Stay period

• After the granting of a petition for judicial reorganization, the stay period began, an interval of 180 days for suspension of executions and acts of constriction against the debtor by creditors subject to the proceeding, which is intended to give breath to the negotiation of the judicial reorganization plan.
• This period would be non-extendable under Law No. 11,101/05, but case law has admitted extension, occasionally even more than once, when the vote on the plan did not take place within 180 days for acts not attributable to the debtor. For reference, votes on plans for reorganizations in progress in the State of São Paulo have taken an average of 517 days, according to data from the 2nd Phase of the Bankruptcy Observatory of NEPI-PUC/SP and ABJ.
• Bankruptcy-exempt creditors and the tax authorities are not affected by the stay period a priori. However, constrictions and foreclosures of essential capital goods are prohibited in such a period. According to the Superior Court of Appeals (STJ), the competent court to decide on the matter is that of the judicial reorganization.
• There was no legal provision for a stay period in relation to mediation or extrajudicial reorganization. 

Stay period

• It expressly provides for the possibility of extending the stay of 180 days for an equal period and a single time, provided that the failure to vote on the plan is not attributed to the debtor in possession.
• The stay period may be extended a second time if creditors submit an alternative judicial reorganization plan, in the cases provided for in article 6, paragraph 4-A, and article 56, paragraph 4 (article 6, paragraph 4 and 4-A).
• The stay period is counted from the granting of the processing of the case, as prior to Law No. 14,112/20, but in the event of urgency, in limine relief may be granted for its effects to begin, in whole or in part, as of the filing of the case.
• The rule regarding the possibility of execution and constriction by the tax authorities and bankruptcy-exempt creditors continues. There is an express legal definition of the jurisdiction of the court overseeing the reorganization to deal with the issue of essential capital goods in article 6, paragraphs 7 and 7-A.
• There is a legal provision for a stay period in the prior mediation and extrajudicial reorganization (for more details, see item on the subject, below).

• Such provisions were listed in articles 7 to 20 of Law No. 11,101/05, and there were no express previsions regarding what happens with the registrations and objections in course, in the event of closure of the judicial reorganization.  

• There is an express rule as to the possibility of closing the judicial reorganization even if the General Table of Creditors has not been approved. With this, late registrations and objections will be reassigned to the judicial reorganization court as autonomous actions through the common procedure, and late registrations will have the competent credit reserve (article 10, paragraphs 7 to 9).
• There is specific treatment for registration of tax debts in the bankruptcy (article 7-A). In addition, paragraph 4, subsections I and II, of this article delimits which issues related to tax debts would fall under the bankruptcy court's jurisdiction and which would fall under the tax foreclosure court's jurisdiction. In this context, in line with the CTN and the Tax Foreclosure Law, whose article 5 provides that the competence to hear and decide foreclosure of the Public Treasury's outstanding debt excludes from any other court, including the bankruptcy court, the competence to assess the existence, enforceability, and value of the claim, which will be that of the tax foreclosure court. In other words, the analysis of the merits of the tax foreclosure will not be done by the bankruptcy court, but will be heard by the tax foreclosure court. On the other hand, it is incumbent on the bankruptcy court not only to examine matters such as calculation and classification of claims, but also those related to asset collection, realization of assets, and payment to creditors. Subsection V of the article in question, subject to the jurisdiction of the tax enforcement court to examine the above-mentioned matter, establishes that "tax enforcement actions shall remain suspended until the bankruptcy is terminated, without prejudice to the possibility of proceeding against the co-responsible parties." However, despite the changes introduced by Law No. 14,112/20, which came into force on January 23, 2021, the 1st Section of the Superior Court of Appeals (STJ), in May of this year, unanimously affected to the procedure of repetitive appeals REsp 1.891.836/SP, under topic 1092, with the following controverted theory: "Possibility for the Public Treasury to qualify a tax debt in bankruptcy proceedings subject to a tax foreclosure in progress."
• In the event of bankruptcy, there is a three-year lapse period, counted from the decree of bankruptcy, for registrations and requests for a credit reserve (article 10, paragraph 10). This rule applies to bankruptcies decreed after the law went into effect.
• Apportionment in bankruptcy may occur even if the General Table of Creditors is not formed, provided that the class of creditors to be satisfied has already had all the judicial objections filed within the term provided for in article 8, except for the reserve of the disputed claims due to the delayed registration of claims distributed until then and not yet judged (article 16).

Labor claims

• They was to be discharged within up to one year, and five minimum wages per employee of the strictly wage claims due in the three months preceding the claim was to be paid within 30 days.

 Labor claims

• The five minimum wages rule mentioned above was maintained and the remainder may be paid within up to two years, provided that the plan, at the discretion of the judge: (i) provides sufficient guarantees; (ii) has been approved in class I; and (iii) guarantees payment of all labor claims (article 54, paragraphs 1 and 2).

