The current Judicial Reorganization and Bankruptcy Law, Law 11.101/2005, in its article 48[i], sets out the minimum requirements for the debtor to be able to apply for Judicial Reorganization. Basically, the debtor (entrepreneur or business company) must have been carrying on business regularly for a period of two years at the time they apply to the courts.
And not for nothing. The legislator took into account two aspects: the formal – the regularity of the business activity and the temporal – for at least two years.
It should not be forgotten that the concept of business is basically economic, i.e. it is something energetic, with the organization of factors of production for an economic purpose, encompassing the circulation of products and services, generating wealth. However, the legislator understands that it is not enough for the entrepreneur to carry out his economic activity; he must also be subject to registration with the Public Registry of Commercial Companies at the respective head office, before starting his activities, all in accordance with article 967 of the Civil Code[ii].
Therefore, as a rule, the entrepreneur must register his activities in order to be considered a regular entrepreneur, otherwise he will be considered an irregular entrepreneur and will not be able to obtain the benefits that the condition of entrepreneur offers to those who carry out their activity in a regular manner, such as the request for the processing of Judicial Recovery.
A great deal of controversy arose in cases involving rural entrepreneurs who, faced with a financial crisis, were prevented from requesting the benefits of Judicial Recovery, mainly because they were unable to prove that they were carrying on a business activity. It so happens that article 970 of the Civil Code[iii] provides rural producers with differentiated and simplified treatment in relation to registration and the resulting effects. Thus, registration with the Public Registry of Commercial Companies is optional. Thus, regardless of the absence of registration, the producer is regular for the purposes of the law.
However, how can the optional nature of registration be reconciled with the requirement to register under Article 48 of the Judicial Recovery Law?
In 2013, paragraph 2 was added to article 48 of the Judicial Reorganization and Bankruptcy Law, stating:
in the case of the exercise of rural activity, by a legal entity, proof of the term established in the caput of this article is admitted by means of the Declaration of Economic-Fiscal Information of the Legal Entity – DIPJ that has been delivered in a timely manner.
However, despite the inclusion of the aforementioned provision, doctrine and case law continued to differ. Is it a fundamental requirement for rural entrepreneurs to prove that they have been registered for two years in order to be eligible to file for Judicial Recovery?
After countless debates, the best understanding is that it is acceptable to add up the years prior to registration, during which the rural activity referred to in article 971 of the Civil Code[iv] has been proven, in order to fulfill the time requirement. The real justification lies in the fact that rural producers have normally been carrying out their economic activity for many years. Registration only has a declaratory effect.
Thus, case law, at least in the state of São Paulo, has consolidated the view that the proof required by Law 11.101/2005 is about the existence of continuous business activity for at least 2 years and not the existence of registration of the entrepreneur or business entity for that period of time. Let’s see: “Judicial reorganization. Decision granting its processing. Challenge by way of interlocutory appeal admissible. Judicial reorganization. Rural entrepreneur. Acceptable, as long as the business has been in operation for more than two years, having been registered with the Mercantile Registry prior to the request, and the estate, represented by the executor, has legal standing. Article 48, paragraphs 1 and 2 of Law 11.101/05. Judicial Recovery. Rural entrepreneur. Prior registration with the Mercantile Registry is not enough to file for reorganization, and the law requires proof that the business has been carried on for two years”[v].
In harmony with this understanding, the Bill amending the Judicial Reorganization and Bankruptcy Law[vi] provides a simplified procedure for rural producers to benefit from the request for Judicial Reorganization, such as allowing the individual rural producer to prove the period established in the head of article 48, only with the Income Tax Return, as well as to exempt him from complying with the time requirement.
Faced with the challenges inherent in the reorganization process, the Marcos Martins law firm is prepared to turn to the Judiciary to plead for approval of the rural producer’s Judicial Reorganization Plan, which in times of political-economic crisis, must have legal support from the Institute that was born to preserve companies in difficulty.
[i] Article 48. A debtor may apply for judicial reorganization if, at the time of the application, he has been carrying out his activities regularly for more than two (2) years and meets the following requirements.
[ii] Article 967: It is compulsory for an entrepreneur to be registered with the Public Registry of Commercial Companies at the respective head office before commencing business.
[iii] Article 970. The law shall ensure favorable, differentiated and simplified treatment for rural entrepreneurs and small business owners, as regards registration and the effects arising therefrom.
[iv] Article 971. Entrepreneurs whose rural activity constitutes their main profession may, in compliance with the formalities set out in article 968 and its paragraphs, apply for registration with the Public Registry of Commercial Companies at their respective headquarters, in which case, once registered, they shall be treated, for all purposes, as registered entrepreneurs.
[v] TJSP, 2nd Chamber Reserved for Business Law, Interlocutory Appeal No. 2048349-10.2017.8.26.000, Rel. Araldo Telles. J. 30/10/2017.
[vi] PL 6.279/2013.
