MAIN FEATURES OF THE BUSINESS REORGANIZATION PROCEDURE IN BRAZIL • • • • THE COMPANY’S CRISIS - Free market solutions - disfunctions - Judiciary will interfere, only on a subsidiary basis, in order to avoid the damages in consequence of the fail of the companies. • - Logical assumption: economic viability of the company. • INSOLVENCY LEGAL SYSTEMS • - It plays a fundamental role regarding to the orientation of the market • - Brazil – historicaly, the law always put emphasis on the liquidation, rather • • then the attempt of reorganization of the company in a crisis situation. - Duality: protection of the creditor’s or debtor’s interests. - US legal system – chapter 11 – balancing between creditor’s and debtor’s interests – creditor’s participation in the company’s reorganization process. THE EVOLUTION OF THE INSOLVENCY LEGAL SYSTEMS IN BRAZIL •- STATUTORY LAW 7661/45 – rudimentar and narrow system of reorganization. •Range: only unsecured creditors; based on two options (payment by installments and/or discount). •- STATUTORY LAW nº 11.101/05: create the business reorganization procedure. •Wide range; include almost all the creditors (but not taxes and some secured claims, specially banks credits); emphasis on the negotiations between creditors and debtors to make it possible the sucessful business reorganization. •Complain: it’s suitable for big companies and, therefore, unaccessible to small businesses, which are the vast majority of the brazilian companies • Concept: it is the judicial process which aims to facilitate • the overcoming of the economic-financial crisis of the debtor, in order to allow the maintenance of the source of employment of workers and the interests of creditors, thereby promoting the preservation of the company, its social function and the stimulation of economic activity (section 47). Central points: NEGOTIATION BETWEEN DEBTOR AND CREDITORS AND CREATION OF AN ENABLING ENVIRONMENT FOR THE OVERCOMING OF THE CRISIS. • THE BALANCING OF INTERESTS PRINCIPLE • - Debtor and creditors should bear the burden of the bankruptcy reorganization process, joining forces for the practical realization of the objective of the law: maintenance of productive activity with all the ensuing benefits (job retention, circulation of wealth, tax collection) • Creditors: support the burden of the reorganization plan • Debtors should guide their conduct to maintain jobs with tax collection and effective production of products and services • AUTOMATIC STAY • -initiated the process of reorganization (granted its beginning), are automatically suspended lawsuits and foreclosures filed against the company for a period of 180 days. • - This is the main legal tool to force creditors to negotiate with the debtor a plan of reorganization. It enables an environment conducive to negotiation. BUSINESS REORGANIZATION PROCEDURE • Granted the beginning of the reorganization procedure, starts the phase of verification of claims, resulting in the formation of the list of creditors subject to the reorganization plan. • • • • • List of Creditors 1 (presented by the debtor) (Possibility of administrative disputes to be solved by the trustee) List of Creditors 2 (presented by the trustee) (Possibility of judicial reviews) List of Creditors 3 (the final framework of creditors subjetc to the plan) • In parallel to the determination of claims, the debtor must submit the Plan of Reorganization. • In case of objection to the plan, shall be appointed by the judge to the Meeting of Creditors, at which creditors will vote on whether to accept or reject the plan. • Approval of the Reorganization Plan: The company shall be under judicial supervision for 02 years. Thereafter, the company will be under the process of verification of compliance with the plans’s obligations. If the company is done witlh the compliance, the case will be closed. If the company fails to comply with the plan, the reorganizaton will be transformed into a liquidation process. • Rejection of the Reorganization Plan: it turns into a bankruptcy liquidation. • In the Brazilian system, only the debtor may present the plan of reorganization. • Creditors can not impose a plan or any conditions on the debtor company, except with its (the debtor) consent. • THE POWER OF THE MEETING OF CREDITORS • Under Brazilian law, the decision of the creditors taken at the MEETING is mandatory. • However, this may not mean that the judge is obliged to ratify decisions considered illegal, fraudulent or abusive taken by the creditors. • The economic and social purpose of the process must be guaranteed by the Judge - decisions that meet the unique interests of creditors, but that do not generate significant social and economic benefits should not be judicially approved. THANK YOU VERY MUCH Daniel Carnio Costa, PhD Bankruptcy Judge, sitting in the São Paulo Court, in Brazil