 Tax issues

• When judicial reorganization is granted, the applicant must submit a clearance CND (article 57). However, since the law that provides for tax installments was slow to be enacted and, when it was, it received criticism, the case law has been softening this requirement.
• The regulated tax issue was the absence of succession of the purchaser of an isolated productive unit (IPU) in the judicial sale approved in the plan, provided that such purchaser is not (i) a partner of the bankrupt company or a company controlled by the debtor; (ii) a relative, in a straight or collateral line up to the fourth (4th) degree, by blood or by marriage, of the debtor or a partner of the bankrupt company; or (iii) identified as an agent of the debtor with the purpose of defrauding the succession.

Tax issues

• The requirement of article 57 continues.
• Tax treatment applicable to capital gains on the judicial sale of IPUs: the portion of net income resulting from capital gains on the judicial sale of IPUs may be fully offset against tax losses from priors years, without the limitation of 30%. To this end, the divestiture should take place between independent parties. Also, Corporate Income Tax (IRPJ) and Social Contribution on Net Income (CSLL) due on capital gains may be paid in installments.
• Tax treatment of the effects of reducing the value of debts in the event of renegotiation (haircut): regardless of the accounting effects and provided that the renegotiation of debts occurs between unrelated parties, even if the debts are not subject to the judicial reorganization plan, the effects of reduction thereof have the following tax treatment:

(i) revenue will not be taxed by PIS and Cofins; 

(ii) the gain may be fully offset against tax losses from prior years, without the limitation of 30%.

• Deductibility of expenses: expenses corresponding to the obligation assumed in the plan will be considered deductible from the calculation basis for the IRPJ and the CSLL.
• Acts of constriction of assets in the scope of tax foreclosures: despite the discretionary power of the tax foreclosure court to order acts of constriction of assets, the reorganization court has the power to order the substitution of such acts that fall on capital assets essential for the maintenance of the business activity, to be exercised through judicial cooperation.
• Payment of tax debts: once the judicial reorganization proceeding has been granted, federal tax debts may be settled on a consolidated basis within 120 months. Payments will be calculated in such a way that those due in the first years are lower than those due in subsequent years. As for debts managed by the Brazilian Federal Revenue Service, up to 30% of the consolidated debt may be settled using tax loss credits and the remainder may be paid in 84 installments. The value of the installments will also be lower in the first years of payment.
• Other modalities of installment payment are also available, under the terms of Law No. 10,522/2002, as amended.
• Settlement: once the processing of the judicial reorganization has been granted, the taxpayer may submit a proposed settlement to the Brazilian Treasury Attorney's Office. The conditions of the settlement must include payment within 120 months, reductions of up to 70% in the amount of the debt, among other things.

 Role of the judicial trustee

• There was no legal provision obliging judicial trustees to maintain a website with information on the proceedings in which they serve.
• The judicial trustee was not obliged to certify the veracity of the information provided by the debtor, nor to supervise the negotiations held between debtors and creditors.
• There was no provision for alternative methods of deliberations by creditors (e.g., by means of an consent form or electronic voting) and, therefore, there was no legal obligation for the judicial trustee to supervise such acts.
• The obligation to sell the assets of the bankrupt estate had no time limit. The judicial trustee could request that the judge sell in advance perishable goods, which are deteriorable or subject to considerable devaluation or to risky or costly conservation. In addition, there was no express obligation for the judicial trustee to collect in bankruptcy the amounts of deposits in proceedings to which the bankrupt was a party, although it is currently understood that this is an implicit obligation.
• There was no provision for cooperation mechanisms for transnational bankruptcy proceedings.

 Role of the judicial trustee

• The judicial trustee should encourage mediation, conciliation, and other alternative methods of dispute resolution.
• The judicial trustee should maintain an e-mail address with updated information on bankruptcy and judicial reorganization proceedings, with the main filings in the proceedings and monthly activity reports, and on the judicial reorganization plan, as well as for receipt of registrations and disagreements in the administrative sphere, unless a court decision to the contrary is entered.
• The scope of the judicial trustee's duties under the judicial reorganization process is broadened, notably (i) to inspect the veracity and conformity of the information provided by the debtor for purposes of preparing the monthly activity report; (ii) to inspect the negotiations between debtors and creditors, ensuring that the parties do not adopt dilatory or prejudicial arrangements; (iii) to inspect, by means of issuance of an opinion regarding their good standing, the decisions of the General Meeting of Creditors (GMC) by means of a consent form, electronic voting, or some other suitable mechanism (article 39, paragraph 5); (iv) to submit for a vote at the GMC that rejects the judicial reorganization plan proposed by the debtor the granting of a 30-day period for presentation of the judicial reorganization plan by the creditors (article 56, paragraph 4); (v) to submit within 48 hours a report of the creditors' responses regarding the holding of a General Meeting to resolve on the sale of assets, requesting its call.
• The scope of the judicial trustee's duties within the scope of the bankruptcy proceedings is broadened, namely: (i) the obligation to submit within 60 days of its appointment a detailed plan for realization of the assets; (ii) proceed with sale of all assets of the bankrupt estate within a maximum period of 180 days, as of the date of the filing of the notice of filing of the notice of collection, under penalty of dismissal, except for justified impossibility, recognized by a court decision; (iii) in the event of insufficiency of the assets for the expenses of the proceedings, procure sale of the attached assets within a maximum period of 30 days, for personal property, and 60 days, for real property, if the creditors do not request continuation of the bankruptcy; (iv) to collect the amounts of the deposits made in administrative or judicial proceedings in which the bankrupt appears as a party, arising from attachments, freezes, seizures, auctions, judicial sales, and other events of judicial constriction, with the exception of the deposits of federal taxes.
• There is a provision for actions in the scope of transnational bankruptcy proceedings, notably (i) authorization to appear in foreign judicial proceedings in the capacity of representative of the Brazilian judicial proceedings, in the event of bankruptcy; and (ii) obligation of cooperation and communication with the foreign authority and with the foreign representatives.

