Rubens Sampaio
Lawyer at Marcos Martins Advogados
An important issue that did not find specific treatment in Law 11.101/2005 (LRF) is the processing of the judicial reorganization of groups of companies in the same procedure (procedural consolidation), as well as the possibility of presenting a single judicial reorganization plan for companies that are part of the same economic group (substantial consolidation).
There is no doubt about the complexity of business organizations, especially when faced with economic groups, whether de facto or de jure, so that bankruptcy legislation must provide solutions in the event that the economic and financial crisis is not restricted to just one company, but to a group of them.
Despite the lack of a specific provision, case law and doctrine have developed some solutions for the joint filing of a petition for judicial reorganization by more than one company. The term “procedural consolidation” or “procedural consolidation” was coined, which, in reality, is nothing more than the active joint venture provided for in article 113 of the CPC, only applied to judicial reorganization proceedings. And it couldn’t be any different, since civil procedural law applies subsidiarily to judicial reorganization proceedings (art. 189 of the LRF).
This possibility is not exclusive to Brazilian law, since in US law, for example, the procedural consolidation of the reorganization process of companies in the same corporate group is called procedural consolidation or joint administration, with procedural economy as its main objective.[1] It is often the case, however, that the procedural consolidation of the reorganization process of companies in the same corporate group is called procedural consolidation or joint administration.
However, procedural consolidation is often not enough for the situation of the group of companies to be adequately dealt with during the processing of the judicial reorganization, which occurs above all when it is not possible to delimit autonomous business interests between these companies. A unitary treatment of the liabilities of the economic group is therefore required, with a single judicial reorganization plan, which the doctrine has called “substantial consolidation”.
With the enactment of Law 14.112/2020, procedural consolidation and substantial consolidation were regulated in articles 69-G to 69-L of the LRF. In fact, the legislator acted correctly in laying down the law on the subject, enabling those concerned to be sure of the law[2], which will provide jurisprudence with a guide for its application.
It should be emphasized that the possibility of admitting the processing of judicial reorganization in an active joint venture (procedural consolidation) does not entail automatic acceptance of substantial consolidation[3], which demonstrates that this is an exceptional measure, since it leads to the disregard of the autonomy of assets of companies in crisis, often causing tensions between the interests of creditors and debtors.
Only substantial consolidation, therefore, has the power to cover the exceptional integration of assets and liabilities subject to the effects of judicial reorganization, which therefore affects the legal personality and separation of assets of companies.
Article 69-I of the LRF is clear about the exceptional nature of substantial consolidation, establishing that, although there is coordination of procedural acts, the independence of debtors, their assets and liabilities is guaranteed, which, as has already been said, does not occur when there is substantial consolidation.
Substantial consolidation, although recognized by case law, was carried out without observing pre-defined criteria, so the new article 69-J seeks to bring more certainty to its application, establishing requirements that must be respected by the judge and the debtors.
According to this provision, substantial consolidation occurs when there is interconnection and confusion between the debtors’ assets and liabilities, so that it is not possible to identify their ownership without excessive expenditure of time or resources, cumulatively with the occurrence of at least 2 (two) of the following hypotheses: I) existence of cross-guarantees; II) control or dependency relationship; III) total or partial identity of the corporate structure; and IV) joint operation in the market between the applicants.
Insofar as the assets and liabilities of the debtors are brought together, the judicial reorganization plan to be submitted is unique and its rejection will result in all the debtors undergoing substantial consolidation becoming bankrupt.
The indication of requirements for substantial consolidation is positive, so it will be up to case law and doctrine to delimit the correct interpretation that should be given to them. However, art. 69-J also presents problems, as it is unclear whether or not substantial consolidation needs to be approved by the general meeting of creditors.
This is because, by establishing that the judge “may, exceptionally, regardless of whether a meeting is held”, authorize substantial consolidation, it leads to the understanding that the judge may authorize it depending on what the meeting decides. The law, apparently, “would have created two possibilities for admitting substantial consolidation: (i) exceptionally, by the judge, without hearing the meeting and (ii) ordinarily, depending on the decision of the meeting.”[4]
Case law does not have a firm understanding on the subject, as in some cases it considers that creditors should be consulted in advance about the presentation of a single plan[5], while in others it orders the unitary presentation of the plan, without going through the scrutiny of the General Meeting of Creditors[6].
Law 14.112/2020 missed the opportunity to settle the controversy, so the Courts will have to use the mechanisms for standardizing jurisprudence to define whether the decision on substantial consolidation will fall exclusively to the judge, or whether the approval of the General Meeting of Creditors will be required.
Marcos Martins Advogados is aware of this issue and is prepared to provide qualified legal advice to its clients.
[1] CAVALLI, Cássio. Judicial reorganization plan. In: COELHO, Fábio Ulhoa. Commercial law treatise: bankruptcy and company recovery, maritime law. São Paulo: Saraiva, 2015, v.7, p. 264.
[2] BEZERRA FILHO, Manoel Justino. Business Recovery and Bankruptcy Law – Commented article by article. São Paulo: Revista dos Tribunais, 15th Edition, 2021, p. 329.
[3] In this sense: Statement 98 of the Federal Justice Council – The admission by the competent court of the processing in procedural consolidation (active joint venture) does not entail automatic acceptance of the substantial consolidation.
[4] BEZERRA FILHO, Manoel Justino. Op. cit. p. 333.
[5] TJSP, 2nd Bankruptcy and Judicial Reorganization Court, Case No. 1030812-77.2015.8.26.0100.
[6] TJSP, AI nº 2262371-21.2019.8.26.0000, 1st Reserved Chamber of Business Law, Rel. Alexandre Lazzarini, Dje: 29.11.19.
