In view of the understanding that the Covid-19 insolvency matter should be dealt with in a separate bill, Representative Hugo Leal proposed on 04/01/20 Bill no. 1,397/2020, replacing the inclusion of a transitory chapter in Bill (PL) No. 6,229/2005, with the objective of bringing transitional mechanisms capable of solving part of the problems caused by the pandemic, as well as some specific changes in the LRF.
Objectively speaking, the new PL aims to help maintain the activities of companies and economic agents that are insolvent as a result of the Covid-19 pandemic, without having to resort to traditional judicial or out-of-court reorganization mechanisms. If the PL is approved, the transitional provisions set forth therein will begin as of the effectiveness of the law and will last until December 31, 2020.
Below are the main changes and novelties brought by Bill no. 1,397/2020:
- Insolvency Prevention System.
- For purposes of PL 1,397/2020, an economic agent is considered to be any individual or legal entity engaged in economic activities on its own behalf, regardless of prior registration.
- PL 1,397/2020 ensures a 60-day stay of enforcement actions involving obligations that fall due after March 20, 2020, as of the effective date of the law, during which the following will be prohibited (i) excussion of guarantees; (ii) decree of bankruptcy; (iii) eviction for lack of payment; (iv) unilateral termination of bilateral contracts and (v) collection of fine for breach of obligations.
- Preventive Negotiation System
- After the sixty-day suspension period for enforcement suits and asset seizure measures has elapsed, the debtor who proves a reduction equal to or higher than 30% of its revenues compared to the average of the last quarter may apply for the voluntary court procedure known as "preventive negotiation".
- Once the preventive negotiation is requested, the judge must analyze whether the applicant meets 2 (two) objective requirements, namely: (i) being an economic agent and (ii) having a reduction of 30% of its revenues. If the plaintiff meets such requirements, the judge must order the suspension of the actions and, if the party so requests, appoint a negotiator whose work must be remunerated by the plaintiff.
- The negotiator can be any person, natural or legal, with professional capacity and notorious reputation.
- After the expiry of the 60-day period, the claimant (debtor), or the appointed negotiator, must submit a report on the activities carried out, so that the end of the proceedings and the closure of the case file can be determined.
- During the preventive negotiation period, the debtor (applicant) may enter into financing agreements with any financial institution, including with its creditors, without the need for judicial authorization for such.
- In the event of a subsequent petition for judicial or out-of-court reorganization, the 60-day period of suspension of actions will be subtracted from the 180-day period set forth in the LRF ("stay period").
- If the debtor requests an extension of the negotiation term and, simultaneously, the requirements for granting judicial reorganization are present, the request in question shall be converted into a petition for judicial reorganization.
- Changes in the LRF
- For purposes of article 94 of the LRF, the minimum limit for declaration of bankruptcy is now one hundred thousand reais (R$ 100,000.00), ascertained on the date of the respective petition.
- Two (2) requirements for filing for judicial reorganization are excluded, namely: (i) the need for the debtor not to have requested judicial reorganization in the last five years (article 48, items II and III of the LRF) and (ii) the need for not having requested judicial or out-of-court reorganization in the last two years, in order to request out-of-court reorganization (paragraph 3 of article 161 of the LRF)
- The rights and privileges against co-obligors, sureties and recourse debtors shall be suspended.
- Decree of bankruptcy for noncompliance with the plan is prohibited.
- The equivalent of 50% of the amount shall be released in favor of the debtor, regardless of the nature of the guarantee, and the guarantee shall be replenished gradually as from the sixth month after submission of the new petition, up to a maximum term of thirty-six (36) months.
- Regardless of resolution of the General Meeting of Creditors, the obligations provided for in judicial or out-of-court reorganization plans already ratified shall not be enforceable against the debtor for a period of 120 days.
- A new judicial reorganization plan may be submitted by a debtor that already has a homologated judicial or out-of-court reorganization plan, and it is possible to subject to the new plan credits subsequent to the reorganization petition, with the right to a new stay period, provided that it is approved by the creditors in a specific procedure.
- For the resolution of the amendment to the plan, the original credits will be considered, both for the calculation of the amount to be paid and for the calculation of the votes, deducting any amounts that may have already been paid.
This Bill was presented on 01/04/2020 and is still under deliberation by the deputies. It is possible, therefore, the occurrence of amendments/modifications. After possible approval by the House of Representatives, the bill in question shall still be submitted to the Federal Senate, where it may also undergo further changes, and, if approved, it will be sent to the President for presidential sanction within 15 days.
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