Conflict of Norms in
the Brazilian Bankruptcy Law
by Carlos
TORTELLI, Lawyer and Accountant, Leader of the Global Corporate Advisory
(GCA) of Crowe Horwath International in Latin America, Larissa MALLMANN F. A. BRANDÃO, Lawyer, M&A and Business Strategy Consultant
In
2005, Brazil implemented a new Bankruptcy Law (Law No. 11.101, dated February
9, 2005)[1],
modeled largely after the Title 11 of the United States Code, also known as the
United States Bankruptcy Code.
The
current Brazilian system provides three alternatives for insolvent legal
entities: (i) judicial reorganization, a court-supervised reorganization
proceeding[2];
(ii) bankruptcy, a court-supervised liquidation proceeding[3];
and (iii) extrajudicial reorganization, an out-of-court reorganization
proceeding[4].
The
possibility of recovery of an activity momentarily in crisis, with the
possibility of implementing a corporate restructuring plan, renegotiation of
liabilities with creditors and business continuity was undoubtedly the
innovative point of the Law.
Unfortunately,
the Brazilian Bankruptcy Law embodies within itself serious contradictions –
legal antinomies – which prevent the fulfillment of
the objective of the Law. One of the most serious antinomies is the conflict
between Article 47 and Article 49, Paragraph 3. This antinomy has the potential
to impair the judicial recovery of the economically viable company. For this
reason, this antinomy must be widely discussed, as well as the cause and the
nature of this conflict of norms.
Law
No. 11.101/2005 brought with it the purpose of a paradigm shift, a changing
perception towards a failed business entity. The
new rule widened the debate regarding the term bankruptcy, which correlates the state of mercantile insolvency to
fraud and decoy. The Latin word fallere means to
falsify, to deceive, and it is
believed the term bankruptcy stems
from the Italian word banca (or banco) and rotta (or rotto)[5]. The literal translation of these words being broken bench. In fact, the word bankrupt brings with it the negative charge of failure and the
inability of business management. From the etymology, it can be inferred that
the general notion of bankruptcy is
the situation of the merchant who fails to honor his payments or who deceives
his creditors. According to Carvalho de Mendonça[6]
‘quebra’
was the real Portuguese word to state this situation; word found in legal texts
since the ordinations.
It must be noted that, in the twenty-first century,
more than in any other time, the success of the company is as dependent on
macroeconomic and sectorial factors as on the entrepreneur’s personal effort.
It is necessary, therefore, to recognize the determining influence of
impersonal variables in insolvency, with an important distinction between
insolvency caused by adverse economic conditions and fraudulent or criminal
bankruptcy.
For
this reason, the current order establishes collective right as the rule, mainly
in order not to have to liquidate a company that is an organized business
activity and a source of wealth. The company is no longer considered as a
contractual relationship, but an institution that involves the most varied
interests. There is a consolidated understanding that early bankruptcy of
legally and economically viable companies brings with it unemployment,
non-payment of taxes, non-customer service and the non-realization of other
businesses. Consequently, the negative impact that can be minimized or avoided
is a socioeconomic advance for the debtor, for society and for the State.
Moreover,
the spirit of the law, which we define as a social and moral consensus
of the interpretation of the letter of the law, is expressed in basic
principles of Law No. 11,101/2005.
Among
the principles of interpretation that guide the modern Brazilian Bankruptcy Law
are[7]:
(i) the preservation of the viable company; (ii) the distinction between the
company and the entrepreneur; (iii) recovery of viable companies and removal of
non-recoverable companies or entrepreneurs from the market (“saving what is
salvageable”); (iv) protection of workers; (v) reduction of the cost of
credit in Brazil; (vi) speed and efficiency of judicial processes; (vii) legal
certainty; (viii) active participation of creditors; (ix) maximization of the
value of the bankrupt’s assets; (x) reduction of bureaucracy in the recovery of
microenterprises and small enterprises; and, finally, (xi) rigorous punishment
for crimes related to bankruptcy and judicial recovery.
The
judicial reorganization corresponds to a legal benefit available to the legal
entity in financial crisis. The purpose of the judicial reorganization is
provided, littera legis, in Article 47 of Law No. 11.101/2005, as
follows:
“Article 47. The judicial
reorganization aims to facilitate the overcoming of the situation of economic
and financial crisis of the debtor in order to allow the maintenance of the
production source, employment of workers and the interests of the creditors,
thereby promoting the preservation of company, its social function and
stimulating economic activity.”
Perfectly aligned with the spirit of the Law, the abovementioned
Article 47 introduced the “Preservation of the Company Principle”, establishing
that the objective of a judicial restructuring is to enable the debtor company
to overcome its crisis, allowing the maintenance of the revenue source, the
employment and the interests of creditors, promoting the preservation of the
company’s social function and the stimulus to the economic activity. As
highlighted by Simionato[8],
it is evident the importance that private companies have for the economy of a
society, so that the great part of jobs and the production of wealth is created
by the business performance in the regional and world context. Therefore,
Article 47 emphasizes the achievement of the social objectives of the
enterprise, despite the particular interest of one creditor or debtor. It is
relevant to note that the wording of the above-mentioned Article expresses the
legislator’s option of overcoming the normative oscillation in favor of the
creditor or the debtor and, above this historical dualism, defend a legal
institute, which is the recovery of the viable company.
