Vitor José Ferreira do Couto
Lawyer at Marcos Martins Advogados
In a recent ruling, the São Paulo State Court of Appeals[1] upheld a lower court judge’s decision confirming the approval of a reorganization plan approved under the cram down procedure, which authorizes the judge to approve the reorganization plan even without the approval of all classes of creditors, provided that the requirements of article 58 of Law 11.101/05 are met.
In its decision, the TJSP agreed with the application of cram down on an exceptional basis, i.e. after a detailed analysis of the specific case. The “forced” approval of the plan aims to maintain the business activity of the commercial establishment, with the aim of protecting as many employees, suppliers and creditors as possible, when the total viability of the judicial reorganization plan has been verified.
In this specific case, the judicial reorganization has the peculiarity of containing only 2 (two) classes of creditors, and if the vote by number of creditors is taken into account, the plan was approved by 100% of class IV unsecured micro-companies and by 76.47% of class III unsecured. With regard to approval of the plan by the amount of the claim, 100% of class IV and only 38.14% of class III approved the plan.
In other words, there was quantitative approval of the plan, but not qualitative, due to the value of the credit of only two banks, class III creditors, who, in the opinion of the TJSP, deliberately abused their right to vote, as they would have an interest in the decree of bankruptcy of the reorganized company.
The 1st Chamber of Business Law of the TJSP held that the aggravating bank voted against approval of the plan without any grounds. When asked to comment in the original proceedings, it did not present any argument demonstrating the unfeasibility of the plan, nor was it even open to negotiating the terms of the plan, thus constituting an abuse of voting rights.
In the decision in question, the TJSP highlighted the exceptional nature of the measure and the reasonableness of approving the plan, which proved to be fully viable and beneficial to the vast majority of creditors. For this reason, the cram down was applied on the basis of article 187 of the Civil Code, which states that the regular exercise of a right – in this case, the creditor’s right to vote – may constitute an unlawful act (abuse) when it manifestly exceeds the limits imposed by its economic or social purpose, by good faith or by good customs.
The decision under analysis is extremely important, as it took into account the fact that, in this specific case, the approval of the reorganization plan by cram down benefits not only the reorganized companies, but above all the employees and creditors who approved the plan, as economic activity will be preserved and, consequently, the jobs for which they are directly and indirectly responsible will be maintained, with a positive impact on society as a whole.
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[1] TJSP – Interlocutory Appeal No. 2122678-85.2020.8.26.0000