 Means of judicial reorganization

• The conversion of debt into capital (only the increase in share capital) was not expressly provided for, but was a means of reorganization used.
• There was no provision for full sale of the debtor.

 Means of judicial reorganization

• The conversion of debt into capital began to be included in the list of article 50 of Law No. 11,101/05 and there is no risk of succession or liability for debts to third parties.
• The same rule of absence of liability and succession is express for officers and directors who replace former officers and directors as a means of reorganization and for creditors who make contributions of funds (article 50, paragraph 3).
• The creditors' alternative plan may also provide for the capitalization of claims, including foreign exchange of control, allowing the debtor's partner the right to withdraw (article 56, paragraph 7).
• Full sale of the debtor: it becomes a means of reorganization provided for in the list of article 50 of Law No. 11,101/05 and can be used when the situation of the creditors who are not subject to the proceedings and who are not members is at least the same as it would be in a bankruptcy. In this scenario, the rule of absence of succession of the IPU will be applied.

 DIP financing

• The treatment provided for in article 67 of Law No. 11,101/05 was insufficient and did not provide the necessary super priority. Thus, the vast majority of cases of financing in Brazil have always relied on guarantees, especially those of a fiduciary nature, and contractual arrangements for obtaining super-priority.
• There was also no express provision in Law No. 11,101/05 protecting third parties in good faith.
• There was no provision in Law No. 11,101/05 authorizing the creation of a subordinated guarantee on assets of the debtor without the consent of the holder of the original guarantee.
• Experience showed that DIP financing cases ended up involving much litigation.

DIP financing

• Super priority is provided for by law (article 84). However, a fiduciary guarantee continues to be advisable, because a claim for restitution in natura is not subject to the competition of creditors. Doubts whether judicial authorization is required (advisable).
• Article 69-B provides that a change in the level of appeal against the decision authorizing the engagement may not alter the bankruptcy-exempt nature or the guarantees given by the debtor to the lender in good faith, if disbursement has been made.
• Article 69-C authorizes the establishment of a subordinated guarantee on one or more of the debtor's assets in favor of the lender of a debtor under judicial reorganization, waiving the consent of the holder of the original guarantee, with the proviso that the subordinated guarantee, in any event, will be limited to any excess resulting from the disposal of the asset subject to the original guarantee and that such provision will not apply to any type of fiduciary sale or fiduciary assignment.
• Article 69-E provides that financing may be provided by any person, including family members, partners, and members of the debtor’s group.
• Article 69-D provides that, in the event of conversation of the reorganization into bankruptcy, the financing agreement will be considered automatically terminated and the guarantees provided and preferences will be preserved up to the limit of the amounts actually delivered to the debtor before the date of the judgment that converted the judicial reorganization into bankruptcy.

• It was not regulated in Law No. 11,101/05.
• Procedural consolidation was allowed on the basis of the rules for joint litigation in the Code of Civil Procedure (CPC), which applied where not incompatible with bankruptcy procedure, pursuant to article 189 of Law No. 11,101/05.
• There was no consensus in the case law regarding the requirements, the competence of the decision on the subject, criteria, and quorums applicable to voting.

• Law No. 11,101/05 has a provision stipulating the competent court, the requirements, the necessary documentation, and the form of voting in case of procedural consolidation (article 69-G).
• The decision on the substantial consolidation may, exceptionally, be made by the judge and the requirements for its acceptance are the finding of interconnection and confusion between assets or liabilities of debtors belonging to the same economic group, such that it is not possible to identify their ownership without excessive expenditure of time or resources, through the finding of at least two of the following events (i) existence of cross guarantees; (ii) relationship of control or dependency; (iii) identity of the corporate structure; and (iv) joint action in the market, which has generated criticism (article 69-J).
• In case of substantive consolidation, there is immediate extinguishment of fiduciary guarantees and claims held by one debtor against the other (article 69-K).
• There is a rule providing that secured guarantees will not be prejudiced in any substantive consolidation, except with the approval of the holder (article 69-K).

Partner or supporting creditor

• It was not regulated in Law No. 11,101/05
• Doctrinal and jurisprudential creation based on the spirit of article 67 of Law No. 11,101/05, which allowed, based on the provisions in the plan and with justifications, that a certain creditor, named partner, or supporter, HAVE privileged treatment in judicial reorganization in relation to other creditors of the same class.