Thus,
the judicial reorganization proceeding may only be filed by a debtor who: (i)
has been doing business regularly for over two years; (ii) is not bankrupt, and
if he has been, the resulting liabilities have been declared extinguished by
final and conclusive decision; (iii) was not engaged in judicial reorganization
within the last five years; (iv) was not engaged in judicial recovery based on
the special plan for microenterprises and small businesses, within the
last five years; (v) does not have an administrator or controlling partner
convicted of any of the crimes provided for in the Bankruptcy Law[9].
Law No. 11.101/2005 provides that credits
existing on the date of the filing for judicial reorganization are subject to
the court-supervised proceeding, even if such credits have not become due[10].
Hence, those credits may not be enforced during the stay effect (a 180-day
automatic stay)[11]
and will be paid within the proceeding and in accordance to the reorganization
plan as approved by the majority of the creditors. In addition, the judicial
recovery plan, in the lesson of Fábio Konder Comparato[12],
should be “fair, equitable and feasible”.
However,
some specific types of credits are not subject to the reorganization
proceeding, and must be paid according to the exact original terms and
conditions, regardless of any different provision in the reorganization plan.
For
a better understanding, a distinction should be drawn first between the
fiduciary alienation and fiduciary assignment of receivables.
There
is no specific law that fully and sufficiently regulates the fiduciary
alienation in guarantee in Brazil, even though the institute is nowadays,
because of its peculiarities and facilities in the execution, one of the main
instruments used for the granting of credit in the country. The regulation of
fiduciary alienation is in a normative framework of several laws, elaborated,
each of them, to regulate exclusively some form of fiduciary alienation or only
in an ancillary way.
Among
the different laws that regulate fiduciary alienation, the following should be
highlighted: (i) Law No. 4,728/65 and Decree-Law No. 911/69 (which regulate the
fiduciary sale of movables in the capital markets, tax and social security
credits, the fiduciary alienation of fungible movable property and the
fiduciary assignment of rights over movables and debt securities); (ii) Law No.
9,514/97, which established the fiduciary transfer in guarantee of immovable
property; and (iii) the Brazilian Civil Code (Articles 1,361 to 1,368-A), which
applies to fiduciary sales that are not within the scope of the above-mentioned
markets. Although the Brazilian Civil Code makes no provision regarding the
characteristics of the asset given as collateral in a fiduciary sale, there are
precedents of the Superior Court of Justice narrowing the fiduciary sale under
the Civil Code to non-fungible assets.
According to Article 6, Paragraph 4,
combined with Article 49, Paragraph 3, of Law No. 11.101/2005, the approval of
the judicial recovery process ensues the suspension of legal actions and
judicial executions against the recovering firm, being prohibited the removal
of capital goods which are essential to business
activity from the building of the recovering company within 180 days.
“Art. 6. The decree of bankruptcy or the approval
of the judicial recovery processing suspends the statute of limitations and all
legal actions and judicial executions against the debtor, including those of
the private creditors of the joint partner.
[...] § 4. In the judicial recovery, the suspension stated in
the main section of this article under no circumstances shall exceed the
non-extendable term of 180 (one hundred and eighty) days counted from the
approval of the judicial recovery processing, reestablishing, after the
expiration of the term, the right of creditors to initiate or continue their
legal actions and judicial executions, regardless of judicial pronouncement.”
“Art. 49. All credits existing on the date of the request,
even if not due, are subject to judicial recovery.
[...] § 3. In the case of a creditor holding the position of
fiduciary owner of movable or immovable assets, commercial lessor, owner or
committed seller of real estate whose respective contracts contain an
irrevocability or irreversibility clause, including on what concerns real
estate developments, or owner in a sales agreement with reserve of ownership,
his credit shall not be subject to the effects of judicial recovery; the
contractual conditions and the property rights over the thing shall prevail, in
consonance with the respective legislation, not being allowed the sale or the
removal of capital assets essential to the business activity, during the term
of suspension to which Art. 6, Paragraph 4 of this Law refers.”
The
justification for the leased property to remain under the possession of the
recovering firm is widely admissible by jurisprudence. This understanding is
justified, insofar as removing capital goods interrupts the development of
business activity and exacerbates the debtor's crisis situation. It is settled
the legal understanding that, as the removal of assets essential to the
productive chain increases the risk of paralyzing the continuity of the
economic activity, this removal is in direct opposition to the purpose of the
judicial recovery.
Pledges
and mortgages are also commonly used as collateral in lending transactions,
with pledges being applicable to movable assets and rights (for example,
machinery, inventory, vehicles, credits and shares) and mortgages to
non-movable assets (real estate). Differently from the fiduciary sale, in
pledges and mortgages the guarantor keeps the title of the collateral and,
therefore, creditors may be affected by the bankruptcy of the guarantor.
The
bank loan is usually the first alternative to try to overcome the business
economic crisis. Among the loan operations in the market, a specific
alternative prevails as the recurrent form adopted by financial institutions,
with the specific objective of not being subject to the effects of judicial
recovery: the loan made via bank credit note with guarantee of fiduciary
assignment of receivables.
A
bank credit note is issued by an individual or legal entity, as a promise of
cash payment to the financial institution in exchange for the release of funds.
The bank credit note admits all forms of guarantee, however, the most used one
is the fiduciary assignment of credit rights, in which the debtor assigns the
ownership of credits determined to the financial institution, until the total settlement
of the debt.
