Brazilian Chamber approves new Bankruptcy Law to expedite processes.

The bill, a key initiative of the Ministry of Economy to accelerate economic recovery, which establishes a new law on Judicial Reorganization and Bankruptcy in Brazil, was approved today by the Chamber of Deputies. Drafted since last year by the government, private entities, lawyers, and judges, the text updates the legislation that has been in effect since 2005, considered outdated by the business sector. The text now goes to the Senate for analysis.

Among the highlights of the new framework are: provisions for rules that facilitate borrowing by companies undergoing judicial reorganization; discounts and longer terms for installment payments of debts to the Federal Government; incentives for companies to seek negotiation with creditors outside of the judicial environment; acceleration of the bankruptcy declaration process; among other points.

A new bankruptcy law has been sought for years. The government of Michel Temer even sent a proposal in 2018, but the text did not move forward and generated controversy among companies.

The new bill, which is being reported on by Congressman Hugo Leal (PSD-RJ), is seen as more consensual and balanced. Given the current situation, the economic team has begun to prioritize the proposal to help overcome the crisis generated by the new coronavirus.

The Economic Policy Secretariat (SPE) of the Ministry of Economy estimates that 3,513 companies may file for bankruptcy protection in the coming months, given the severity of the coronavirus crisis.

The number is three times higher than expected in a scenario without shocks. But the experts themselves admit that the calculation may be underestimated, since small business owners don't formally file for bankruptcy – many simply close their doors.

In this context, improved conditions for companies to survive a judicial reorganization process are considered crucial. Lawyers in the field highlight two important changes in this regard, introduced in the bill: the chapter that regulates financing and more advantageous rules for negotiating debts with the Federal Government.

In the case of loans, during the recovery process, the judge may authorize the execution of a financing agreement in which the company provides as collateral the fiduciary transfer of assets and rights to finance its activities, restructuring expenses, or the preservation of the value of its assets.

Currently, since the law does not provide rules regarding these loans, there is a high risk considered by financial institutions, which makes it impossible to inject new money into the already weakened cash flow.

Regarding debts, the bill allows these companies to pay their debts to the National Treasury in up to 120 monthly installments (ten years). As an alternative to this option, they may propose to the Attorney General's Office a negotiation of credits registered as active debt of the Union. In this case, the maximum term for payment will also be up to 120 months, with a chance of having the debt reduced by up to 70%.

Today, in general, companies can negotiate payment plans with the tax authorities for up to 84 months (seven years) – a new feature introduced by the "Legal Taxpayer" law, enacted this year. For micro and small businesses, this legislation allows for payment in up to 144 months. The "Legal Taxpayer" law estimates discounts of up to 50% on the debt, and up to 70% for micro and small businesses.

Rural

The text allows individual farmers to also file for judicial reorganization. This is not provided for in current law, although some isolated court decisions have already recognized this right.

The idea was incorporated into the report at the suggestion of Congressman Alceu Moreira (MDB-RS). According to Leal, the amendment was the result of "extensive negotiation" involving the Parliamentary Agricultural Front and the government.

"After intense debates and meetings held within the Ministry of Economy and the Ministry of Agriculture, Livestock and Supply, a mature proposal resulted," said the rapporteur. He believes that with these rules, it will be possible to overcome "legal issues" and bring more legal certainty to the matter.

Source: Uol