Partner or supporting creditor

• Article 67, sole paragraph, permits differentiated treatment of claims subject to judicial reorganization for suppliers of goods or services that continue to provide them normally after the application for judicial reorganization, provided that such goods or services are necessary for the maintenance of the activities and that the differentiated treatment is appropriate and reasonable as regards the future business relationship. There is treatment in article 84 of Law No. 11,101/05.

Matched transactions and derivatives

• No treatment in Law No. 11,101/05. In practice, early maturity and offsetting were allowed.

 Matched transactions and derivatives

• The possibility of early maturity and offsetting is provided for by law, and any remaining claim is subject to judicial reorganization, unless there is a fiduciary guarantee.

Sale of assets

• IPU: there was no legal definition of what an IPU is. The no-succession rule exemplified only tax and labor obligations and, following the example of IA 2237160-80.2019.8.26.0000 of the TJSP, most of the judgments held that the sale must be made by some form of competition per article 142 of Law No. 11,101/05 to guarantee the absence of succession (there was, however, already a precedent of the STJ allowing another type of sale of an IPU within a judicial reorganization, provided it is authorized by a special quorum and indicating that the rule of absence of succession should prevail: REsp No. 1.689.187-RJ).
• Assets: if there was no provision in the plan, the sale and encumbrance of assets required the judge's authorization, after hearing the creditors' committee (if any), and the judge must analyze the evident usefulness of the transaction.
• Rule of succession: the general rules of succession of the acquirer in the sale of assets applied in reorganization proceedings not carried out in the form of an IPU (i.e., propter rem).
• Means of competition: auction, tender, and closed bid.
• Price: Discussions regarding inadequate price were not uncommon.
• Summons: summons of the Public Prosecutor's Office mandatory.

Third party in good faith: no express provision in Law No. 11,101/05 protecting their interests.

 Sale of assets

• UPI: there is legal definition (goods, rights and assets, tangible or intangible, such as corporate interest), the examples of absence of succession covers all obligations, including environmental obligations and those under the Anti-Corruption Law, and the obligation to follow one of the competition modalities of article 142 of Law No. 11,101/05 continues (articles 60 and 60-A), but in a more flexible way, including the use of a market agent.
• Assets: if there is no provision in the plan, sale and encumbrance of non-current assets (this is the novelty) will require the authorization of the judge, after hearing the creditors' committee, if any (the requirement of evident utility ceased to exist). Creditors with a joint claim in excess of 15% of the total amount of the liabilities, if they provide a bond and provided that they present justified reasons, may request a GMC to resolve on the matter, and the judicial trustee will explain the matter to the judge, convening a GMC, if the requirements are met. All this should be done quickly, in accordance with the legal deadlines and in the least costly manner, with the objecting creditors bearing the associated costs.
• Rule of succession: Articles 60, sole paragraph, and 66, paragraph 3, of Law No. 11,101/05 leave no room for doubt that the asset sold during the judicial reorganization will be free of any encumbrance and that the purchaser will not succeed the debtor in its obligations. These obligations include environmental, labor, regulatory, administrative, criminal, and anti-corruption obligations. Tax obligations were already excepted in the original wording of Law No. 11,101/05. The inclusion of paragraph 3 of article 66 in Law No. 11,101/05 ends any discussion and establishes that sales made with judicial authorization are also shielded from encumbrances.
• Means of competition: article 142 of Law No. 11,101/05 provides for an electronic auction, a competitive process organized by a specialized agent of unblemished reputation and any other modality approved under the law.
• Price: there can no longer be any discussion of a negligible or inadequate price. A third party contesting the sale must make or present a firm offer from a third party and a guarantee 10% of the value of the offer. Raising an undue objection on any point is an act that undermines the dignity of justice.
• Summons: a summons of the Public Prosecutor's Office and the tax authorities is mandatory.
• Third party in good faith: the sale of assets or guarantee granted by the debtor to a bona fide purchaser or lender, provided that it is carried out by express judicial authorization or provided for in an approved judicial or extrajudicial reorganization plan, may not be annulled or rendered ineffective after the consummation of the legal transaction with the receipt of the corresponding funds by the debtor.

Alternative plan proposed by the creditors

• There was no provision in that regard. Only the debtor could propose a plan for judicial reorganization, and any proposal for change made by creditors should have the debtor's express agreement. Rejection of the plan without meeting the requirements for a cram down entailed conversion of the judicial reorganization into bankruptcy.

Alternative plan proposed by the creditors

• Creditors may submit an alternative plan if the debtor, after the extension of the stay period, is unable to put a plan to a vote or if, after the rejection of the plan at the GMC, the creditors vote for the granting of a 30-day period to do so, in which case the alternative plan must be voted on within 90 days of the GMC that decided on the submission of the plan.
• The alternative plan should have a specific quorum of support from creditors representing, alternatively, more than 25% of the total claims subject to judicial reorganization or more than 35% of the claims of the creditors present at the GMC that decided to submit an alternative plan (article 56, paragraph 6, III); there may be no new obligations not provided for by law or in prior agreements with the debtor's partners; there will be a provision for exemption from personal guarantees provided by individuals with respect to claims held by creditors who supported/voted in favor of the alternative plan, which may not impose greater sacrifice on the debtor and its partners than that which would result from liquidation in bankruptcy.
  (article 56, paragraphs 4 to 9).
• The plan proposed by the creditors may provide for the capitalization of the claims, including the consequent change in the control of the debtor, allowing the exercise of the right of withdrawal by the debtor's partner (article 56, paragraph 7).