Therefore,
the financial institution lends money to the debtor company, in exchange for
the transfer of ownership of the existing credits as collateral of the
business. Normally, the loan agreement rules that loans assigned as collateral,
as well as other amounts operated by the debtor company, must be deposited into
account under the administration of that financial institution.
In
addition, since it is a credit title, it is subject to the general rules of
Exchange Law. However, it is also benefited by legal specificities created to
facilitate the right of credit by the creditor, as well as the respective debt
collection lawsuit.
In
the case of judicial reorganization, the payment of bank credit arising from
operations guaranteed by fiduciary assignment of receivables is considered as
priority, allowing banks, which are usually the holders of this type of
guarantee, to claim their credits outside the judicial recovery process. This understanding is underpinned by Article 49, Paragraph 3:
“Art. 49. All credits existing on the
date of the request, even if not due, are subject to
judicial recovery.
[...] § 3. In the case of a creditor holding the position of fiduciary owner of
movable or immovable assets, commercial lessor, owner or committed seller of
real estate whose respective contracts contain an irrevocability or
irreversibility clause, including on what concerns real estate developments, or
owner in a sales agreement with reserve of ownership, his credit shall not be
subject to the effects of judicial recovery; the contractual conditions and the
property rights over the thing shall prevail, in consonance with the respective
legislation, not being allowed the sale or removal of capital assets essential
to the business activity, during the term of suspension to which Art. 6, Paragraph 4 of this Law refers.”
Therefore,
the fiduciary assignment of receivables, also known as “banker padlock”, is a guarantee offered by companies to banks, in
order to obtain bank loans to foster the company’s activities. The future
receivables, i.e., the revenue from the production financed by the Financial
Institution, are “padlocked/blocked”
and cannot be used by the recovering company for its cash flow, since those
credits are passed directly to the Bank.
The
justification for these credit operations not being subject
to the rules of Judicial Recovery is the possibility of having lower risks and,
therefore, lower interest rates, benefiting both financial institutions
and credit borrowing companies. In theory, the low risk of a failed credit
recovery would help financial institutions to lower their banking and
administrative costs, benefiting consumers and the business sector. Moreover,
bankers’ advocates justify that the reduction of banking spread depends on a
better and more effective guarantee of satisfaction of their credits. However,
such benefits do not exist in the reality of the people and the business
community.
Due
to the potentially damaging effect of the Article 49 provision, recovering companies
usually appeal to the bankruptcy courts to prevent bank creditors from
declaring the early maturity of their credits and to make any amortization of
credits, blocking of securities, blocking of current accounts or investment
accounts, or any other act of constriction of property, values or property
rights, under penalty of daily fine.
Since the enactment of the new Bankruptcy Law in 2005, judicial
reorganization became the most often used insolvency
mechanism for businesses in Brazil. However, even so, the success rate of
judicial recoveries remains low and unsatisfactory.
Among several factors that undermine the success of judicial recovery
plans, the banker padlock (set up by
Article 49, Paragraph 3) is pointed out as one of the most deleterious for the
company. Banker padlocks have been
legally questioned on the grounds that they prevent the recovery of companies
by obstructing the day-to-day operations, preventing the recovering company from
using its resources in favor of the business rescue and employment protection.
For a better understanding of the scale of this problem, it is necessary to
enter into the field of corporate finance.
Whether
it is an owner-managed enterprise or a large multinational, a company facing
financial distress or insolvency can be helped if action is taken early enough
and if it has access to financial resources. These are basic requirements for a
viable company to overcome the liquidity crisis and pay off its debts.
Nevertheless,
the first obstacle arises from the right of the fiduciary creditor to file
execution proceeding in parallel with the judicial recovery process, or even to
proceed with the enforcement proceeding before the approval of the recovery
plan. This possibility of parallel demands results in filing of diffuse
lawsuits, causing repeated discussions about the credits to be satisfied,
causing a legal obstacle in the solution of the disputes.
Although
the company’s revenue is not considered a capital asset to be removed from the
establishment, it is an essential asset for the company to survive until it
renegotiates its debts with the creditors. It is important to clarify that
financial resources are as important as capital resources to keep the business
running. For this reason, there is a lack of technical justification for the
distinction of treatment that courts make between creditors holding collateral
by fiduciary alienation and creditors holding collateral by fiduciary
assignment of credit.
The
1st Court of Bankruptcies and Judicial Recoveries of São Paulo, conducted by
judge Daniel Carnio Costa, has set a precedent for
this understanding, as follows:
“In fact, the literal interpretation
applied by the STJ (Superior Court of Justice) to the legal provision would
certainly lead to the creation of situations that violate the principle of
isonomy among creditors holding the same legal position. That is because the
creditor holding a fiduciary alienation of an industrial machine could not sell
the machine to realize his credit, whereas the creditor holding the trust
assignment of receivables could do so without any restriction.
However, in the light of Art. 49, Paragraph 3 of Law 11,101 / 05, creditors holding the position of
fiduciary owner of movable or immovable property are subject to the same legal
regime, and it is not reasonable for the interpreter to place them in
diametrically opposed situations in relation to the exercise of the right of
property over the object of the guarantee.”[13]
Furthermore,
among all the problems faced by companies under judicial reorganization,
perhaps the most difficult to overcome is the lack of credit. The situation is
aggravated by the fact that companies undergoing judicial recovery no longer
have access to credit from financial institutions because of the low credit
rating established by the National Monetary Council.
