Fernando Luiz Tegge Sartori
Lawyer at Marcos Martins Advogados
This is a legal alternative[1], provided for by law, which gives the debtor the opportunity to discuss his debt out of court and in a less invasive and more flexible way in relation to the Judicial Reorganization procedure, even allowing him to negotiate with just one or a few classes of creditors, which is why studying the debtor’s debt profile is important when deciding on this means of debt restructuring.
Although it is a form of debt restructuring that is little used by companies going through times of economic crisis, Out-of-Court Reorganization is a good possibility for debtors, depending on their expectations of restructuring and their debt profile.
Out-of-court reorganization can be consensual[2] or mandatory[3]. The consensual modality indicates that all the creditors have adhered to the out-of-court reorganization plan, whose request for judicial approval has a merely homologatory effect and is even optional. Ratification would only serve to turn the ratification decision into a judicial enforcement order, but in any case, even if it is not ratified, the judicial reorganization plan adhered to by all the creditors would have the effects of a novation. For this reason, the request for approval is optional.
In the case of enforced out-of-court reorganization, it not only binds the creditors of a given group that has signed up to the judicial reorganization plan and agreed to the debt novation, but also implies the novation of those creditors who have not signed up to the reorganization plan. For such a link to be made, 3/5 of the creditors must have adhered to the judicial reorganization plan, which percentage must be reached in each of the classes or different groups of the same class subject to the plan.
As explained by Marcelo Barbosa Sacramone[4], a professor and practicing judge at the 2nd Bankruptcy and Judicial Reorganization Court in São Paulo
among the creditors subject to the plan are the adhering or signatory creditors, who have agreed to the novation sought by the debtor (merely homologatory judicial reorganization), as well as the dissenting creditors, who have not agreed to the change in the conditions of their claims, but who may nevertheless have their claims novated if the other requirements of article 163 are present (mandatory extrajudicial reorganization).
By way of example, if the debtor’s debt profile is concentrated on suppliers classified by Law 11.101/2005 as unsecured, the out-of-court reorganization of this debtor could be restricted to these creditors only, without any other creditors of a different class being able to interfere in the negotiations or the outcome of the procedure.
This procedure is flexible to the extent that the renegotiation can be restricted to a certain group of creditors within a class, for example, only to a certain group of creditors whose credit characteristics are similar, within the class of unsecured claims, not subjecting the other unsecured claims to the plan.
On the other hand, for example, if the debt profile has a significant volume of debts that are classified as labor-related, the out-of-court reorganization route may not meet the debtor’s expectations and may not be the most appropriate option for the company’s recovery.
This is because there is a list of classes of creditors that can be subject to negotiations through out-of-court reorganization. In this sense, credits of a tax and labor nature, as well as those provided for in articles 49, paragraph 3 and 86, item II, both of Law 11.101/2005[5] cannot be negotiated. The totality of one or more of the types of credit provided for in Article 83, items II, IV, V, VI and VIII of Law 11.101/2005[7] may be covered by out-of-court reorganization.
One benefit that can be perceived in the out-of-court reorganization process, and which is extremely relevant, is the possibility of suspending actions and executions brought by creditors against the debtor, as occurs in the judicial procedure, although its application is only valid for creditors subject to the Plan, including creditors who did not sign the plan.
Although not provided for in the out-of-court reorganization procedure, case law has applied the suspension by analogy to the stay period, applied in the judicial reorganization process by virtue of art. 6, §4 of law 11.101/2005[8].
The National Council of Justice (CNJ) recently approved Statement No. 106[9] at the CNJ’s III Commercial Law Conference, below, which states that the reorganization court may order the suspension of actions and executions proposed by creditors subject to the out-of-court reorganization plan, including those not adhering to the plan, which proves to be an essential instrument for judicial reorganization to become effective in the eyes of the debtor who uses this tool.
Another benefit that adds security to the procedure is the fact that once the homologation request has been filed, the adhering creditors will not be able to withdraw, unless all the creditors agree.
Likewise, if the request for homologation of the judicial reorganization is rejected, even after it has begun, there is no possibility of the debtor going bankrupt for this reason, so that after the rejection, they can, having complied with the legal formalities, submit a new request for homologation of the out-of-court reorganization plan, under the terms of art. 164, §8 of law 11.101/2005[10].
In addition to these aspects already mentioned, out-of-court reorganization is usually a faster, more flexible procedure, with less state interference and lower costs than judicial reorganization.
