with general and special privileges,
unsecured creditors, and subordinated
creditors; and
4.Creditors classified as microenterprises or small
companies.
All four classes of creditors must approve the final plan (with any
creditors’ change proposals already included). As a general rule, a proposed
plan obtains creditor approval pursuant to the ordinary voting criteria, as
follows:
– Class #1 and Class # 4 : Approves the plan by a
simple majority of creditors present or represented at the GMC (i.e., per
capita voting), regardless of the amount of individual claims; and
– Class #2 and Class #3: Approve the plan, per class, by creditors
present or represented at the GMC holding (a) over 50% of the total amount of
claims; and (b) by a simple majority of creditors (i.e., per capita voting).
If the debtor fails to obtain sufficient creditor support for a proposed
plan under the general rule, a court may nevertheless confirm the plan and
grant the judicial reorganisation, provided that the plan has obtained,
cumulatively, at the same GMC: (1) the favourable vote of creditors
representing over 50% of the amount of all claims present or represented at the
GMC (regardless of the class involved); (2) the approval of at least two classes,
pursuant to the ordinary voting criteria; and (3) the favourable cumulative
vote of over 1/3 of the creditors in the class (or classes) that rejected the
plan (computed pursuant to the ordinary voting criteria).
Votes may be cast by the persons set out in the
general list of creditors; or, in the absence thereof, in the list of creditors
prepared by the trustee; or else in the debtor’s list of creditors, supporting
the petition for judicial reorganisation. Each holder of labour claims and
microenterprises/small companies is entitled to one vote within its respective
class, and the class of creditors not affected by the reorganisation plan has
no say at the meeting resolving on the plan.
As already mentioned, granting of judicial reorganisation bars any
lawsuits (that are not claiming an exact amount against the debtor) and
enforcements (but enforcements involving tax-related debts) against the debtor.
Once the plan has been approved, there will be a conditional novation of the
debtor’s liabilities, in the manner established in the plan, which may include
a moratorium with respect to payment terms.
In relation to the
judicial reorganisation of microenterprises and small companies, the law
contemplates the possibility of submitting a special plan, which does not
require a general meeting of creditors, consisting basically of a moratorium for the debtor to pay its unsecured
creditors in up to thirty-six monthly instalments.
All creditors subject to the effects of the judicial reorganisation that
disagree with the amount or the classification of their claims must file an
opposition or an objection. The method and conditions for payment of the
respective claim must be set out in the reorganisation plan.
Certain types of potentially significant claims
are not subject to a judicial reorganisation, including claims arising from :
(1) taxes ; (2) the owner (or committed seller) of real property (imóvel) where the relevant agreement
contains an irrevocable or irreversibility clause (including real estate
developments); (3) the owner in a sale contract with title retention (reserva de domínio); (4) advances of
money on an export exchange contract (Adiantamento
sobre Contrato de Câmbio – ACC) ; (5) the owner of a fiduciary lien on movable or immovable
assets, such as a fiduciary sale agreement (alienação/cessão
fiduciária); or (6) a leasing contract (arrendador
mercantil).
Although not subject to the effects of the judicial reorganisation and,
therefore, to the effects of the automatic stay, granting of processing of the
judicial reorganisation prevents creditors excluded from the judicial
reorganisation from adopting, for a period of 180 days, measures aimed at
removing capital goods essential for the debtor’s activities. This rule does
not apply to aircraft leased by airlines under judicial reorganisation, as
provided for in article 199 of the BBL.
The main effect of the judicial reorganisation on the
company’s partners is the fact that the partners and certain persons related to
them, although holding credits with the company under judicial reorganisation,
have no voting rights at the general meeting of creditors that resolves on the
plan.
Filing for judicial reorganisation does not produce
any change in employees’ rights, and the respective claims must be settled in
the manner established in the reorganisation plan, subject to the legal
provision that stipulates that labour claims must be settled in full within 12
months from court recognition of the judicial reorganisation plan.
The BBL has no rules dealing with the voidance of
legal transactions carried out by the debtor in the event of judicial reorganisation,
only in the event of bankruptcy. Judicial reorganisation is not, per se, cause
for termination and does not grant the debtor the right to terminate executory
contracts.
Filing for judicial reorganisation does not make any
claim promptly enforceable; the treatment to be accorded to each affected claim
must be set out in the plan of reorganisation.