Companies
in judicial recovery without access to credit lose the productive capacity and
the possibility of overcoming the financial crisis. If credit is essential for
companies that are not in a situation of overcoming financial and economic
crisis, it is even more so for companies undergoing judicial reorganization
that have to restructure the business and comply with the approved recovery
plan to overcome such a challenging scenario.
Another
relevant topic is that the release of receivables (interruption of the banker padlock) enables the company to
increase its working capital to operate and conduct the business. The lack of working capital hampers optimal
utilization of installed capacity and, worse, prevents the company from meeting
its short-term financial
obligations.
As
a conclusion, the economic and financial consequences of the privileged
treatment of fiduciary creditors (Article 6 and Article 49, as above) are
usually a cataclysm for the company that is experiencing a financial crisis due
to lack of liquidity.
Financial
resources are important assets as they help the company to run the operations,
generate revenue and increase business value. Consequently, financial resources
are vital to business continuity, to comply with the recovery plan approved by
the creditors, and to fulfill the purpose of the Bankruptcy Law.
There
is a clear conflict between the wording of Article 47, which establishes the
preservation of the company as the fundamental objective of the Law, and the
norm of Article 49, Paragraph 3, which makes it impossible in most cases to
fulfill the objective of the Law.
The
Oxford English Dictionary defines antinomy
as “a contradiction in a law, or between two equally binding laws.”[14]
The conflict of norms is characterized by the existence of a rule that
prescribes something while a second, also valid rule, prescribes the opposite.
Therefore, antinomy is the existence of an incompatibility between two or more
rules concerning the same object and that should be solved by means of
interpretation.
Right
at the beginning of almost every judicial recovery, lawyers and judges struggle
to overcome the conflict between Article 47 and 49, which can be decisive for
the effective recovery of the company.
With
regard to fiduciary alienation of tangible assets essential to the business
activity, the jurisprudence of the Superior Court of Justice, based on Article
49, Paragraph 3, generally forbids the removal of those goods from the
recovering company. However, in the case of fiduciary ownership of credits,
which are intangible assets, there has been much debate in Brazil about the fiduciary
assignment of receivable credits, especially about their non-subjection to the
effects of judicial reorganization.
The
Superior Court of Justice has examined this issue, having stated the prevailing
view, according to which the credits guaranteed by fiduciary assignment are not
subject to the recovery plan, nor to the restrictive measures imposed by the
bankruptcy court (in accordance with the letter of Article 49, Paragraph 3, of
the Law).
Nonetheless,
the non-subjection of the credits guaranteed by the fiduciary assignment to the
effects of the judicial recovery, leaving such credits out of the competition
of creditors, undermines the judicial reorganization by harming the
preservation of the company, which is the main principle of the Law (in accordance
with the letter of Article 47).
The
immediate effect of the wording of Paragraph 3 of Article 49 was that Law No.
11.101/2005 ceased to be known as a ‘business
recovery law’ and became known as ‘bank
credit recovery law’; since inaccessibility to the financial resources on
which the company depends for its operation makes any judicial recovery
difficult or impossible.
For this reason, both in legal doctrine and
jurisprudence, there has been a growing acknowledgement that Paragraph 3 of Article 49 makes it impossible for the purpose of the Law to be fulfilled, since
the company and its social function will not be preserved. This understanding
admits the fact that it is extremely difficult to recover from a financial
crisis without the possibility of having financial resources. In the moment of
financial difficulty, the company needs capital to move in its normal
activities or even to reinvent itself in order to overcome the crisis.
In
practice, the ‘privilege’ guaranteed to financial institutions, holders of
fiduciary guarantees, to pursuit those credits on an extra-bankruptcy basis,
directly affects the compliance with the judicial recovery plan, the payment of
other creditors without fiduciary guarantee (harming the principle of isonomy
between creditors) and, finally, the business as a whole (which needs the
financial resources to keep the business running).
It
is fundamental to analyze the historical conditions and normative precedents
that prevailed in the past and that preceded the new discipline to understand,
by comparison, the conditioning factors of the genesis of the new law. Thus,
the understanding of the development of a new bankruptcy prediction model
depends on a historical interpretation of the social purpose of its emergence.
Bankruptcy
legislation in Brazil began with the Manueline Ordinances[15],
at about 1521, which determined that in the event of insolvency the debtor
would be arrested until he paid what was due to the creditors, and under the
influence of Italian law the debtor could transfer his assets to the creditors
to avoid imprisonment[16].
By
1603, bankruptcy law was ruled by the Ordinations of King Philip[17].
However, the Charter of 1756 was a decisive document for the history of
Brazilian law. This Charter was subsequently amended and served as a model for
the formulation of the Commercial Code of 1850, a legislative historical
milestone in Latin America. The Commercial Code of the Empire of Brazil, which
also regulates bankruptcy, placed Brazil at the center of the most technically
advanced trade regulation in the West. The publication of the Commercial Code
in 1850 was a genuine progress for the nation. Until then, there was only the
French Code of 1808; Spanish Code of 1829; Portuguese Code of 1833; and the Dutch Code of 1838[18].
Brazilian
Bankruptcy Law has a rich history and has gone through four important phases.
The first was with the publication of the Commercial Code of 1850[19]
and ended with the Republic in 1889. During this period the spirit of French
doctrine and legislation prevailed. On the course until the proclamation of the
Republic, the Imperial Code went through several amendments, almost all of them
due to urgent situations to be solved.
