The National Congress partially overturned, on March 17, the vetoes of the President of the Republic to Bill No. 4,458/20, which promoted the reform of the Law on Recoveries and Bankruptcies (Law No. 11,101/05 or LRF). From this deliberation, some provisions approved by the National Congress, but vetoed by the president, will be reinserted in the reform of the LRF, which is already in force.
The partial overthrow of vetoes represents a strengthening of the principles of preserving productive activity and overcoming the economic and financial crisis, both of which are provided for in Art. 47 of the LRF. In addition, there is an effective stimulus to the business environment in Brazil, especially at a time of severe economic, financial and sanitary crisis.
The National Congress maintained vetoes related to the provisions that disciplined (i) the possibility of the Ministry of Agriculture, Livestock and Supply to define which events can be characterized as fortuitous acts and force-greater force for the purpose of possible submission of credits and guarantees linked to rural product notes (CPRs), with physical settlement, to judicial recovery; and (ii) the suspension of labor executions against co-obligations of recoverers.[1] These issues will therefore be left out of the LRF reform.
In addition to a specific point on cooperatives[2] and the recognition of non-submission to the effects of judicial recovery of claims and guarantees linked to CPRs with physical settlement, in case of partial or full anticipation of the price, or representative of exchange operation for insums (Barter)[3], the vetoes overturned by the National Congress involve relevant tax issues and the absence of succession of the acquirer of the debtor's assets. These two aspects are best described below:
- ABSENCE OF SUCCESSION OF THE ACQUIRER OF ASSETS – 60, single paragraph,[4] and art. 66, §3,[5] of the LRF
The two new provisions leave no room for doubt that the asset disposed of during the judicial recovery will be free of any encumbrance and that the acquirer will not succeed the debtor in his obligations. Environmental, labor, regulatory, administrative, criminal and anti-corruption obligations were expressly included in these obligations. The tax obligations were already exceptional in the original wording of the LRF.
The previous wording of the LRF was not clear on the subject. It was discussed, first, whether the shield would only apply to cases of sale of isolated production unit (UPI) or to subsidiaries, with the respective provision in judicial recovery plan. In addition, there were doubts as to whether environmental and anti-corruption obligations would be excluded.
Although they had already judged and[6] who adopted an ampliative interpretation for both points, there were questions whether the sale of other assets through judicial authorization in the form of Art. 66 of the LRF would also be covered by non-succession.
The inclusion of §3 of art. 66 in the LRF closes any discussion and establishes that sales made with judicial authorization are also shielded from encumbrance. Furthermore, the amendment to the sole paragraph of Article 60 makes it clear that the absence of succession refers to all obligations of the debtor, including environmental and anti-corruption obligations.
All of these devices give greater predictability and security to those interested in assets of companies in judicial recovery. As a result, an increase in the number of interested parties for this type of asset is expected, more facility to sell them and an increase in the value of offers to recoverers.
The two provisions stipulate, in summary:
- the non-application of the limit of 30% provided for in the tax legislation to offset tax losses with capital gain due to the sale of assets within the context of judicial recoveries and bankruptcies or with gain arising from debt reduction;
- the disregard of accounting revenuestemming from the application of debt discounts such as tax revenues for the purposes of pis and cofins; And
- the deductibility of the obligations assumed in the judicial recovery plan of the calculation bases of corporate income tax (IRPJ) and the Social Contribution on Net Income (CSLL).
The forecasts mentioned above will have a broad practical effect on judicial recoveries, as significant discounting to creditors and the sale of assets by the recovering debtor are among the main means of recovery adopted by debtors.[9]
The overthrow of vetoes to these devices also represents an important and fair portion of the Tax Code's contribution (which was largely strengthened with the reform of the LRF – as already addressed Previously) for debt restructuring and overcoming the economic and financial crisis, as well as the others involved (debtors and their shareholders, creditors, employees, suppliers and customers) in these processes.
More details on the implications of these tax provisions can be found Here.
[1] The implications of maintaining the veto on the suspension of labor executions have already been addressed in detail Here.