The alternative plan will only apply to judicial reorganizations filed after the entry into force of Law No. 14,112/20.

 GMC

• In person is the rule provided for in Law No. 11,101/05, but because of the covid-19 pandemic, virtual GMCs were admitted by the case law, including with the issuance of Recommendation No. 63 by the Brazilian Judicial Review Board (CNJ) in this regard.

 GMC

• It may be virtual and may also be replaced, with the same effect, by a consent signed by creditors who meet the specific approval quorum or other mechanism deemed sufficiently secure by the judge (article 39, paragraph 4).
• In addition to the duties provided for in Law No. 11,101/05, it may resolve on the approval of disposal of assets or rights of the debtor's non-current assets, not provided for in the judicial reorganization plan (article 35, item g).
• Article 56, paragraph 9, provides that, in the event of suspension of the GMC convened for the purpose of voting on the judicial reorganization plan, the meeting must be adjourned within 90 days from the date it was convened.

 Abusive vote

• There was no specific provision in Law No. 11,101/05, but there were decisions in which so-called abusive votes from significant creditors were disregarded whose contrary votes would prevent the achievement of the plan's quorum for approval.

 Abusive vote

• Legal provision that the vote will be exercised by the creditor in the interest and in accordance with its judgment of advisability and declared null and void for abusiveness only when manifestly exercised to obtain an illicit advantage for itself or others (article 39, paragraph 6).

Judicial reorganization of a rural producer

• Law No. 11,101/05 did not regulate the possibility for individual rural producers to request judicial reorganization. There was a divergence in the case law regarding whether the registration of rural producers is a declaratory or constitutive in nature and, therefore, whether the period of activity prior to registration should be taken into account in order to fulfill the requirement of at least two years of activity provided for in the head paragraph of article 48 of Law No. 11,101/05 and whether or not the debts taken on prior to registration are subject to the judicial reorganization.

Judicial reorganization of a rural producer

• Rural producers acting as individuals may request judicial reorganization.
• The special plan for rural producers may not involve debts of more than R$ 4.8 million (article 70-A).
• The proof of the two-year period of activity established in the head paragraph of article 48 is admitted through the Tax Accounting Book (ECF), or legal obligation to keep accounting records that may replace it (in the case of rural activity exercised by a legal entity), the Rural Producer Digital Cash Book (LCDPR), or legal obligation of accounting records that may replace it, the Income Tax Return, and balance sheet (in the case of rural activity exercised by an individual) (article 48, paragraphs 2 and 3).
• Only claims arising exclusively from rural activities, even if not past due, will be subject to judicial reorganization (article 49, paragraph 6). Appeals controlled and covered under articles 14 and 21 of Law No. 4,829/65 (article 49, paragraph 7) will not be subject to the judicial reorganization. However, if they have not been renegotiated before the application for judicial reorganization, in the form of an act of the Executive, such claims will be subject to the effects of the plan (article 49, paragraph 8).
• Claims relating to debts incurred in the last three years prior the request for judicial reorganization, as well as the respective guarantees, will also not be subject to judicial reorganization (article 49, paragraph 9). Contracts and obligations arising from cooperative acts performed by cooperative societies with their members, pursuant to article 79 of Law No. 5,764/71.
• One must also consider the amendment to article 11 of Law No. 8,929/94, mentioned above.

Possibility for the tax authorities to file for bankruptcy of the debtor

• Although article 97, IV, of Law No. 11,101/05 provides that any creditor may file for bankruptcy of the entrepreneur and of the business company, the until then settled understanding of the STJ was to the effect that the Public Treasury did not have standing to file for bankruptcy for companies and/or businessmen.
• However, in an extended judgment held in August of 2020, the 1st Chamber of Business Law of the Court of Appeals of the State of São Paulo (TJSP), by majority vote, upheld the appeal so as to (i) annul the decision that had rejected the complaint and extinguished the proceeding without a resolution of the merits, on the grounds that the Brazilian Treasury had no procedural interest; and (ii) order the regular continuation of the petition for bankruptcy filed by the Federal Government, represented by the Attorney’s Office for the Federal Revenue Service, against a company engaged in the trade and distribution of food products.
• The TJSP emphasized that, in the case at hand, the petition for bankruptcy was not based on article 94, subsection I of Law No. 11,101/05 (whose more restrictive understanding should prevail) but on article 94, subsection II, since the Federal Revenue Service, although it filed for a tax foreclosure, has not located sufficient assets of the debtor to satisfy the debt. Having exhausted the means to satisfy its claim, it would not be possible to withdraw from the public body the possibility of filing for bankruptcy of the debtor.

