Restructuring and Insolvency Newsletter: October updates

Judicial reorganization requests soar in 2024

Between January and August 2024, judicial reorganization requests totaled 1.48 thousand, an increase of 78.3% compared to the same period in 2023, according to Serasa Experian. This number is approaching the historical record of 2016, with 1.86 thousand requests. Most cases involve small businesses, especially retailers and companies in the agribusiness sector, and the main cause mentioned is the rise in interest rates, which makes access to credit more difficult and increases consumer default, exacerbating the economic and financial crisis of companies.

Existence of an economic group is not sufficient for the extension of bankruptcy effects to the companies of the group of the debtor

The Fourth Panel of the Superior Court of Justice annulled a decision that extended the effects of bankruptcy to three other companies of the group of the bankrupt entity, on the grounds that the existence of asset commingling with the bankrupt entity or deviation of purpose are requirements for disregarding a company’s legal personality and therefore extending the effects of a bankruptcy decision to such other companies. According to the Justice Rapporteur, Maria Isabel Gallotti, the commercial or corporate relationship, per se, is not sufficient to disregard the legal personality.

Public company registration of Brasil Pharma’s Bankrupt Estate is suspended

The Brazilian Securities Commission (CVM) has suspended the registration of Brasil Pharma S.A.’s Bankrupt Estate as a public company for trading securities on the stock exchange and over-the-counter market, due to the failure to comply with the obligation to provide periodic information to the CVM, as required by Resolution CVM 80, for a period over twelve months. With the registration suspended, Brasil Pharma S.A. cannot have the securities issued by it admitted to trading in regulated markets. It is important to note that there are special rules that lessen the disclosure obligations of publicly traded companies in bankruptcy, such as the exemption from disclosing the periodic information required by Resolution CVM 80, other than the registration form and specific occasional information related to the bankruptcy (causes and circumstances of the bankruptcy, financial statements, accounting information presented to the court, final accounts, final report, and closing decision). Regarding companies under judicial restructuring, Resolution CVM 80 authorizes the exemption from disclosing the complete reference form until the delivery of the detailed report at the end of the restructuring process (Article 40 of Resolution CVM 80), requiring only the presentation of certain sections and specific periodic and occasional information as stipulated by the said Resolution.

Termination of the stay period authorizes the continuation of individual enforcements against companies under judicial reorganization

In the trial of Conflict of Jurisdiction No. 199,496/CE, the Second Section of the Superior Court of Justice ruled that, after the termination of the stay period, the court where enforcements were being processed resumes jurisdiction for constrictive acts against the companies under judicial reorganization until the approval of the judicial reorganization plan or the declaration of bankruptcy, including in relation to claims subject to judicial reorganization.

The judicial reorganization court does not have jurisdiction to admit unliquidated claims in the proceeding

The Fourth Panel of the Superior Court of Justice ruled that the judicial reorganization court does not have jurisdiction to determine the inclusion of unliquidated claims in a reorganization proceeding. The Justice Rapporteur, Raul Araújo, emphasized the need for prior liquidation of the obligation to constitute a liquidated claim before the competent court so that, subsequently, the claim can be included in the judicial reorganization.

Foundations cannot file for judicial reorganization

In ruling on two recent cases (REsp 2,036,410 and REsp 2,155,284), the Third Panel of the Superior Court of Justice decided, by majority and in non-binding judgments, that private law foundations cannot file for judicial reorganization. The Justice Rapporteur, Ricardo Villas Boas Cueva, pointed out that Brazilian Bankruptcy Law (Law 11,101/2005) expressly excludes non-profit foundations and limits its scope only to entrepreneurs and companies, excluding other entities, even if they engage in economic activity. Justice Moura Ribeiro dissented from this understanding, arguing that foundations that engage in economic activity should have the right to judicial reorganization, but his understanding did not prevail.

For more information on these topics, please visit Mattos Filho’s Restructuring & Insolvency practice area.