Fabiana Cristina de Arruda Cueva Soares
Lawyer at Marcos Martins Advogados
The São Paulo Court of Justice has two Reserved Chambers for Business Law which deal with issues such as company law, corporations, industrial property, franchising, unfair competition, arbitration and Judicial Recovery and Bankruptcy.
Despite their specialization, when it comes to Judicial Reorganization, the Reserved Chambers diverge completely on some issues and have a different understanding of important matters, generating, as a consequence, a certain amount of legal insecurity for companies in crisis situations, which invoke the Judiciary to resolve their interests.
By way of example, it is clear to see the divergences found, especially when analyzing the decisions handed down by the two Reserved Chambers with regard to the clauses on discount, prior meeting for conversion into bankruptcy and payment term, inserted in the Judicial Reorganization Plan and which are subject to legality control by the Court of Justice, after approval by creditors at the General Meeting.
It is worth making brief comments on these clauses, which are of the utmost importance to the reorganization process.
With regard to the discount applied in the Recovery Plan, the Reserved Chambers have a different understanding of the acceptable percentage. Thus, the First Reserved Chamber¹ has already decided that the application of an 80% discount was not abusive, while the Second Reserved Chamber² considered the lower 75% discount to be abusive, with the consequent decree that the clause was null and void.
It is clear that, for each specific case, the analysis of the Recovery Plan must be comprehensive, and the Judiciary should not focus on a specific point, such as the discount percentage, and fail to understand that the Plan was drawn up in a context in which various factors were analyzed, such as the payment flow, the capacity to generate resources, their best destination, payment terms, among other financial and economic issues.
Therefore, the discount percentage must necessarily be balanced against other economic factors, always taking into account that these issues were submitted to the scrutiny of the creditors, who are the most interested parties and who will effectively bear the consequences of the plan’s approval.
Another interesting example that deserves analysis is when the Judicial Reorganization Plan expressly provides that a new General Meeting of Creditors must be called in the event of non-compliance with the obligations set out therein. In the opinion of the First Reserved Chamber³, this clause does not violate the rule of public order, and it is even recommended that the creditors meet before the bankruptcy is decreed; whereas the Second Reserved Chamber⁴ decided that this clause is unenforceable, emphasizing that any non-compliance with the Plan should be submitted to the prudent examination of the magistrate and not the General Meeting of Creditors.
In particular, we believe that the most recommendable and prudent course of action is to convene a General Meeting of Creditors, a measure that gives greater priority to the private autonomy of the parties, even allowing for the renegotiation of conditions, so as to avoid the deleterious consequences of the bankruptcy decree and the losses that result from it.
In other words, the creditors will have the opportunity to rediscuss a new proposal that is more in line with the economic reality experienced by the company under reorganization, thus making it possible to comply with the reorganization plan and recover the credit.
It is interesting to note that there is even disagreement over the payment deadline. According to the First Reserved Chamber⁵, for example, a 15-year term is an excessively long period of time, which could therefore be illegal and lead to the clause being annulled. On the other hand, the Second Reserved Chamber⁶ ruled that this term is not abusive and does not exceed the limit of what is bearable, even considering what the majority of creditors consider to be in their own interests.
The issue of payment terms must also be assessed in conjunction with other economic factors, and this will be done in each specific case. If the creditor preferred such conditions to the debtor’s bankruptcy, he took into account the possibilities of waivers and sacrifices that are required of him in order to obtain the success of the company’s Judicial Reorganization.
Unfortunately, the Superior Court of Justice has not looked into these issues in order to standardize the interpretation of these clauses, which obviously leads to legal uncertainty, since there is no settlement of case law even within the same Court, as in the case of the State of São Paulo, let alone when looking at the other National Courts.
Undoubtedly, companies undergoing Judicial Reorganization, when drawing up the Reorganization Plan, should be aware that, depending on the judging body, the decision may be favorable or unfavorable to what has been stipulated.
Therefore, from all of the above analysis, it is clear that legal professionals need to keep up to date and delve deeper into the jurisprudential studies that are consistent with the issues surrounding the entire Judicial Reorganization process, in order to be truly able to position and advise clients on delicate and complex issues, such as the jurisprudential differences surrounding the main clauses of the judicial reorganization plan.
The Marcos Martins law firm is prepared to advise clients on all the challenges posed by the reorganization procedure, with the sole aim of enabling the company in crisis to overcome and preserve itself.
¹TJSP. AI 2170700-19.2016.8.26.000. 1 Chamber Reserved for Business Law. Rel. Hamid Bdine. J. 08.02.17
²TJSP. AI 2232294-05.2014.8.26.000. 2 Chamber Reserved for Business Law. Rel. Ramon Mateo Júnior. J.09.09.15
TJSP. AI 2229786-18.2016.8.26.000. 1 Chamber Reserved for Business Law. Rel. Francisco Loureiro. J.20.07.17.
⁴TJSP. AI 2111038-90.2017.8.26.000. 2 Chamber Reserved for Business Law. Rel. Carlos Alberto Garbi. J.27.11.17.
⁵TJSP. AI 2092117-54.2015.8.26.0000. 1 Chamber Reserved for Business Law. Rel. Francisco Loureiro. J. 11.11.15.
⁶TJSP. AI 2099683-88.2014.8.26.0000. 2 Chamber Reserved for Business Law. Rel. Araldo Telles. J. 10.04.15.
