Supreme Court ruling requires tax clearance certificate for company undergoing bankruptcy proceedings.

A decision by Justice Luiz Fux, who assumed the presidency of the Supreme Federal Court (STF) yesterday, has dropped like a bombshell in the judicial reorganization market. He states that a company must be up-to-date with its tax obligations for the reorganization process to be accepted by the courts.

The presentation of a Certificate of No Debts (CND) is included in the Bankruptcy and Judicial Reorganization Law (No. 11,101 of 2005) as one of the requirements for the process. However, this rule has always been made more flexible by state courts and also by the Superior Court of Justice (STJ).

Lawyers say that cases of companies in crisis with their taxes paid on time are extremely rare. "The first thing people stop paying is taxes. When a taxpayer reaches the point of filing for bankruptcy protection, it's because they are in a very serious situation, they can no longer pay suppliers and risk delaying salaries," says Luiz Gustavo Bichara, partner at Bichara Advogados.

Judges had been relaxing the rule requiring the presentation of the Tax Clearance Certificate (CND) with the argument that there was no adequate installment plan for tax debts for companies undergoing judicial reorganization.

Until 2014, none existed. In that year, Law No. 13,043 was enacted, which allowed payment in up to 84 installments. But this installment plan was considered insufficient, worse than any Refis (tax amnesty program) offered at the time, and it didn't catch on in the market.

The decisions took into account Article 47 of Law No. 11,101 of 2005. It states that the purpose of the judicial reorganization process is to enable the preservation of the company and its social function – maintaining jobs and, through the payment of creditors, keeping the economy moving. This article, if the principle of proportionality is applied, takes precedence over Article 57, which deals with the obligation of tax compliance.

Prosecutor Paulo Mendes, who coordinates the PGFN's actions before the Supreme Court, states that this jurisprudence ended up causing a credit with payment prerogatives to be disregarded. He says that this situation left the tax authorities in "the worst of all possible worlds."

"Because it cannot participate in the recovery process, there is no legal basis for it, and because it cannot receive payment. All tax enforcement proceedings are suspended. It is not possible to collect public debt from a company undergoing judicial reorganization," says Mendes.

The decision by Minister Luiz Fux, contrary to established jurisprudence, was issued on a preliminary basis. He ruled on a request from the National Treasury against a decision by the 3rd Panel of the Superior Court of Justice (STJ) that waived the requirement for a São Paulo-based company that produces equipment for the sugar and ethanol sector to present a tax clearance certificate (Claim 431 69). The company has accumulated tax liabilities exceeding R$ 40 million.

Fux states that at the time the Special Court of the Superior Court of Justice (STJ) established its understanding to waive the requirement for the Tax Clearance Certificate (CND), the 2014 installment plan had not yet been issued, and that the panel did not revisit the issue afterward.

The case judged by the panel, he adds, is part of this second stage - after the 2014 installment plan. Fux understands, based on Binding Precedent No. 10, issued by the STF (Supreme Federal Court), that only the Special Court of the STJ (Superior Court of Justice) would have jurisdiction to decide the matter.

This summary prohibits a fractional body of a court from disregarding the application of a law or normative act of the public power, even if it does not expressly declare its unconstitutionality.

The minister also points out that another installment payment option has recently been introduced – one that is more beneficial than the 2014 plan. This is Law No. 13,988, from April of this year. The law allows the Federal Government to negotiate payments, offering discounts of up to 70% on interest and fines, and installment plans of up to 145 months.

"It is possible to foresee, at the federal level, the issuance of a tax compliance certificate to debtors who carry out tax transactions with the tax authorities under the terms of the new law," Fux emphasizes in the decision.

This decision, if replicated, will force companies to approach the tax authorities. According to article 57 of the Bankruptcy Law, the tax compliance document must be presented at the time the payment plan approved by the creditors subject to the recovery process is added to the case file.

This means that, after filing for bankruptcy protection, the company will have to follow two paths: negotiation with private creditors and with the tax authorities. Only in this way will it be able to, at the time of validation of the plan – when the judicial reorganization is granted – be up to date with the tax authorities and have no impediment to continuing with the process.

But this path may not be easy or effective. Lawyer Juliana Bumachar, from Bumachar Advogados Associados, cites the example of one of her clients who was unable to join the installment plan.

She explains that when the company filed for bankruptcy protection, it submitted an injunction to adhere to the installment plan under the 2014 law and, simultaneously, requested the release of liens on its assets.

Almost all of its raw material inventory was being held, and if the seizure were upheld, the company would hardly survive. "It was necessary for the company's cash flow," says Juliana. The company managed to get the assets released, but precisely for this reason, the installment payment plan ended up being denied.

Companies already undergoing judicial reorganization are the ones most at risk from Minister Fux's decision, says lawyer Ana Carolina Monteiro, from the Kincaid Mendes Vianna law firm.

“Imagine a company that has its plan approved and is paying its creditors,” he says. “From the moment this requirement is introduced, the approval of the plan is suspended until the company manages to regularize its tax situation. If it fails to do so, it risks going bankrupt.”

Lawyers working in the area of insolvency considered Fux's decision "inopportune" and "precipitous." Especially since there is a bill, PL 6.229, currently being processed in Congress to reform the Bankruptcy and Judicial Reorganization Law.

There is a specific chapter on tax debts. The tax authorities would offer a more advantageous payment plan and, in return, in case of default, could request the company's bankruptcy. This bill was approved in the Chamber of Deputies and is now under review in the Senate.

By Joice Bacelo

Source: Valor Econômico