Brazil: Main changes in the Brazilian insolvency law:
![Brazil: Main changes in the Brazilian insolvency law:](/assets/image-cache/uploads/images/members/novo-logo-sca.0103ee8f.jpg)
In January 2021 became effective the changes on the Brazilian Insolvency Law on Court-Supervision reorganization and Bankruptcy (Law No. 11,101 / 2005, amended by Law 14.112 / 20).
Most of the Congress ‘changes became effective, but some of them were vetoed by the President, reducing a few of the expected solutions – especially those on taxes and labor fields - limiting the applications of some formulas designed to be successful for the court-supervision reorganization procedure, including bankruptcy.
Below a summary of those changes:
• Prohibition of acts of constriction on the debtor's assets: The declaration of bankruptcy or the granting of the judicial recovery process now implies on new restrictions of any acts of constriction, as long as they stem from credits and obligations subject to the effects of bankruptcy or judicial recovery or repossession.
• Stay Period: The Stay Period will last 180 (one hundred and eighty) days with a one-time extension for the same period, as long as the debtor is not responsible for the overcoming of the time lapse. The Stay Period no longer allowed to be extended until a resolution happens on the General Meeting of Creditors (assembly) on the reorganization´s plan.
• New reorganization´s plan submitted by creditors: In the event that the Reorganization Plan presented by the debtor is not considered by the General Meeting of Creditors within the 180-day period (stay period), or even if the Plan presented by the debtor is rejected without the application of the “cram down”, the creditors are allowed to submit an alternative Reorganization Plan by themselves.
• Tax Debts Enforcement: Tax Debts remain not subject to the effects of judicial recovery. However, the Courts of the Reorganization will be the competent one to conduct the enforcements.
• Payment of dividends: Until the Reorganization Plan is approved by the General Meeting of Creditors, the debtor will not be able to distribute profits or dividends to their shareholders and partners, under the penalty of characterizing fraud as insolvency crime.
• Restrictions on the sale of assets: After the Reorganization is presented to the Courts the debtor is no longer allowed to sell any assets without the Court approval.
• Mediation: The Mediation ADR´s is now allowed to solve litigations in cases of i) disputes between partners and shareholders; ii) disputes involving creditors not submitted to the court reorganization; iii) conflicts with service concessionaires, such as power, water and sewage and telecom;
• Creditors' General Meeting: Some resolutions are now allowed to be taken by a Term of Adhesion, in decisions where specific quorum are required.
• Rural Activity: A lot of new provisions were inserted in the Law to embrace the Rural Activity as one beneficiary under the protections of the Court-Supervision Reorganization.
• Listed companies: Listed companies will be required to keep their Fiscal Council, up and running, during the Court-Reorganization process.
• New solutions to restructure a debtor: The Law now lists new possible solutions of restructuring: the conversion of debt into equity, the (whole) sale of the debtor, as long as special circumstances are addressed.t.
• DIP Finance: The Law now contains specific provisions to better protect new loans and new finance operations within the reorganization process. DIP Finance (Debtor in Possession) is expected to increase in the Brazilian market as from this new provision.
• Tax debts transactions: Tax debtors under court reorganization are now allowed to pay their tax debts up to 10 years.
• Transnational insolvency: The new insolvency Law incorporated the rules of insolvency from the Uncitral Model Law. It created a “system” of recognition of foreign insolvency proceedings in Brazil, simplifying and securing the activities of foreign investments in distress assets in Brazil and bringing a new stimulus for the cross-border transactions between multinational creditors and debtors with interests in more than one country.
By:
Guilherme J. Dantas – Partner (Corp&Fin)
Emerson Soares Mendes – Partner (Special Litigations and Arbitrage)
Juliana Castro – Associate (Litigation and Insolvency)