Then
came Decree No. 917/1890, against the background of the Proclamation of the
Republic, when the interim government repealed the provisions on bankruptcies
set forth in the Commercial Code[20].
Shortly thereafter, Law No. 859/1902 was published, which had the purpose of
ending the cases of fraud that arose during Decree 917. The law sought to
resolve the abuses that occurred in the moratorium and in the preventive
agreement between debtor and creditors. This Act remained in force for only six
years.
Law
No. 2,024/1908 was a successful synthesis of the principles underlying Decree
No. 917/1890, as well as the influence of comparative law. It stipulated, for
instance, that the classification of credits should be the expression of truth.
Later, due to the economic crisis of 1929, Law No. 5,746/1929 was elaborated.
This law remained in force until the publication of Decree-Law No. 7.661/1945[21].
The
Decree-Law No. 7.661/1945 preceded the current Brazilian Bankruptcy Law. The
Decree-Law has the merit of having regulated the bankruptcy process for almost
sixty years, even under the uncontrollable pressure of the Brazilian economy.
Some of the important legal provisions of this law were: strengthening of the
magistrate's decision-making; decrease of creditors' influence; and the concordata (both
preventive and suspensive)[22]
was no longer a contract and became a legal benefit granted to the honest but
unfortunate debtor.
However,
as can be observed, the text of Decree-Law No. 7,661/1945 dates back to the
post-war period, thereby it no longer met the needs of business reality at a
certain point. The former legal order was designed for simple business
environments, at a time when Brazil lacked industrialization and there was a
considerable state intervention from the macroeconomic perspective. The main
criticism of the former bankruptcy model (regulated by Decree-Law No.
7.661/1945) was that bankruptcy and concordata did not offer the entrepreneur the possibility of
recovering. In addition, according to Simionato[23],
the Decree-Law proved completely unworkable to discipline the process of
economic reorganization.
The current imperative in business strategy is that
all companies must grow. Thereby, there is an intensification of the corporate
complexity of organizations. Large organizations are by nature complex, but
over the years circumstances have conspired to add layer upon layer of
complexity to how businesses are structured and managed. Mergers and
acquisitions (M&A transactions) play an important role in this process. The
growth in importance of intangible assets is also of great relevance. There are
changes in contractual relations. Traditional forms of guarantee, such as
mortgage and pledge, are gradually being replaced by new forms, such as the
securitization of receivables, fiduciary title of real estate, the
assignment of credit rights and derivatives. Moreover, modern capitalism
presents cyclical crises that affect national economies and even the stability
of economic blocs. Therefore, it is blatant that such crises affect the organizations
that operate in such markets.
Given the context of the twenty-first century, and
the role that companies have in the contemporary economy, as generators of jobs
and wealth production, the Brazilian legislator recognized the great importance
of the judicial recovery of companies[24].
According to Rubens Requião[25], the
company should not be analyzed as an absolute property of the entrepreneur, but
as a community of workers, capital and collectivity. The change in the business environment,
both nationally and globally, led to consensus on the need for legal mechanisms
to ensure the survival of the viable company, recognizing its social function.
In this sense, the legislative branch recognized the importance of the company
and the consequent difficulty in imposing barriers to its existence, risks and
impacts and, in this way, perceived the need to protect the social interests
directly and indirectly linked to the business organization, mainly through
insolvency law.
The
Brazilian Bankruptcy Law in force, Law No. 11,101, dated as of February 9th,
2005, originates from the Bill of Law No. 4,376/93, submitted by the Executive
Branch, which had been discussed in the National Congress for approximately 12
years until its promulgation. Lastly, the new order abrogated and replaced the
Decree-Law No. 7,661/45 (the former Bankruptcy Law).
Thus, under the influence of the principles of
judicial reorganization of companies in economic crisis, a model established in
several countries, the current Brazilian Bankruptcy Law adopted a functional
concept of the company’s social interest, thereby adopting instruments that
favor the business continuity, aiming to protect employment, productive
activity and tax collection.
The
recognition of the social function of the company is one of the guiding
principles established by the legislator, which was based on the need for
preservation and/or recovery of the company. In this sense, according to Paulo
Fernando Campos Salles de Toledo[26],
Brazil has adopted a market economy based on free initiative and, consequently,
should act in its defense.
However, as pointed out by Manoel
Justino Bezerra Filho[27], the Bill
has suffered a series of deviations of course until the current diploma. Among
the difficulties faced is the “Pendular Dualism” of the Brazilian legal system,
cited by the legal
scholar Fábio Konder Comparato[28].
Traditionally, bankruptcy proceedings were designed
to protect the interests of creditors or the interests of debtors, with a
markedly proceduralist approach prevailing in the Brazilian system. This
difficulty in defending the true interests to be preserved in the judicial
recovery and bankruptcy proceedings of the company appeared prominently in the
drafting of the new law.
From 1993 until about 2000, the bill introduced a
series of propositions that demonstrated an effective concern with the
situation of the business community, with institutes that might, perhaps,
provide conditions for the recovery of the business. From 2000/2001, the
pressures that became gradually present in the elaboration of the law caused a
change of direction that led to a significant modification from the
philosophical point of view, in such a way that the text was increasingly
distanced from its original goal. In the legal community, it was concluded that
the law would no longer be the “Business
Recovery Law” but the “Bank Credit Recovery Law”, or the “FEBRABAN Law”[29].