The truth is that you can’t compare the modalities of debt restructuring through judicial reorganization or out-of-court reorganization. By analyzing the debt profile, the debtor’s expectations and the degree of risk they are willing to take on, they can be guided as to which option will best meet the company’s debt restructuring needs.
In any case, out-of-court reorganization is an excellent opportunity to renegotiate debts whose debtor profile allows it to be applied and can be much more widely used than has been practiced in the market, given the numerous benefits and greater practicality of the procedure.
Marcos Martins Advogados is always attentive to doctrinal and jurisprudential discussions in order to provide the best possible service to its clients.
[1] Art. 161. A debtor who meets the requirements of Article 48 of this Law may propose and negotiate an out-of-court reorganization plan with creditors.
[2] Art. 162. The debtor may request court approval of the out-of-court reorganization plan, attaching its justification and the document containing its terms and conditions, with the signatures of the creditors who adhere to it.
[3] Art. 163. The debtor may also request approval of an out-of-court reorganization plan that binds all the creditors covered by it, provided that it is signed by creditors representing more than three-fifths (3/5) of all the claims of each type covered by it.
[4] SACRAMONE, Marcelo Barbosa. Comentários à Lei de Recuperação de Empresas e Falência. São Paulo: Saraiva, 2018. p. 163.
(…) Paragraph 1. The provisions of this Chapter shall not apply to holders of claims of a tax nature, derived from labor legislation or arising from accidents at work, as well as those provided for in Articles 49, Paragraph 3, and 86, item II of the caput, of this Law.
(…) Paragraph 1 The plan may cover the totality of one or more types of claims provided for in Article 83, headings II, IV, V, VI and VIII of this Law, or a group of creditors of the same nature and subject to similar payment conditions, and, once ratified, shall be binding on all creditors of the types it covers, exclusively in relation to claims arising up to the date of the request for ratification.
[Article 83: The classification of claims in bankruptcy shall be in the following order: (…) II – claims with a real guarantee up to the limit of the value of the asset recorded; (…) IV – claims with special privileges, namely: a) those provided for in article 964 of Law no. 10. 406, of January 10, 2002; b) those so defined in other civil and commercial laws, unless otherwise provided for in this Law; c) those to whose holders the law confers the right of retention over the thing pledged as collateral; d) those in favor of individual microentrepreneurs and micro and small-sized companies referred to in Complementary Law no. 123, of December 14, 2006 (Included by Complementary Law no. 147, of 2014) V – credits with general privilege, namely: a) those provided for in art. VI – unsecured claims, namely: a) those not provided for in the other clauses of this article; b) the balances of claims not covered by the proceeds from the sale of assets linked to their payment; c) the balances of claims arising from labor legislation that exceed the limit established in clause I of the main body of this article; (. …) VIII – subordinated claims, namely: a) those provided for by law or contract; b) the claims of partners and administrators with no employment relationship. (…)
[8] Art. 6 The decree of bankruptcy or the granting of judicial reorganization suspends the running of the statute of limitations and all actions and executions against the debtor, including those of the private creditors of the joint partner. (…) Paragraph 4. ) Paragraph 4. In judicial reorganization, the suspension referred to in the main section of this article shall in no event exceed the non-extendable period of 180 (one hundred and eighty) days from the granting of the reorganization, and, after the expiry of the period, the creditors’ right to initiate or continue their actions and executions shall be re-established, regardless of judicial pronouncement.
[9] ENUNCIADO 106 – The out-of-court reorganization court may order, at the beginning of the process, the suspension of actions or executions proposed by creditors subject to the out-of-court reorganization plan, with the aim of preserving the effectiveness and usefulness of the decision that approves it.
[Art. 164. Once the request for approval of the out-of-court reorganization plan provided for in Arts. 162 and 163 of this Law has been received, the judge shall order publication of a notice in the official gazette and in a newspaper with wide circulation nationwide or in the localities of the debtor’s headquarters and branches, summoning all of the debtor’s creditors to present their objections to the out-of-court reorganization plan, subject to Paragraph 3 of this Article. (…) Paragraph 8. In the event that the plan is not ratified, the debtor may, having complied with the formalities, submit a new request for ratification of the out-of-court reorganization plan.
BRAZIL. Law No. 11.101, of February 9, 2005, regulates the judicial reorganization, extrajudicial reorganization and bankruptcy of entrepreneurs and companies. Federal Official Gazette, Brasília, DF, February 9, 2005.
