The company profited during the crisis and will have to reconsider its recovery plan.

A company undergoing judicial reorganization that managed to increase its profits during the pandemic will have to improve the terms of the payment plan that had been approved by creditors. Judge Paulo Furtado, of the 2nd Court of Judicial Reorganization and Bankruptcy of São Paulo, in a decision never seen before, granted permission for the creditors themselves to present an addendum that provides them with improvements.

The judge justified the decision by citing the "extraordinary" and "unforeseeable" gains the company obtained during the pandemic. The company manufactures ventilators. When the debt repayment plan was approved in 2018, the company was producing around 50 units per month. Lately, with increased demand, production has risen to 70 in a single day.

The company signed a contract with the government to deliver more than three thousand pulmonary ventilator units this year, totaling R$ 78 million.

When a company enters into judicial reorganization proceedings, it can negotiate all outstanding debts up to the date of the request jointly with its creditors. The parties agree on a payment plan, which generally includes discounts, grace periods, and installments.

In the case of the respirator manufacturer, for example, a 30% discount was set, with payment terms of up to 20 years. Judge Paulo Furtado states in his decision that this plan was built based on the premises presented in 2018.

"The creditors only accepted the 30% discount because they considered the debtor's economic and financial prospects," he says. He adds that no one would have accepted less if they had known that the situation would change completely in such a short time.

Amendments to judicial reorganization plans are not provided for by law – neither to improve payment terms nor to worsen them. However, a jurisprudential precedent exists. This practice has become accepted in cases where the debtor faces problems and needs to renegotiate to stay afloat.

In March, for example, the National Council of Justice (CNJ) approved a decree guiding judges to relax the rules of judicial reorganization processes when deciding on cases involving companies whose financial capacity has been affected by the crisis. One of these guidelines is precisely to allow the debtor to present a modified payment plan to its creditors.

According to Paulo Furtado, the same solution found by case law for cases of worsening crisis should be adopted when the debtor has extraordinary gains (case no. 0013555-61.2012.8.26.0100).

The decision is a consequence of another one, from May, in which the judge suggested to the debtor, "in good faith," to improve the conditions of the payment plan. This was refused, and the judge then gave permission for the creditors themselves to formulate an addendum within 60 days. The respirator manufacturer can still appeal the decision.

Fernando Pompeu Luccas, an expert in the field who works as a lawyer and judicial administrator, says that the decision, despite seeming controversial, raises a reasonable and coherent discussion. He considers it a "reverse approach" to the established jurisprudence that grants the debtor the opportunity to present a modified plan in case of a worsening of their financial conditions.

According to the lawyer, the judge was careful, in this case, "not to set an overly broad precedent." "He focused on the particularities of the specific case, highlighting that there was an extraordinary gain due to a supervening event of an unpredictable nature, as a way of emphasizing that this case proved to be exceptional," he says.

For Luiz Deoclécio, who has worked as a judicial administrator for over 15 years, although he sees sense in the decision, he finds it difficult to implement in practice. “It’s complicated to measure. Even if there’s a surplus, the company won’t leave that money aside. It may have to settle tax issues, for example, or make investments,” he says. It would be more feasible, he adds, if the debtor and creditors considered this possibility when agreeing on the payment plan.

Source: Economic Value