[2] The National Congress also overturned the veto on §13 of Article 6 of the LRF, which provides: "§ 13. The effects of judicial recovery are not subject to the effects of judicial recovery, the contracts and obligations arising from cooperative acts committed by cooperative societies with their cooperative members, in the form of Article 79 of Law No. 5,764 of December 16, 1971, consequently, not applying the prohibition contained in item II of Art. 2. when the operating company of health care plan is a medical cooperative."
[3] Another veto overturned by the National Congress involves the amendment of Art. 11 of Law No. 8,929/94, which establishes: "Art. 11. The claims and guarantees linked to cpr with physical liquidation, in the event of partial or full anticipation of the price, or representative of exchange transaction for insums, shall not be subject to the effects of the judicial recovery.Barter), the creditor shall be entitled to the restitution of such goods which are in the possession of the issuer of the ballot or of any third party, unless the fortuitous case or force greater which is proven to prevent partial or total compliance with the delivery of the product."
[4] "Single paragraph. The object of disposal shall be free of any encumbrance and there shall be no succession of the bidder in the obligations of the debtor of any nature, including, but not exclusively, those of an environmental, regulatory, administrative, criminal, anti-corruption, tax and labor nature, subject to the provisions of § 1 of Art. 141 of this Law."
[5] "§ 3º Provided that the disposal is carried out in compliance with the provisions of § 1 of Art. 141 and article 142 of this Law, the object of the disposal shall be free of any encumbrance and there shall be no succession of the acquirer in the obligations of the debtor, including, but not exclusively, those of an environmental, regulatory, administrative, criminal, anti-corruption, tax and labor nature."
[6] In this sense, Statement No. 104 of the III Business Law Day of the Federal Court Of The Council establishes: "There will be no succession of the acquirer of assets in relation to pecuniary penalties applied to the debtor based on Law No. 12,846/2013 (Anti-Corruption Law), when the disposal occurs on the basis of Art. 60 of Law No. 11,101/2005.
[7] Art. 6b. The percentage limit of which the arts are treated does not apply. 15 and 16 of Law No. 9,065 of June 20, 1995, to the calculation of income tax and the Social Contribution on Net Income (CSLL) on the portion of the net income resulting from capital gain resulting from the judicial disposal of assets or rights, which deal with the arts. 60, 66 and 141 of this Law, by the legal entity in judicial recovery or with decreed bankruptcy.
Single paragraph. The caput provisions of this article do not apply in the event that the capital gain swerves from a transaction made with:
I - legal entity that is controlling, controlled, affiliated or interconnected; Or
II - natural person who is a controlling shareholder, partner, holder or administrator of the debtor legal entity."
[8] "Art. 50a. In the case of renegotiation of debts of a legal entity in the context of judicial recovery proceedings, whether or not the debts are subject to it, and the recognition of their effects on the financial statements of the companies, the following provisions shall be observed:
I - the revenue obtained by the debtor will not be computed in the calculation of the calculation basis of the Contribution to the Social Integration Program (PIS) and to the Program for The Formation of the Public Servant's Assets (Pasep) and the Contribution to the Financing of Social Security (Cofins);
II - the gain obtained by the debtor from the reduction of the debt will not be subject to the percentage limit of which the arts deal. 42 and 58 of Law No. 8,981, of January 20, 1995, in the calculation of income tax and CSLL; And
III - expenses corresponding to the obligations assumed in the judicial recovery plan shall be considered deductible in determining the actual profit and calculation basis of the CSLL, provided that they have not been the subject of a previous deduction.
Single paragraph. The caput provisions of this article do not apply to the assumption of debt with:
I - legal entity that is controlling, controlled, affiliated or interconnected; Or
II - natural person who is a controlling shareholder, partner, holder or administrator of the debtor legal entity."
[9] By statement, the Insolvency Observatory, on the initiative of the Center for The Study of Insolvency Proceedings (NEPI), puc-sp, and the Brazilian Association of Jurimetria (ABJ), found, in judicial recoveries processed in the state of São Paulo, that (i) 82.7% of the judicial recovery plans stipulated discount to chiropractic creditors, and the average discount verified corresponds to 70.8% of the respective claims and (ii) about 35% of the plans approved in specialized courts from 2018 were expected to sale of UPI. This data was extracted from the February 2021 report.