Possibility for the tax authorities to file for bankruptcy of the debtor

• The tax authorities may petition for judicial reorganization of the debtor in bankruptcy if (i) there is nonperformance of the installment payments of the debts provided for in article 68 of Law No. 11,101/05 or the settlement provided for in article 10-C of Law No. 10,522/2020; or (ii) when the debtor's assets are identified as being depleted, resulting in substantial liquidation of the company, to the detriment of creditors not subject to the judicial reorganization, as is the case of the Public Treasury.
• Depletion is considered substantial when assets, rights, or future cash flow projections are not reserved sufficient to maintain economic activity for the purpose of fulfilling its obligations.
• In the event that bankruptcy is decreed by the substantial depletion of the company, the disposals made will be preserved and considered effective, so as not to harm a bona fide third party purchaser. The proceeds of such disposals, on the other hand, should be blocked, with the consequent return to the debtor of the amounts already distributed to any creditors, which will now be available to the court.

Closing of the judicial reorganization

• Two years of judicial supervision. In view of this, it was not possible to close it. When there was a grace period of more than two years, some judges extended the judicial supervision period. An attempt has already been made to close supervision early, but this was not allowed.

Closing of the judicial reorganization

• Supervision is for a maximum of two years, and judicial reorganization may be terminated prior to that, regardless of the grace period and the closure of the registrations and consolidation of the general list of creditors (article 61).

Extrajudicial reorganization

• The debtor, provided that 3/5 of the class(es)/subclass(es) of creditors covered by the extrajudicial reorganization plan have joined, could request in court approval of the plan, which was mandatory for all creditors of that (those) class(es)/subclass(es) after approval.
• The debtor was free to indicate the class(es)/subclass(es) involved, and may not cover labor creditors, bankruptcy-exempt creditors, and the tax authorities.
• Law No. 11,101/05 did not provide for a stay period for extrajudicial reorganization, but in some cases and in relation to the creditors covered by extrajudicial reorganization there were judgements that granted such a suspension pending ratification of the judicial reorganization plan approved by 3/5 of the creditors covered.
• There was no protection of absence of succession of the purchaser of the debtor's IPUs in extrajudicial reorganization.

Extrajudicial reorganization

• The quorum for participating became 50%. The process may begin with the signature of 1/3 of the class(es)/subclass(es) involved, and the reorganization may obtain the 50% needed in the course of the proceeding within 90 days. If such additional adherence is not obtained, the debtor may apply for judicial reorganization.
• The labor class may participate in the proceeding, provided that there is collective negotiation with the labor union of the respective professional category.
• There is a legal provision for the possibility of a stay period to reach the class(es)/subclass(es) involved as of the request.
• There is still be no provision for the absence of succession of the purchaser of an IPU in the obligations and debts of the debtor in possession.

Fresh start

• Law No. 11,101/05 did not concern itself with this. Bankruptcy in Brazil is time-consuming and highly contentious. The requirements for closure of the bankruptcy and extinguishment of the bankrupt's obligations were lengthy.

Fresh start

• The changes seek to create a rapid bankruptcy process, with rapid sale of assets (and even the possibility of donating assets without interested parties) and reducing questions on this point, including placing responsibility and a burden on objectors (article 143).
• The fresh start is established in positive law as a principle to be sought in bankruptcy (article 75), but it is applicable to the individual entrepreneur.
• There is also the possibility of termination of the bankrupt's obligations in shorter periods and under less onerous conditions (article 158), and the rules in force of article 5 of Law No. 14,112/20 must be observed.

Extension of the effects of the bankruptcy

• There was no legal provision, but case law admitted and confused extension of the effects of bankruptcy with piercing the corporate veil.

Extension of the effects of the bankruptcy

• Extension of the effects of bankruptcy is expressly prohibited for limited liability companies. Piercing of the corporate veil should respect the precepts of the Code of Civil Procedure and the Civil Code (article 82-A). Such rules apply only to new bankruptcies.

List of creditors in bankruptcy

• The list of creditors was provided for in articles 83 and 84 of Law No. 11,101/05.

List of creditors in bankruptcy

• The ranking order of competing debts remains the same, but the table has been simplified, with the elimination of the privileged class (article 83). Interest accrued after the bankruptcy decree (article 124) were expressly included last in the classification of competing debt claims (article 83, IX).
• In relation to subordinated creditors, it was clarified that partners without an employment relationship hold this classification only in relation to claims taken on without observing strictly fair conditions and market practices (article 83, VIII, “b”).
• The order of the extra-bankruptcy creditors (article 84) was amended, highlighting: (i) inclusion of the provisions of articles 150 and 151, debt claims already had priority in terms of payment in the original version of the law, but were not expressly listed in the list of the old wording; (ii) priority of debt claims arising from DIP financing; (iii) higher priority treatment to debts called partner suppliers/collaborating suppliers (article 67); and (iv) inclusion of a new case of extra-bankruptcy debt: tax debts from triggering events occurring after the bankruptcy decree.
• Claims of foreign creditors arising from transnational bankruptcy proceedings (Chapter IV-A) and which do not qualify as subordinated (foreign claims of a tax and social security nature, and criminal and administrative monetary penalties - article 167-G, I) or extra-bankruptcy (in the case of a foreign representative, article 167-G, II) are classified as unsecured.
• Such rules apply only to new bankruptcies.