Filing and/or granting of judicial
reorganisation, or approval of the reorganisation plan, would not serve as
grounds for use of losses as a tax benefit, which only occurs if the debtor is
declared bankrupt. In most cases and depending on the percentage of debt
recovery set out in the plan, this fact operates as a great incentive for the
creditor to vote against approval of the plan so that the debtor is declared
bankrupt and the creditor may take advantage of such tax benefit.
Once the plan is approved and recovery is granted, the
debtor continues with judicial reorganisation until all obligations established
in the plan, and falling due up to two years after the start of proceedings,
have been performed. In case of non-performance of any obligation, its
bankruptcy will be declared, otherwise recovery is closed.[19] After the two-year period, if any obligation
established in the plan is not performed, the unpaid creditor can petition for
specific performance or for the debtor's bankruptcy.
Brazilian creditors usually take a dim view of group compromises;
instead, they prefer to negotiate directly with the debtor.[21]. The effects of those
crises that ravaged the US economy and the Brazilian energy and telecom
industry in the last decade had a deep impact on negotiations by changing the
behaviour in collective debt renegotiation processes.
The fact that said crises affected Brazilian
companies controlled by foreign parent companies (usually more acquainted with
informal work-out mechanisms), and also considering that substantial debts were
then being renegotiated, had an interesting effect. Creditors and debtors
joined efforts to find out solutions for payment of debts on the best
conditions possible for creditors and debtors, namely: as soon as possible and
in a way to preserve the business, respectively.[22]
Within this context, the BBL introduced the extrajudicial reorganisation
in the Brazilian insolvency system (please see item 6.2.3 below) and expressly
acknowledged in its article 167[23] that the debtor could negotiate informal work-outs
with creditors, all of which as a means of encouraging the negotiation of
agreements with groups of creditors chosen by the debtor.
This represented a major U-turn, as the Prior
Bankruptcy Law prohibited debtors from negotiating reorganisation schemes with
creditors. Under the Prior Bankruptcy Law, a negotiation could be sanctioned
with what was referred to as an ‘act of bankruptcy’[24] These acts
automatically opened the door to a bankruptcy petition against the debtor,
which could be decreed regardless of the debtor’s economic condition, that is
to say, even if it were solvent. On the other hand, the only reorganisation
structure provided for in the Prior Bankruptcy Law that has been repealed by
the BBL was the application for the so-called ‘preventive concordata’,
which was no more than a
moratorium imposed by the debtor on unsecured credits. This is why this stance
of imposition by the debtor is so rooted in Brazilian life, and constitutes one
of the main difficulties for implementation of a new type of behaviour that is
necessary for use of the new mechanisms provided by the BBL.
The
fact is that the increasing adhesion to informal work-out even before the BBL
came into force gained momentum with the existence of a speedier procedure for
obtaining ratification of a plan with a cram-down on non-adherent creditor,
resulting in a stimulus to execution of several private settlements closed
after the BBL came into effect.
However,
the INSOL rules or London approach are far from being widely accepted and/or
adopted in Brazil. The difficulty lies, in the first place, on the fact that an
informal work-out assumes a voluntary adhesion by the creditors. It is a fact
that in most relevant cases there is always a group of creditors that are more
willing to offer a standstill to the debtor. But a creditor in possession of an
automatically enforceable collateral (e.g. a fiduciary lien on receivables)
would hardly give up on the right to enforce such collateral and lower its
credit.
Further as regards the standstill, it is nearly
impossible to have government-owned banks adhere to this arrangement, as their
representatives are afraid of taking actions that could later be viewed as a
waiver of rights. The difficulty is even greater when smaller banks are
involved, as a default would have a far greater impact on their balance sheets.
Such unresponsiveness, which oftentimes ends up shooing other banks away, could
be mitigated if there were rules or regulations (issued by
the Brazilian Central Bank, for instance) instructing banks to join informal
work-outs and according a special accounting treatment during the standstill
period. However, the fact is that, apart from the situations above, a group of
creditors usually accept to take no actions against the debtor, whereas the
debtor accepts to take no action that would impair the rights of creditors in
general or of any specific creditor.