This pendular dualism of Brazilian law (indecision
about whether to support the debtor or prestige the creditor) was effectively
present in legal thinking. Further, lobbying pressures extend the continuity of
the ‘dualism’. Although the Law is the result of the average feeling of the
population at a given moment, there were evidently certain sectors that made
their voices heard in a more audible and determinant way. This was the case in
the drafting of the current Bankruptcy Law, which was seriously concerned with
the recovery of companies, and from a certain point (around 2000/2001) began to
suffer pressure from one of the national and international bankers.
As
a result, the bill that until then had been aimed at providing conditions for
recovery to companies in difficulty was modified in order to create the
conditions for the invested financial capital to return to the origins in the
shortest length of time. In other words, before any
concern about the company’s recovery, the Law began to prioritize saving the
money invested by financial capital, making it impossible – or at least making
very problematic – the possibility of recovering the business.
On
that occasion, the World Bank commissioned a number of officials to distribute
the booklet titled ‘Principles and
Guidelines for Effective Insolvency and Creditor Rights Systems’[30],
which contained 35 (thirty-five) ‘Principles
and Guidelines for the Effectiveness of Bankruptcy Procedures and Debt
Collection.’
As
a result, the judicial reorganization procedure replaced the old legal
institute of ‘preventive concordata’, regulated by
Decree-Law No. 7,661/1945. With notable
differences from its predecessor, the judicial reorganization caused
considerable changes in the legal outlook, especially because it provided for
creditors and debtors a court procedure for the negotiation of a sui generis agreement to be approved at
the general meeting of creditors: the judicial reorganization plan. On the
other hand, the effective granting of the judicial reorganization cannot do
without a court order and the jurisdictional power is given to the judge to
ensure the legality of the procedure and to analysis the reorganization plan.
Thus,
the Brazilian Bankruptcy Law not only regulated the corporate bankruptcy
proceedings, but also innovated by establishing judicial and extrajudicial
mechanisms to save a company which is still
economically and financially viable, provided that legal requirements are met.
Taking into consideration the normative precedents and
preparatory legislative works, which preceded the approval of Law No.
11.101/2005, we find the meaning of words in the context of the creation of the
norm (occasio legis)[31].
The adoption of the Judicial Recovery Institute was an evolution in Brazilian
bankruptcy law, since it is a legal mechanism that allows economically viable
companies to reorganize and generate once again wealth for the country.
However, this same institute was distorted by the influence of representatives
of the banking segment in the final drafting of some legal articles (as in the
case of Paragraph 3 of Article 49), resulting in a law fraught with a legal
antinomy and detached from the will of the legislator.
The interpretation is the jurist's oldest activity. It is
called teleological the process that guides the interpretation according to the
end collimated by the legal provision, or by Law in general[32]. The word teleology derives from the Greek telos, meaning end, completion,
fulfillment, perfection[33].
Although
Law No. 11,101/2005 provides that fiduciary property is not subject to the
effects of Judicial Recovery, the jurisprudence is not unanimous in this
matter. There are divergent understandings in different courts of Brazil, some
sustaining the exclusion of credit from the effects of judicial recovery, with
a special mention in Article 49, Paragraph 3 of Law No. 11,101/2005 and others
stating that such securities would not be included in the list of credits
mentioned in Paragraph 3[34].
According to Carlos Maximiliano[35], on the use of the
teleological element in the interpretation, “the end inspired the legal provision,
it must, therefore, also serve to limit the content; rectifies and completes
the characters in the legal hypothesis and helps to specify which species fit
the same. It sets the scope, the practical possibility; since there is a
presumption that the legislature has intended to edit reasonable means, and,
among the possible means, chosen the simplest, most effective. The end does not
reveal, by itself, the means that the authors of the expressions of the Law put
in action to accomplish it; serves, however, to make it better to understand
them and to develop them in their minutiae. It is not therefore sufficient to
determine the practical purpose of the standard in order to reconstitute its
actual content; it is necessary to ascertain whether the legislature has
already shown a preference for one means, rather than another, to achieve the
collimated objective; if this has not happened, primacy should be given to the
most suitable means to achieve that end in a full, complete, integral way.”
Focused on the teleology of the norm, not its structure, Bobbio[36]
asserts that the concern of the operator of the Law should be for what the norm
serves. Symmetrically, Eros Grau[37]
posits, supported by the conceptions of Rudolph von Jhering,
that the purpose is the creator of all law and there is no norm or legal
institute that does not originate from the purpose. In this sense, when
interpreting a legal provision, it is necessary to take into account the
economic and social requirements that the law was constructed to meet and
conform the norm with the principles of justice and
the common good.
Although there are several important interpretive methods,
the teleological interpretation overcomes the formal logic and directs its
attention to the legal good protected by the norm, that is, to the end that the
norm seeks to achieve. The interpretive conclusion must be attached to the
preservation of this legal value, which goes beyond the scope of formal logic.
In this regard, corroborating with the hermeneutical tendency
of a restrictive analysis of the banker padlocks’ permissibility, it is
valuable to bring back the recent decision of the 1st Court of Bankruptcies and
Judicial Recoveries of São Paulo[38],
which highlighted the social function of the legal institute of judicial recovery:
“The interpretation in accordance with
the theories of overcoming the pendular dualism and of the balanced division of
burden should be applied to the recovery system.
According to the theory of overcoming
the pendular dualism, the best interpretation that must be given to the
institutes of judicial recovery is the one that allows the one who applies the
law to achieve more effectively the results of social interest protected by the
recovery system and not the partial interests of creditors or debtors.