Rapid closure of bankruptcy in the event of absence of assets

• There was no express provision in Law No. 11,101/05.

Rapid closure of bankruptcy in the event of absence of assets

• If there are no assets to be collected, or if they are not sufficient to pay the expenses of the proceeding, the judicial trustee will immediately report this fact to the judge, who, after hearing the representative of the Public Prosecutor's Office, will schedule, via call notice, a 10 day period for interested parties to request what is rightfully due. If they choose to proceed, the creditors must bear the costs of the judicial trustee. Otherwise, the bankruptcy will be terminated after the sale of existing assets within a maximum period of 30 days for personal property and 60 days for real estate.

Sale of assets in bankruptcy

• There was no maximum term for the judicial trustee to carry out sale of assets in bankruptcy.
• Discussions regarding inadequate price were common.
• There was no provision for donation/return of unsold assets to the debtor.

Sale of assets in bankruptcy

• There is a maximum period of 180 days for the judicial trustee to proceed with the sale of all the assets of the bankrupt estate. The time period is counted from the date of the filing of the notice of collection, under penalty of dismissal, except for reasoned impossibility, recognized by a judicial decision.
• The sale does not require consolidation of the general list of creditors.
• The sale is not subject to application of the inadequate and negligent price concept. A third party contesting the sale must make or present a so-called “firm offer” and guarantee 10% of the value of the offer. The improper raising of an objection on a point is considered an act against the dignity of Justice.
• Once the attempt at sale of the assets has been frustrated, and when there is no concrete proposal from the creditors to assume them, the assets may be considered as having no market value and sent for donation or returned to the debtor, if there is no interest in donation.

Pursuant to a resolution passed under article 42, creditors may obtain the assets sold in bankruptcy or acquire them through the formation of a company, fund, or other investment vehicle, with the participation, if necessary, of the debtor's current shareholders or third parties, or through the conversion of debt into capital.

Extinguishment of the obligations of the debtor

• Requirements for the extinguishment of the obligations of the debtor were laid down in article 158 of Law No. 11,101/05 and were the following: (i) payment of more than 50% of the unsecured claims; (ii) lapse of the period of five years from the closing of the bankruptcy; or (iii) in the event of conviction for a bankruptcy crime, a period of 10 years from the closing of the bankruptcy.

Extinguishment of the obligations of the debtor

• Changes have been inserted into article 158 to speed up the extinguishment of the bankrupt debtor’s obligations. The current requirements are for extinguishment of the bankrupt debtor’s obligations: (i) payment of all claims; (ii) payment of more than 25% of the unsecured claims; (iii) expiration of three years, as of the decree of bankruptcy, except for the use of assets previously seized, which will be sent for liquidation to satisfy registered creditors or creditors with a request for reserve; (iv) closing of the bankruptcy pursuant to article 114-A (absence of assets of the debtor) or article 156.
• The rule in force of article 5 of Law No. 14,112/20 must be observed.

Assignment of claim

• The assignment of a debt claim was possible in practice, but not regulated in Law No. 11,101/05.
• In bankruptcy, the assignment of labor debts denatured their characteristics, and the claim became unsecured.

Assignment of claim

• The institute is expressly provided for in the law, and the promise of assignment or transfer must be immediately communicated to the reorganization court (article 39, paragraph 7).
• In bankruptcy, any assignment of a claim maintains the classification and characteristics of the claim (article 83, paragraph 5).

Prevention of the court

• The rule of jurisdiction of the court by prevention did not cover requests for approval of extrajudicial reorganization plans previously filed, although case law already recognized this possibility on the basis of an expansive interpretation of the rule.

Prevention of the court

• The assignment a petition for an extrajudicial reorganization plan also results in preventive jurisdiction of the court for any other bankruptcy, judicial reorganization, or extrajudicial reorganization petition concerning the same debtor (article 2, paragraph 8).

Dividend distribution

• Law No. 11,101/05 did not govern the subject.

Dividend distribution

• Until the approval of the judicial reorganization plan, the debtor is prohibited from distributing profits or dividends to partners and shareholders (article 6-A)

Application of the Code of Civil Procedure

• The suppletory application of the Code of Civil Procedure was provided for in Law No. 11,101/05. However, as the new CPC establishes the counting of time limits in business days and restricts when interlocutory appeals may be filed, debates have arisen regarding application of the new rules to bankruptcy proceedings.

Application of the Code of Civil Procedure

• It is expressly provided that all time limits provided for in Law No. 11,101/05 will be counted in calendar days and that the applicable appeal against the decisions rendered in the course of the proceedings is the interlocutory appeal, unless otherwise provided for in Law No. 11,101/05.
• The new wording given to article 189 of Law No. 11,101/05 provides that "all time limits provided for therein or arising therefrom shall be counted in calendar days" (paragraph 1, subsection I), which makes it possible to argue that procedural deadlines would be in business days. In fact, the TJSP recently decided that: "At first, contrary to what was proposed by the appellee, subsection I, of paragraph 1 of article 189 of Law No. 11,101/2005, as amended by Law No. 14,112/2020, does not affect the time limit for filing appeals in judicial reorganizations, which continues to be counted in business days, according to the general rule of article 219, head paragraph, of the CPC of 2015, and, therefore, the appeal is timely. The text of the head paragraph of this same article 189 is very clear, as it excepts the deadlines specifically provided for in the procedural legislation, as is the case of that of article 1,003, paragraph 5, of the Code of Civil Procedure of 2015, as regards appeals in general. This results in rejection of the threshold issue raised.” (TJSP, AI 2063796-96.2021.8.26.0000, 1^st Chamber Reserved for Business Law, opinion drafted by Fortes Barbosa, decided on May 6, 2021)

The Judiciary must give priority to bankruptcy proceedings over the others, except for habeas corpus and the priorities established in special laws.