Whenever it is possible to agree on a standstill
or on an informal moratorium (without signing any document to that end), one or
more banks (generally those holding the highest exposure) usually take the lead
in the negotiation process. The difficulty usually lies in the agreement on
sharing of expenses involved, especially with regard to hiring of financial advisors
(to diagnose the debtor’s condition) and of legal advisors; sharing information
with creditors that have not contributed to this work is usually difficult as
well. On the other hand, not always the debtor is sufficiently open to
disclosure of all information necessary, whether because the debtor has
something to hide or because it fears that such information may be used against
it during the very negotiations (or at a later moment, if negotiations fail).
Finally, creditors are usually reluctant to contribute fresh funds, the
more so if the debtor does not have assets on which a fiduciary lien could be
placed as security. In some cases, it was possible to restructure all existing
guarantees by replacing former ones with new instruments shared among all
creditors (as in a syndicated transaction).
In practical terms, there is an initial attempt
at carrying out an informal work-out in nearly all relevant cases, especially
those where public awareness of the debtor’s financial straits could have a
strong negative impact on its business and thus make its recovery difficult or
impossible. In the Brazilian scenario, the success of any such initiative is
far dependent on the situation involved and on the debtor’s openness, on the
profile of creditor banks (especially whether there are government-owned banks
and small banks with relevant exposure) and on the respective guarantees.
Even so, there is still a strong cultural
resistance against creditors negotiating out of court. It is not always
possible to mobilise creditors, or, when they are mobilised, they do not react
and cooperate within the timing required by the debtor. As a result of this
fact, and also of the rather simple nature of legal provisions that address the
chapter on out-of-court reorganisation, during these
almost seven years since enactment of the BBL, we have heard of slightly over a
dozen filings for out-of-court reorganisation, which is very few.
This
procedure is in many aspects similar to a “pre-package reorganisation”
proceeding under Chapter 11 of the US Bankruptcy Code. Under it, a financially
distressed debtor negotiates the terms of a plan of reorganisation (i.e., a
“pre-package plan”), privately, with its creditors. After the debtor obtains
the required creditors’ support for such plan, it will start a legal proceeding
aiming to obtain court ratification of the pre-package (approved) plan.
There are two types of out-of-court reorganisations:
– Homologation of consensus (recuperação homologatória): This procedure can be conceptualised as a
procedure by which the debtor files with the courts for homologation of an
out-of-court reorganisation plan signed by all creditors subject to it. Court
homologation of the plan is binding only on those parties that have entered the
agreement. The only benefit of the Homologation of Consensus procedure, when
compared to other private agreements (not ruled by the BBL), lies in the fact
that the court homologation order constitutes an enforcement instrument (título
executivo), which can be
enforced through a “fast-track” procedure.
– Enforcement
of agreement (recuperação impositiva): This procedure calls for
prior agreement and signature to the plan by creditors representing more than
60% of the credits of each class, type, or group of creditors subject to such
plan.[25] For calculation of the
qualifying percentage, credits denominated in foreign currency are converted
into Brazilian currency at the exchange rate effective on the day before the
plan is signed. In the Enforcement
of Agreement procedure the court-recognized plan is binding on all creditors
affected by the plan, whether or not they have expressly and previously agreed with it, or even manifestly expressed
opposition to it. Provided the minimum percentage level of
agreement has been met, the conditions specified in the plan are imposed on the
creditors who did not sign it, and indeed on those who expressly rejected it.
In other words, the BBL provides for a form of cram-down system.
An out-of-court reorganisation plan can be initiated by a debtor[26], a partner or shareholder
of a debtor company, or the surviving spouse, heir or executor of an individual
business debtor, if the debtor: Meets the
same legal requirements as for judicial reorganisation; and Has not been
subject to an out-of-court reorganisation ratified by a court within the last
two years;
The debtor’s directors and officers remain in control of the debtor’s
business and there is no court supervision.
The effects of extrajudicial reorganisation do not reach those same
creditors not covered by judicial reorganisation (please see item 6.2.1.8
above), nor the holders of labour claims.
Under the BBL, the plan produces effects in
relation to the debtor and creditors that are subject to it only after it has
been homologated by the court. However, since the nature of an out-of-court
reorganisation is contractual, the signatories to the plan may agree
differently in a case of Homologation of Consensus, so that the plan produces
effects before its homologation in relation to the clauses that change the
amount of the debt or the payment method. However, such a provision can only
bind creditors who are signatories to the plan, since in the case of
Enforcement of Agreement it will only produce effects after homologation by the
court for all non-signatory creditors to the plan.
