Restructuring and Insolvency Newsletter: August updates
In this edition, we present the recent key decisions that may impact the restructuring industry
Subjects
Guarantees provided prior to judicial reorganization are subject to the proceeding
The Third Panel of Brazil’s Superior Court of Justice (STJ) has decided that guarantees provided prior to the judicial reorganization filing are subject to the proceeding, even if the debt secured by such guarantees matures later. According to Justice Rapporteur Ricardo Villas Bôas Cueva, the date on which the credit becomes due is irrelevant – what matters is the moment the guarantee is provided. He highlighted that if the debt is paid off, the guarantor takes the place of the original creditor and such replacement does not constitute a post-filing claim, and therefore, the original claim continues to be subject to the judicial reorganization proceeding but held by a different creditor. The recent decision modifies a precedent in the case-law from 2020, which excluded credits arising from bank guarantees that are triggered after the reorganization filing.
Judges may authorize substantive consolidation in judicial reorganizations
The Third Panel of the STJ has decided that judges may, ex officio, authorize substantive consolidation (i.e., unification of the assets and liabilities of all debtors, treating them as a single entity for the purposes of the judicial reorganization proceeding) for companies in judicial reorganization, in accordance with Article 69‑J of Law No. 11,101/2005 (Brazilian Bankruptcy Law). This provision allows judges to authorize substantive consolidation in exceptional circumstances. In the specific case of Special Appeal No. 2,001,535/SP, the majority of the Third Panel has denied the appeal filed by an economic group in judicial reorganization against the inclusion of a company as a debtor in the proceeding. Justice Nancy Andrighi justified the measure to prevent the judiciary from being used to legitimize dysfunctional behaviors of business groups seeking to conceal the existence of an economic group to protect dubious interests.
Proof of tax regularity is not required in judicial reorganizations filed before Law 14,220/2020
In the trial of Special Appeal No. 1,955,325/PE filed by the Brazilian Treasury, the Fourth Panel of the STJ has dismissed the need to present tax regularity certificates as a requirement for the approval of judicial reorganization plans in proceedings prior to the reform of the Brazilian Bankruptcy Law, which occurred at the end of 2020 with Law No. 14,112/2020. Although the reform made submitting of tax regularity certificates mandatory, the STJ applied the case-law view established prior to the reform due to the principle tempus regit actum (time governs the act), so as not to prejudice the fulfillment of the debtor’s plan. Justice Rapporteur Antonio Carlos Ferreira emphasized that for judicial reorganizations filed after the reform, the lack of proof of tax regularity should not result in the automatic bankruptcy of the debtor, but in the suspension of the reorganization proceeding until tax regularity is proven, with the consequent withdrawal of benefits granted to the debtor, such as the stay period.
Article 114-A of the Brazilian Bankruptcy Law used to close bankruptcy proceedings in record time
Article 114-A of the Brazilian Bankruptcy Law allows for the early closure of bankruptcies if no assets are found for collection or if the collected assets are insufficient to settle the liabilities and there are no creditors interested in advancing the expenses and fees of the judicial administration. In the bankruptcy of Mobicard Gestão de Créditos Inteligentes Ltda., as there were no interested creditors after the judicial administration reported that the bankrupt company had no assets, the Regional Business Court of the District of Pelotas, State of Rio Grande do Sul, decreed the closure of the bankruptcy and the extinction of the bankrupt’s obligations in just eight months. This measure is unprecedent, given that these proceedings usually last years or even decades.
AgroGalaxy, one of the largest agricultural input retail groups in Brazil, files for judicial reorganization
The AgroGalaxy Group (Agrogalaxy Participações S.A., Rural Brasil Ltda., Campeã Agronegócios S.A., Grão de Ouro Agronegócios Ltda., Grão de Ouro Comércio de Insumos Agrícolas Ltda., Boa Vista Comércio de Produtos Agropecuários Ltda., Agrogalaxy Franchise Ltda., Agrocontrol Participações Ltda., Agrototal Holding Ltda., Bussadori, Garcia e Cia Ltda., Agro Ferrari Produtos Agrícolas Ltda., Ferrari Zagatto Comércio de Insumos S.A. and Agrocat Distribuidora de Insumos Agrícolas Ltda.) has filed for judicial reorganization before the 19th Civil and Environmental Court of the District of Goiânia, State of Goiás, reporting a total debt of BRL 3.7 billion and USD 160 million. Through a material fact disclosed in its website, the group informed that the judicial reorganization was urgently approved by the board of directors, with the aim of protecting the group’s assets and allowing the company’s recovery in the face of the challenges of the Brazilian agribusiness sector.
For more information on these topics, please visit Mattos Filho’s Restructuring & Insolvency practice area.