Conciliation, mediation, and arbitration

• Law No. 11,101/05 did not govern the practice of conciliation and mediation prior or incidental to a judicial reorganization proceeding.
• In practice, mediation has already been adopted in some judicial reorganizations, especially with a view to speeding up the procedures related to ancillary proceedings for verification of claims and to defining the means of reorganization and payment conditions to be arranged in the judicial reorganization plan.
• The majority case law already required respect for arbitration agreements.

Conciliation, mediation, and arbitration

• Conciliation and mediation are encouraged before and during judicial reorganization, at any level of appeal (article 20-A).
• It is possible to obtain urgent relief for the suspension of executions against the debtor for a period of up to 60 days prior to the filing of the judicial reorganization, for an attempt to reach a settlement with its creditors in a mediation or conciliation proceeding already instituted before the Judicial Center for Settlement of Conflicts and Citizenship. In the event of a subsequent request for judicial or extrajudicial reorganization, the time limit will be deducted from the stay period provided for in article 6 of Law No. 11,101/05 (article 20-B, paragraphs 1 and 3).
• Conciliation and mediation on the legal nature and classification of claims, as well as on voting criteria at the GMC is be prohibited (article 20-B, paragraph 2). Settlements reached through conciliation or mediation must be approved by the competent court (article 20-C).
• If judicial or extrajudicial reorganization is requested within 360 days as of the settlement signed in the conciliation or pre-trial mediation, the rights and guarantees of the creditors will be reconstituted on the terms originally contracted, with the exception of acts validly performed within the scope of the proceeding (article 20-C, sole paragraph).
• The need to respect the arbitration agreement by the debtor in possession or bankrupt party, represented by the judicial trustee, is established in positive law (article 6, paragraph 9).

Transnational Bankruptcy

• Issue not regulated by Law No. 11,101/05.
• In the case of foreign companies that are part of the same economic group as Brazilian companies requested reorganization in Brazil and whose center of main interest is Brazil, as in the case of offshore vehicles used to raise funds, there was case law allowing such companies to be applicants submitting the request for judicial reorganization.

Transnational Bankruptcy

• Transnational bankruptcy rules introduced in Brazil, along the lines of the Uncitral Model Law.
• The principles for governing transnational bankruptcy, such as cooperation between judges and maximization of assets, are established, and institutes (e.g. what is considered foreign proceedings, main proceedings, foreign non-main proceedings and others) are conceptualized.
• The following are the cases in which the provisions relating to transnational bankruptcy are applied: (i) a foreign authority needing assistance in Brazil for foreign proceedings; (ii) assistance related to proceedings governed by Law No. 11,101/05 filed in a foreign country; (iii) foreign proceedings and proceedings governed by Law No. 11,101/05 relating to the same debtor underway simultaneously; and (iv) creditors or interested parties with an interest in requesting or participating in proceedings governed by Law No. 11,101/05.
• The jurisdiction of the place of the debtor's main establishment in Brazil is established for recognition of a foreign proceeding and for cooperation with foreign authorities.
• There is express authorization for the debtor and the judicial trustee to act in other countries, regardless of judicial decision, provided that the provision is admitted in the country where the foreign proceeding is being processed.
• With respect to access to the Brazilian jurisdiction, the provisions clarify that: (i) the foreign representative is entitled to submit filings directly with the Brazilian judge; and (ii) foreign creditors have the same rights as granted to domestic creditors.
• The documents to support the application for recognition of foreign proceedings and the effects of such recognition are indicated.
• Rules for the coordination of competing cases are provided for.

On May 18, 2021, the Brazilian Judicial Review Board, in its 331st ordinary session, unanimously approved a resolution related to Normative Act 0001834-33.2021.2.00.0000, which internalizes the Judicial Insolvency Network (JIN), an international agreement with rules for cooperation and direct communication with foreign bankruptcy courts.^[1]

^[1] At the time of drafting of this article, the resolution had not yet been published. According to information on the CNJ website, "the communications must be recorded and all parties involved should be aware of them. (...) Another novelty that the agreement will allow is for a court to authorize a party or interested parties to present their case and be heard by a foreign court, provided that the decision is endorsed by the court indicated. In addition, the judge may authorize the party or interested parties in proceedings taking place in another country to appear and be heard, without there being any change in the jurisdiction over the case.” https://www.cnj.jus.br/justica-internaliza-tratado-de-comunicacao-em-insolvencia-internacional/ (accessed on May 19, 2021)