The number of decisions favorable to companies undergoing judicial reorganization is growing.

With the worsening economic crisis generated by the Covid-19 epidemic, companies undergoing judicial reorganization, which were already experiencing difficulties, saw their situation worsen even further due to the abrupt drop in revenue.

To survive, the solution found by many of them was to resort to the Judiciary. The requests are varied: total or partial suspension of payments under the recovery plan; prohibition of the interruption of energy and water services; extension of the stay period (period of suspension of actions and executions against the company undergoing recovery).

Anticipating financial difficulties, the National Council of Justice issued Recommendation 63 at the end of March, which guides judges to adopt measures to mitigate the impact of Covid-19 on companies undergoing judicial reorganization.

According to the recommendation, judges should prioritize the analysis of requests for the release of funds in favor of creditors or companies undergoing judicial reorganization.

The measure also directs judges to authorize the reformulation of recovery plans when it is proven that the affected company has a reduced capacity to meet its obligations.

With this in mind, and considering the potential financial hardship that the coronavirus could cause, judges with jurisdiction over bankruptcy and reorganization cases have begun to rule, whenever possible, in favor of the companies. ConJur has compiled some of these decisions.

Total shutdown
On March 25, Judge Sergio Ludovico Martins, of the 2nd Court of Arujá (SP), ordered the complete suspension of payments under the recovery plan of a packaging company for a period of 90 days. The judge also prohibited, for the same period, the electricity concessionaire from cutting off the service.

According to the documents, due to the epidemic, the company ended up having to reduce its operations by 50%, which were already faltering before the crisis generated by the coronavirus. The total debt of the company undergoing judicial reorganization is R$ 200 million.

In justifying the decision, the magistrate stated that it is a well-known fact that a quarantine was decreed as a result of the epidemic, which ended up abruptly interrupting national economic activity.

“The institution of judicial reorganization operates on the principle of preserving economic activity, as per article 47 of the governing legislation. Indeed, the current pandemic has brought undeniable economic and financial imbalance, altering the factual circumstances of the granted judicial reorganization, in accordance with article 53,” the decision states.

According to Roberto Carlos Keppler, partner at Keppler Advogados Associados and responsible for the company's defense, in decisions like this, the judge ends up opting to seek the survival of the companies.

“We are avoiding bankruptcy by suspending payments and keeping the company alive. The packaging sector is a barometer of the economy, and the company's situation reflects what could happen to other companies,” he says.

Not essential
Judge Cláudio de Paula Pessoa, of the 2nd Court of Business Reorganization and Bankruptcy of Fortaleza (CE), argued similarly when judging, on May 14, a case involving a company that operates in the steel market.

He ordered a complete halt to payments under the appellant's judicial reorganization plan for 90 days and prevented the interruption of electricity, water, gas, and telephone services for the same period.

The judge based his decision on CNJ Recommendation 63. "In this context, such actions are aimed at mitigating the impacts resulting from the fight against coronavirus contamination, in order to preserve jobs and the development of business activities," he argued.

Because it operates in a sector considered non-essential, the judge understood that the company ended up being greatly affected by the closure of businesses in Ceará.

He also said that the proposal presented by the company undergoing judicial reorganization does not result in a reduction of the amounts owed, but only in a postponement of payment.

"It is clear that there will be no harm to creditors, as they will receive the amounts in accordance with the recovery plan, making it possible to avoid the declaration of bankruptcy of the companies and, consequently, the maintenance of jobs, thus observing the principle of the social function of the company," he concludes.

"More incisive measures"
In a decision issued on the 20th, Judge Bruno Paes Straforini, of the 1st Judicial Court of Santana de Parnaíba (SP), authorized an electricity company to pay only for the energy it consumes. The company had purchased energy on the open market. With the drop in production, the service ended up being cut off.

"The facts previously pointed out by the court-appointed administrator are indeed serious, and the gravity of the company's financial situation has been confirmed on-site," the decision states.

“In this context,” the judge continues, “despite the previous rejections, it is necessary to take more decisive measures in order to guarantee the continuity of the business activity of the company undergoing judicial reorganization.”

Extension of the stay period
Judge Tiago Henriques Papaterra Limongi, of the 1st Bankruptcy and Judicial Reorganization Court of São Paulo, granted a construction company an extension of its stay period until a general creditors' meeting could be held. The decision was issued on March 30.

The judge understood that the extension gives the debtor the possibility of its assets not being subject to seizure until there is certainty to proceed with the voting on the recovery plan.

According to him, it is advisable, "in light of the guidelines from the competent public authorities regarding the expansion of social distancing, that the general meeting of creditors not take place until there is safety in holding events that involve gatherings of large numbers of people."

Roberto Carlos Keppler also acted in defense of the company in this case. According to him, the decision represents an important victory, since "the company gained breathing room to organize itself until the assembly takes place."

See other cases:

Beverage sector
A beverage company has obtained a 90-day suspension of payments to employee creditors and other expenses arising from its judicial reorganization plan.

In this case, Judge Josias Martins de Almeida Júnior, of the 1st Court of São Manuel (SP), based his decision on recommendation 63 of the National Council of Justice. He also authorized the release of R$ 800,000 that had been blocked in another legal proceeding.

Textile sector
Judge Paulo Henrique Stahlberg Natal, of the 2nd Civil Court of Santa Bárbara D'Oeste, ordered the suspension of the enforceability of all obligations under the judicial reorganization plan of a textile company.

Due to the crisis, the company demonstrated that it has been impacted by the restrictive measures and social isolation. It argued that its production is paralyzed, with employees on collective leave.

Port sector
Judge Alexandre de Carvalho Mesquita, of the 1st Business Court of Rio de Janeiro, prohibited electricity and water utilities from cutting off services to a port sector company for a period of 90 days. The company has accumulated debts of R$ 1.5 billion.

New demands
As previously reported by ConJur, experts estimate that there will be a large volume of new requests for judicial reorganization.

According to an estimate by the consulting firm Alvares & Marsal, published by the newspaper O Estado de S. Paulo on April 22nd, for example, a 3% drop in GDP could generate 2,200 requests for judicial reorganization. The Focus bulletin released by the Central Bank this Monday (April 20th) predicted a 2.96% contraction in GDP for this year.

According to the same consultancy, if the GDP falls by 5% — the International Monetary Fund projected a decline of 5.3% — it is estimated that 2,500 companies will knock on the doors of the Judiciary invoking Law 11.101/05, which deals with judicial and extrajudicial reorganization and bankruptcy.

If verified, the number of cases will be 40% higher than that recorded in 2016, when 1,800 companies resorted to the courts—a record figure at the time.

Processes:

0002974-50.2015.8.26.0045
0149274-71.2015.8.06.0001
1000018-37.2017.8.26.0542
0035171-19.2017.8.26.0100
1000627-68.2015.8.26.0581
1004884-18.2017.8.26.0533
0012633-08.2018.8.19.0002

By: Tiago Angelo

Source: Conjur