The viability of overcoming the crisis
is consonant with the protection of public and social interests that comprise
the preservation of the economic and social benefits of the healthy business
activity, such as the generation of employment, tax collections, the
circulation of goods, products, services and the generation of wealth.
The greater interests, guaranteed by
the success of the company's recovery, should overlap the private and partial
interests of creditors and debtors within the process of judicial recovery.
The partial interest of a creditor or a
debtor can never become an insurmountable barrier to the achievement of the
greater interest, of a public/social nature, resulting from the preservation of
the benefits derived from the healthy business activity.
Therefore,
the interpretation of the legal safeguard brought by Article 49, Paragraph 3 of
the above-mentioned law must abide by these theories, in order to ensure that
it is possible for the system the effective court protection of the social and
economic benefits that arise from the preservation of the business activity
(the ultimate objective of the judicial recovery system).”
It is important to note that this specific court decision
overcame the pendular dualism between creditor and debtor to emphasize the
protection of the legal institute of judicial recovery, as inspired and
expressed in the Brazilian Bankruptcy Law.
Further, facing another serious problem of judicial recovery,
the same decision also determined that financial institutions with assignment
of fiduciary guarantee credits would only receive the respective credit after
the approval of the recovery plan by the general meeting of creditors:
“According
to the theory of the balanced division of burden, all creditors and debtors
must assume burdens in the process of judicial recovery, so that their conducts
enable the achievement of the greater result of the judicial recovery process,
which is the protection of the economic and social benefits that result from
the preservation of the business activity. [...] Thus, the judicial recovery
system imposes this burden on the creditor holding the fiduciary guarantee,
ensuring that the asset subject to the guarantee is not realized, to the
detriment of the essential activities of the debtor, at least during the stay
period, in which the creditors and the debtor should negotiate a plan to
overcome the crisis.”[39]
In
light of the foregoing, essentially, while solving the cases, the judge must
find a method to make the rule of law applicable to the event, thereby ideally
rendering a verdict containing justice (philosophical), certainty (juridical),
and usefulness (sociological) aspects. The principles of justice, law certainty
and usefulness should be conducted in compromise by means of applying them
equally or proportionally, for the sake of the legal institute of judicial
recovery.
Bankruptcy
Law is certainly a legal branch of intense doctrinal debates that requires a
detailed study and reflection on the fundamental instruments aiming the
economic reorganization of the company.
From a practical perspective, it would be incongruous to expect
that the Brazilian judiciary would be able to solve per se the problems caused by the company’s economic crisis.
Nonetheless, the Law sought, at least in theory, to provide a solution of
continuity for the economically viable company.
On the other hand, the
codification of law, even though it seems to be complete, is never perfect. Although Law No. 11.101/2005 has implemented a judicial
reorganization model, seeking to ensure instruments that enable overcoming the
situation of financial crisis, judicial reorganizations have been impaired, in
many cases, because fiduciary assignment of receivable credits is not subject
to the effects of judicial reorganization, according to the wording of Article
49, Paragraph 3.
The main challenge, therefore, is to
find means to impose a restriction, without, on the one hand, sacrificing
fiduciary property (as it would occur in
the case of simple liberation of values in favor of debtors), and without, on the other hand, frustrating the objective of the
preservation of the company (as in the case of banker padlock, which prevents
values from being used in the economic activity of the company).
However,
while society awaits an urgent correction, the judiciary has already expressed
the relativization of the rule of Article 49, Paragraph 3, whose literal
interpretation, when applied to the process of judicial recovery, may
jeopardize the execution of the recovery plan and the success of the main
purpose as provided for in the article 47 of Law No. 11,101/2005.
Hence,
the antinomy between Articles 47 and 49 of Law No. 11,101/2005 has imposed a
change in exegesis, impacting judicial decisions and the fate of Brazilian companies
in judicial reorganization.
Law
enforcement requires indisputably an attentive and diligent Judiciary,
grounding its decisions on the spirit of the law, and not so much in the
literal interpretation of the legal text. Otherwise, the reform aimed by Law
No. 11.101/05 would be in vain, without reasonable solutions to deal with the
economic crisis of the company. In other words, Law No. 11.101/05 should be
interpreted from the perspective of its social and economic utility. The prevalence of literal interpretation of the Law
leads to irrationality and injustice, as Legal Hermeneutics has demonstrated
over the centuries.
Lastly,
beyond this interpretation of conflict of norms, which reduces the
contradictions between legal rules to mere legal defects, it is possible to
look for more substantial causes hiding behind these antinomies and consider
them as symptoms of existing tensions at the deeper level of legal foundations.
The normative conflict
between Article 47 and Article 49, Paragraph 3, exposes a failure in the norm
producing process, as well the existence of a conflict between the values and interests which inspired the norms.
Based
on the Preservation of the Company Principle, the Brazilian legislator clearly
opted to recover the business activity, inasmuch as the firm, which besides
generating employment, is also a source of tax payment. The difficulty in
defending the interests that shall be preserved in the process of judicial
reorganization and bankruptcy effectively rests upon the interference of vested
interests that remarkably distorted the spirit of the current law. Moreover,
this deviation of course will require a considerable length of time for
correction, if there will be political will to make the necessary corrections.
In conclusion, this adjustment of the hermeneutic processes may not prevent the
need to change the law; as there are still serious
obstacles to its implementation.