The plan is not binding on the parties if it is not homologated, and in
this case the creditors resume the right to demand and enforce their respective
credits and claims on the original conditions. However, any release of the
creditors in case the plan is not homologated in court seems to be a
contractual issue and would need to be reviewed on a case-by-case basis.
The procedure, which is common to both extrajudicial reorganisation
modes, is rather straightforward and usually expeditious as no interlocutory
decisions are involved; adversary proceedings are limited to an opposition
against court homologation of the plan.
Once the petition is distributed, creditors will have 30 days from
publication of the public notice calling creditors to challenge the
homologation petition for non-fulfilment of any formal requirement; the
financial and economic conditions proposed by the debtor cannot be challenged
at this point. This is because negotiations ended before the petition was
filed, and applicable conditions are those stated in the plan.
If oppositions are made, the debtor will have five days to answer. The
judge will have a like period to resolve on this issue and render a decision.
If a pre-package plan is not homologated by the court, the debtor may continue
to operate its business, file another pre-package plan or even seek to commence
a judicial reorganisation. Upon homologation, the extrajudicial reorganisation
plan becomes effective as regards all creditors covered by it, whether or not
dissenting creditors have adhered to the plan.
In brief, the new mechanisms tend to be on the
one hand efficacious and fast, and on the other, less expensive, complex and
traumatic. The judicial reorganisation tends to be adopted only when: (1) the
out-of-court attempt has not been successful; (2) the
profile of the debt is not appropriate for the use of out-of-court
reorganisation procedures; (3) the debtor has to request and obtain a
re-profiling of its tax debts; (4) the plan includes the sale of assets and
there is interest in avoiding the risks of succession caused by tax and social
security debts; (5) the plan contemplates acts capable of being considered
ineffective in the event of adjudication of debtor’s bankruptcy (i.e.
liquidation) and the creditors are interested in having specific protections
against future clawback/revocatory claims concerning such acts; and (6) when
the plan includes adjustments of an operational nature that call for more
specific monitoring or supervision.
The BBL does not contain provisions governing
cross-border insolvency cases. Also, the Brazilian legislature is currently
considering to amend the BBL to adopt a version of the Model Law on
Cross-Border Insolvency that was promulgated by the United Nations Commission
on International Trade Law (“UNCITRAL”).
[1] Concurrently, Brazil enacted
Supplementary Law nº 118/05, which summarizes relevant aspects of Brazil’s tax laws with
the BBL.
[2] BBL,
Chapter III, Section. 1, art. 47.
[3] The BBL relaxes the principle requiring debtors to provide identical treatment for each claim existing within a particular class of claims (par conditio creditorum), A good example of the application of this new concept is the Judicial Reorganisation of Stampafare Embalagem Ltda. In this case, the largest creditor-supplier possessed an “in rem guarantee” claim (the equivalent of a secured claim) against the debtor. The creditor-supplier agreed to support a proposed reorganisation plan in which a significant portion of its claim would be paid after all other creditors (including creditors in classes lower in priority of repayment in the event of a Bankruptcy Liquidation) received their distributions in full under the plan. Also, the creditor-supplier and another supplier agreed to extend credit lines to the debtor and a bank provided “post-petition” financing. The proposed plan was approved by the vast majority creditors and confirmed by the court. Besides, and in line with the flexibility idea, current jurisprudence admits the payment of unsecured creditors before secured ones in certain circumstances. In fact, several plans of reorganisation approved in the past three years contemplated the possibility to pay “strategic creditors” with priority to other creditors, regardless of their credit quality.
[4] Despite this
prohibition, the attempt to prevent negotiation between debtors and creditors,
as introduced in the Brazilian legal system by the Prior Bankruptcy Law, did
not work out since debtors frequently negotiated through fronting parties the
assignment of credits at a discount that was not always the same for all
creditors. This means that there have always been negotiations between debtors
and creditors, albeit outside the realm of the law.
[5] The concordata
was based, in part, on the principle of par
conditio creditorum, that is, the requirement that a debtor provide
identical treatment to all claims or interests within a particular class of
claims.
