Congress reinstates benefits for companies in receivership.

The National Congress yesterday overturned 12 of the 14 vetoes made to the new Bankruptcy Law (No. 14,112 of 2020), which restores tax benefits and other advantages that enable companies undergoing judicial reorganization to attract resources. According to experts, this brings back the balance that was negotiated with the Ministry of Economy to grant the tax authorities the superpower to declare bankruptcy.

Now, investors who acquire assets from companies undergoing judicial reorganization will not have any responsibility for the debtor's obligations, whether environmental, regulatory, administrative, criminal, anti-corruption, tax, or labor-related. In other words, the sole paragraph of article 60 and paragraph 3 of article 66 are once again in effect.

Juliana Bumachar, president of the Judicial Recovery Commission of the Brazilian Bar Association (OAB) in Rio de Janeiro, states that, without a doubt, this is one of the most important points. She worked together with several entities that are part of the Permanent Group for the Improvement of Insolvency Law (GPAI) to overturn the vetoes.

“Many investors were insecure about this veto because the jurisprudence of the STJ [Superior Court of Justice] was already moving in this direction in the tax and labor areas. With the veto, we could even regress,” she says. For her, maintaining these provisions indicates an effective path for judicial reorganization. “It’s the possibility of having new money entering the reorganization, in addition to providing legal security for succession.”

According to Luiz Fernando Valente de Paiva, president of the Turnaround Management Association (TMA) and partner at Pinheiro Neto Advogados, the return of this article is fundamental to attracting new investors. “Companies involved in the Lava Jato corruption scandal and undergoing judicial reorganization, for example, have investors interested in acquiring assets, but who were insecure about the potential fines. This article resolves the issue once and for all,” he states. He adds that the measure has a positive effect not only on the economy because it preserves the production process, but also on the investor, who gains more security.

Companies undergoing judicial reorganization will also have tax benefits. On forgiven debt, there will be no payment of PIS and Cofins taxes, and the use of tax losses to pay Income Tax (IR) and CSLL (Social Contribution on Net Profit) is now permitted. Until now, companies could only use tax losses to pay up to 30% of the debt amount. The advantages are outlined in article 50-A.

Another article, 6-B, also allows the use of tax losses — without any limit on the amount — to pay the taxes levied on the gains that companies in receivership have from the sale of assets and rights.

According to Juliana Bumachar, these presidential vetoes created a complete contradiction because these benefits had been negotiated with the Ministry of Economy in exchange for the possibility of tax authorities participating in the judicial reorganization process. "The balance had become very unfavorable for companies. Now, with the vetoes being overturned, equilibrium is restored," she says.

Attorney Ricardo Siqueira, partner at RSSA Advogados, states that the overturning of the presidential vetoes brought balance to this relationship. "The tax authorities gained more prominence with the new law, but, on the other hand, the tax benefits had to be maintained," he says.

Health cooperatives will once again be able to file for judicial reorganization, according to paragraph 13 of article 6. This should generate a demand on the Judiciary, according to Ricardo Siqueira. The text also stipulates that obligations between cooperatives are not included in judicial reorganization.

Only two vetoes were upheld. One concerns the suspension of labor executions against a liable party, whether subsidiary or jointly liable, until the plan is approved, which, according to lawyers, would make life easier for companies but would harm workers. This was stipulated in paragraph 10 of article 6. This veto, says Ricardo Siqueira, was expected, since it concerns alimony payments, and thus the original understanding of the law was maintained.

The last veto concerned the authority of the Ministry of Agriculture to decide which cases would constitute force majeure, allowing for the inclusion of credits linked to the Rural Product Certificate (CPR) in judicial reorganization.

With the changes in legislation, the tax authorities have gained superpowers. They can now request the bankruptcy of a company undergoing judicial reorganization if there is a breach of a tax payment plan or agreement.

The measure will also apply to cases of asset stripping — a strategy adopted to avoid or postpone the payment of tax debt. This superpower applies to the federal, state, and municipal levels.

Source: Economic Value