[1] Regulates judicial and extrajudicial reorganization and bankruptcy of the entrepreneur and the company.
[2] Chapter III of the current Brazilian Bankruptcy Law.
[3] Chapter IV and V of the current Brazilian Bankruptcy Law.
[4] Chapter VI of the current Brazilian Bankruptcy Law.
[5] Carvalho de
Mendonça. Tratado de Direito
Comercial Brasileiro. 2ª Edição. Livro V. Parte I. v. 7. p. 12.
[6] Carvalho de
Mendonça. op. cit. p.
11.
[7] Chapter III, Section I, of the current Brazilian Bankruptcy Law.
[8] F. A.
Monte Simionato, Tratado de Direito Falimentar. Rio de
Janeiro: Forense, 2008, p. 9.
[9] Brazilian Bankruptcy Law, Article 48.
[10] Brazilian
Bankruptcy Law, Article 49.
[11] If the request for processing the
judicial reorganization is granted, there is an automatic stay of 180 days. The
stay suspends the limitations period and the course of actions against the
debtor, except for tax and labor claims, and claims that seek indemnification
of unliquidated amounts. In the strictest letter of the law, the automatic stay
cannot be extended.
[12] F. K. Comparato, Aspectos jurídicos da macro-empresa. São Paulo: RT, 1970, p. 112.
[13] Brazil, 1st
Court of Bankruptcies and Judicial Recoveries of São Paulo. Judicial Recovery – Collective Insolvency Proceedings n.
1049020-41.2017.8.26.0100. Judge: Daniel Carnio
Costa. D.O.E.S.P. 10/08/2017.
[14] Oxford English Dictionary.
[15] The legal system in force during colonial times (the period which goes from 1500 to 1822) is made up by the Royal Ordinances which compiled laws and customs in use in Portugal.
[16] Simionato. op. cit. p. 250.
[17] Philippine
Ordinances (Ordenações Filipinas), period from 1603 to 1640.
[18] Carvalho de Mendonça. Das
falências e dos meios preventivos de sua declaração: Decreto n. 917, de 24
de outubro de 1890, São Paulo, Typographia Brazil de Carlos Gerke & Cia.
1899.
[19] Since 2003, the Brazilian
Commercial Code of 1850 is only in force with regard to Commercial Maritime
Law, and the other issues were revoked by the Brazilian Civil
Code of 2002.
[20] Sampaio De Lacerda. Manual
de Direito Falimentar. Rio de Janeira: Freitas Bastos, 1971, p. 37.
[21] Simionato. op. cit. p. 253.
[22] Decree-Law
No. 7.661/1945, Title X, First Section, Article. 139.
[23] Simionato. op. cit. p. 15.
[24] In fact, the interest of the
company is not restricted to the social interest of the members, but legally
the social interest should be the interest of the company, and of the
collectivity, according to article 170 of the Brazilian Federal Constitution
and articles 115, 116, 117, 153- 159 of the Brazilian Corporation Law (Law No.
6,404, dated December 15, 1976).
[25] R. Requião, “A função social da empresa no
estado de direito”, Revista da Faculdade
de Direito da UFPR, vol. 19, p. 270, 1980.
[26] P. F. Toledo, in N. de Lucca, A. Domingues,
(Coord.). Direito recuperacional:
aspectos teóricos e práticos. São Paulo: Quartier Latin, 2009. pp. 528-529.
[27] M. J. Filho, Lei de
Recuperação de Empresas Comentada. 2007, p. 34.
[28] F. K. Comparato, Aspectos jurídicos da macro-empresa. São Paulo: RT, 1970, p. 98.
[29] Acronym for Federação Brasileira de Bancos
(the Brazilian Banking Federation).
[30] World Bank, Principles and Guidelines for Effective Insolvency and Creditor Rights Systems, 2011.
[31] “Historical circumstance from
which came the external impulse to the creation of the law.” F. Ferrara, Interpretação
e aplicação das leis. 2.ed.
Coimbra: Arménio Amado, 1963, p. 142.
[32] “The teleological perspective,
commonly named logical interpretation, improper expression, since it is an
interpretive method based on the ratio legis, that
is, the reason or the purpose for which the norm was established. Starting from
the double assumption that the legislator, as a reasonable being, sets goals
and establishes suitable means to be achieved, once the aim of the legislator
is individualized, the purpose can clarify in this case the means to achieve
it, that is, the content of the law.” N. Bobbio, O positivismo
jurídico: lições de filosofia do direito, São Paulo: Ícone, 1995, p. 214.
[33] L. F. Coelho, Aulas de introdução ao direito. Barueri, SP: Manole,
2004, p. 335.
[34] Brazil,
Third Panel of the Superior Court of Justice, Special Appeal 1.202.918/SP,
Reporting judge: Ricardo Villas Bôas Cueva. Court
decision in 07/03/2013.
[35] C. Maximiliano, Hermenêutica e Aplicação
do Direito. 19. Ed. Rio de Janeiro: Forense, 2007. p. 125.
[36] N. Bobbio, Dalla
struttura alla funzione. Milano, Edizioni di Comunità, 1977, p. 63.
[37] E. R. Grau, Essay and Discourse on Interpretation
/Application of Law. São Paulo: Malheiros, 2002, p. 35.
[38] Brazil, 1st Court of Bankruptcies and Judicial Recoveries of São Paulo, op. cit., p. 591.
[39] Ibid., p. 591.