[6] In its most
basic form, a preventive concordata (a form of’ the concordata) granted debtors
a discharge for a percentage of unsecured claims determined by a statutory
formula (capped at a maximum of 50 percent of total unsecured claims). However,
the discharge provided by the preventive concordata was potentially illusory.
Debtors were limited to a 24-month period from commencement of a preventive
concordata to make the required payments to holders of unsecured claims, and
the allowable percentage discharge decreased during this 24-month period, depending
on the date that the debtor actually made payment (e.g., the allowed discharge
was 50 percent of total unsecured claims if payment was made at the beginning
of the preventive concordata) and decreased to no discharge (if the debtor was
unable to pay claimants until the end of the 24-month period).
[7] L. Paiva,
C. Jarvinen, “The New Bankruptcy
and Restructuring Law in Brazil”, 28th
Annual Current Developments in Bankruptcy & Reorganization, volume two,
Practising Law Institute, 2006.
[8] For
instance, please refer to the Superior Court of Justice’s precedent REsp no.
1,314,209 – SP, ruled by the 3rd panel, justice Nancy Andrighi,
ruled on 5.22.12.
[9] Legislation (unified legislation or fragmented),
precedents, main handbooks.
[10] Forms
of security acknowledged by the system.
[11] ReguAlegreyar/ supervisor, regulation of insolvency
practitioners, role of judiciary in insolvency related matters (both
liquidation and rescue). Professional qualifications, and disciplinary
arrangements for insolvency practitioners, to which practitioners are subject
(lawyers/accountants/other – e.g. directly authorised). (Code of ethics, trust
accounts etc.). The judicial structures in place to deal with insolvency
matters, in addition to the “role” of the judiciary (i.e. special insolvency or
commercial courts/combined jurisdiction/administrative officials/other).
[12] Topic written
jointly with Thiago Braga Junqueira.
[13] Only
the assets eligible to attachment may be collected. CC states a few assets
which are not eligible for attachment, including the residence of the debtor’s
family. This protection, however, does not apply in cases of collection of debt
resulting from a loan taken out to finance the purchase of the house.
[14] To see who is eligible to bankruptcy,
please see item § 4 above.
[15] L. Paiva , C. Jarvinen, “Current Developments Under The New Bankruptcy and
Restructuring Law in Brazil,” at 30th
Annual Current Developments in Bankruptcy & Reorganization, volume two,
Practising Law Institute.
[16] Original
excerpt by L. Paiva and P. Costa, extracted from the Brazil chapter
of the Restructuring and Insolvency
Handbook, 2005/2006, Fourth Edition, Practical Law Company, as adapted and supplemented for
this work.
[17] At one stage, while the bill was in Congress, the
draft contained the right for creditors to call for reorganisation of the
debtor as in the US Bankruptcy Code.
[18] Please see item § 2 above.
[19] In the vast majority of reorganisation petitions filed
since the BBL came into force, the two-year period was not observed, and the
companies changed the originally approved wording of plans, remaining under
reorganisation for an indefinite period.
[20] Discuss
generally the laws, practices and procedures pertaining to non-judicial
rehabilitation, workouts and restructurings. Compare with judicial (formal)
reorganisations. This should be a general discussion of the environment for
such procedures. (Use of INSOL rules or London approach etc, approach of
Banks.)
[21] This
topic partially reproduces the author’s views already expressed in other
articles, specially in the chapter “Out-of-court Reorganisation” included in
the book edited by him, titled “Direito Falimentar e a Nova Lei de Falências e
Recuperação de Empresas”, Quartier Latin,
2005, page 561 et seq.
[22] A. Araújo ; L. Paiva, “A Transparência na Lei de Falências”, Jornal O Globo. Rio de Janeiro, 23 jun. 2004.
[23] “Article 167. The provisions of this Chapter do
not rule out other types of private settlement between the debtor and his
creditors.”
[24] Despite this prohibition, the attempt to prevent negotiation between
debtors and creditors, as introduced in the Brazilian legal system by the Prior
Bankruptcy Law, did not work out since debtors frequently negotiated through
fronting parties the assignment of credits at a discount that were not always
the same for all creditors. This means that there have always been negotiations
between debtors and creditors, albeit outside the realm of the law.
[25] This percentage is calculated on the total amount of the credits
affected by the plan and not on the number of affected creditors.
[26]To see
who is eligible to file an out-of-court reorganisation, please see item
Eligibility above.