Restructuring and Insolvency Newsletter: April and May 2025 updates

The tax authorities’ opinion is that the tax benefit provided for companies under judicial reorganization does not extend beyond the two-year period of supervision of the plan  

In the private ruling No. 62, tax authorities opined that the tax benefit that allows the removal of the percentage limit for the use of tax losses (“30% lock”) in certain situations, provided for companies under judicial reorganization, does not extend beyond the two-year period of supervision of the plan. The taxpayer inquired whether, even after the two-year supervision period, it could still benefit from the tax benefit related to the Corporate Income Tax (Imposto de Renda de Pessoa Jurídica “IRPJ”), given the plan provided for the sale of property at a later date. The tax authorities concluded that article 6-B of the Brazilian Bankruptcy Law (Law 11,101/2005), which provides that the percentage limit of 30% provided for in articles 15 and 16 of Law 9,065/1995, which deal with offsetting tax losses and the negative IRPJ calculation basis, does not apply and it has exceptional application and its interpretation must be strict, and its scope should not be extended beyond the two-year period of supervision of the plan. 

The tax authorities’ opinion is that taxation related to the discount provided for in the plan is calculated at the time of approval of the plan 

The tax authorities, through private ruling No. 74, stated that the taxable event for the Corporate Income Tax (Imposto de Renda de Pessoa Jurídica “IRPJ”) and the Social Contribution on Net Income (Contribuição Social sobre o Lucro Líquido “CSLL”) related to the discount (haircut) provided for in the plan occurs when the plan is approved. The taxpayer argued that the discount would be subject to suspensive conditions (article 117, I of the National Tax Code), which would postpone the occurrence of the taxable event to the date of implementation of the discount and the plan. However, the tax authorities’ view is that taxation arises upon the accounting recognition of the discount, which takes place when the plan is approved. In addition, it considered that the non-compliance with the plan within two years (article 61 of the Brazilian Bankruptcy Law (Law 11,101/2005) constitutes a resolutive condition, and not a suspensive one. 

For the STJ, a company under judicial reorganization cannot offset a claim through arbitration 

In the judgment of Special Appeal 2.163.463, the 3rd Panel of the Superior Court of Justice (STJ) partially annulled an arbitral award that authorized the offsetting of credits subject to the reorganization proceeding by a company under judicial reorganization. The panel, unanimously, stated that it was an inalienable patrimonial right, being the judicial reorganization court responsible for the analysis due to the absence of the requirement of objective arbitrability. In his vote, the Reporting Justice Ricardo Villas Bôas Cueva pointed out that, although the offset is a mean of fulfilling the obligations, as of the granting of the judicial reorganization, the issues related to credits subject to the judicial reorganization proceeding are subject to the rules provided for in Brazilian Bankruptcy Law (Law 11,101/2005). In this context, the set-off authorization in the arbitral award would imply the exclusion of credits from the judicial reorganization, jeopardizing creditors’ equality and the fulfillment of the judicial reorganization plan.  

For the STJ, granting the attachment in tax foreclosure should not be conditioned by proof of impact on the judicial reorganization  

The 2nd Panel of the Superior Court of Justice (STJ) granted the special appeal filed by the Federal Tax Authority to authorize the seizure against a company with tax debts and remove the requirement of prior demonstration of impact on the judicial reorganization as a condition for the seizure of assets in tax foreclosure. The judgment changes the previous interpretation of the STJ and applies the new wording of Law 14,112/2020 which, by introducing paragraph 7-B in article 6 of the Brazilian Bankruptcy Law (Law 11,101/2005), established that the jurisdiction to decide on the seizure is exclusive to the judge responsible for the tax foreclosure. In his vote, the Reporting Justice Aurélio Bellizze pointed out that the essentiality of the assets is not a criterion to prevent the seizure in cases of tax foreclosure, and it is enough for the judicial reorganization court to be notified of the decision to assess the need to replace the seized assets.  

STJ limits credit correction until the first request for judicial reorganization 

The 3rd Panel of the Superior Court of Justice (STJ) dismissed the special appeal that sought to update the amount of judicial reorganization credit on the date of the request for the company’s second judicial reorganization. Thus, even if the creditor decides not to qualify the credit in the first judicial reorganization, enabling it only in the next reorganization process, the amount will not be updated according to the date of the last request for judicial reorganization. Justice Ricardo Villas Bôas Cueva pointed out that this limitation on updating the amount would be to maintain parity with the other creditors subject to the first reorganization plan, and the court of the second reorganization should follow the same position applied to the remaining and unpaid credits of the first judicial reorganization.  

STJ denies the rule of immediate supervision of judicial reorganizations already in progress 

The 3rd Panel of the Superior Court of Justice (STJ) dismissed the special appeal that pleaded for the initiation of judicial supervision immediately after the granting of the judicial reorganization. Unanimously, the collegiate ruled out the retroactive application of judicial supervision period provided for in the new wording of article 61 of the Brazilian Bankruptcy Law (Law 11,101/2005), introduced by the 2020 reform, to judicial reorganization proceedings in progress prior to the legislative amendment. Thus, in cases where the judicial reorganization plan had already been approved under the previous legislation, the immediate start of judicial supervision is not required. Justice Ricardo Villas Bôas Cueva also pointed out that the definition of the beginning of judicial supervision and the stipulation of grace periods for payment of obligations is not the responsibility of the Judiciary. This is a rule of a dispositive nature, whose implementation depends on an express resolution of the general meeting of creditors. 

TJSP authorizes conversion of judicial reorganization into extrajudicial reorganization  

After the granting of the judicial reorganization, the 2nd Regional Court of Business Jurisdiction and Conflicts Related to Arbitration of the Court of São Paulo authorized the holding of extrajudicial mediation in which the conversion of the judicial reorganization into extrajudicial was agreed upon the agreement of 57.48% of the creditors.  

The São Paulo Court of Justice rejects the creation of a subclass of collaborating creditors due to illegal requirements for adhesion 

The 1st Business Chamber of the São Paulo State Court of Justice (TJSP) partially granted the appeal filed by a creditor to annul two provisions of the plan that affected payment options. One of the clauses prevented creditors who voted against the plan from adhering to the plan in “collaborating creditors” option. The other clause imposed a “commitment not to litigate” against the company undergoing judicial reorganization. The TJSP considered these provisions abusive, and the clause for “commitment not to litigate” was deemed unconstitutional for violating the right of access to justice. These conditions were deemed null and void, safeguarding the creditors right to reject the plan and still opt for the payment method offered to collaborating creditors. 

STJ reaffirms arbitral competence in disputes with arbitration clauses, even in judicial reorganization scenarios 

The Second Section of the Superior Court of Justice (STJ) recognized the arbitral tribunal jurisdiction to decide disputes arising from a contract that contains an arbitration clause, reaffirming the STJ’s view that, although the judicial reorganization court has jurisdiction to analyze enforcement and foreclosure proceedings against the company undergoing judicial reorganization, the adjudication of contractual disputes with arbitration clauses lies with the arbitral tribunal. 

For more information on this topic, please contact Mattos Filho´s Restructuring and Insolvency practice area.