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The Law 14.112/20, which reformulated the Brazilian Bankruptcy Law, Law 11.011/05, was signed by the Brazilian Federal Executive branch on December 24, 2020. Among the main innovations brought by the approval of the new rules there is the extension of the term of installment payments to federal tax debts, the possibility of creditors to present a reorganization plan, and the possibility to carry out a financing plan during the judicial reorganization phase.

The Law 14.112/20 still modified Law 10.522/12, which provides for the information record of unpaid credits from federal agencies and entities, and, also, Law8.929/94, which establishes the Rural Product Certificate.

Below, are some of the main innovations brought by Law 14.112/20.

Financing of the Debtor or the Debtor Group during  the Judicial Reorganization

During the judicial reorganization (“recuperação judicial”), the judge may authorize the execution of financing agreements with the debtor or the debtor group, provided that they are guaranteed by the encumbrance or by the fiduciary alienation of assets and rights of their own or of third parties, in order to finance their activities and their restructuring or preserve the value of assets. The Creditors Committee must be heard. If the bankruptcy is declared before the total amount financed is released, the contract can be terminated without fines or charges.

Therefore, there is the possibility of authorizing loans in order to privilege the continuity of the operation.

Extension of the Term for Installment of Federal Tax Debts

According to the modifications incorporated in article 10-A of law 10.522/02, which provides for the information record of unpaid credits from federal agencies and entities, the businessman or company that pleads or has deferred the processing of the judicial reorganization may settle its debts to the existing National Treasury, of a tax or non-tax nature, in installments of the consolidated debt in up to 120 monthly installments.

Regarding the debts managed by the Special Secretariat of the Receita Federal (Brazilian Federal Revenue Service), there is the possibility of settling up to 30% of the consolidated debt in installments with the use of credits arising from tax losses, based on the negative calculation of Contribuição Social sobre Lucro Líquido (CSLL), or with other credits related to taxes administered by the Brazilian Federal Revenue. In such cases, the remainder value due may be divided up to 84 installments.

Transnational Insolvency

A separate chapter was created in the Brazilian Bankruptcy Law, regulating transnational insolvency. The purpose of this new section is, above all, to provide effective mechanisms for cooperation between competent authorities in Brazil and other countries, increasing legal security for economic activity and investment, extending to foreign creditors the same rights as national creditors.

Conciliation and Mediation

Conciliation and mediation should be encouraged in all levels of jurisdiction, including in the scope of appeals in the second degree of jurisdiction and Superior Courts.

The agreement reached through conciliation or mediation must be approved by the competent judge, and in cases of judicial or extrajudicial recovery requested within 360 days from the agreement signed through conciliation or mediation, the creditor will have his rights and guarantees reconstituted under the conditions originally contracted, with the deduction of any amounts paid.

Alternative Reorganization Plan proposed by Creditors

There is a possibility for creditors to present an alternative plan for the recovery of the company, if the judicial reorganization plan is rejected, as long as it is approved by: a minimum quorum of more than 25% of the total credits subject to judicial reorganization or more than 35% of the creditors’ credits present at the General Meeting in which the alternative plan was discussed.

The alternative reorganization plan proposed by the creditors must follow some criteria. Firstly, the imputation of new obligations to the debtor’s partner, not provided for by law or in previously agreements, is prohibited. Also, it should be provided a forecasting regarding the exemption from personal guarantees provided by natural persons with respect to the credits that belong to the creditors who supported/voted in favor of approving the alternative plan. Finally, it is forbidden to impose on the debtor and its partners a greater sacrifice than they would suffer in the event of liquidation of the bankruptcy.

The recovery plan presented by the creditors may provide for the capitalization of the credits, including the alteration of the control of the debtor company, and the possibility of exercising the right of withdrawal by the debtor partner.

The alternative plan may only be implemented in the case of judicial recoveries filed after the entry into force of Law 14.112/20.

Judicial Reorganization of Rural Producers

Another innovation presented by Law 14.112/20 was the possibility for rural producers, who act as individuals, to request judicial reorganization. In order to exercise this new benefit, is necessary to proof of exercise of the activity of at least 2 years, by presenting the “Livro de Caixa Digital do Produtor Rural” (Rural Producer’s Digital Cash Book) or equivalent documents.

The rural producers has the option to choose a special recovery plan equivalent to the one offered to individual microentrepreneurs, as long as their debit balance does not exceed the amount of R$ 4.8 million.