The judicial reorganization model in Brazil, established by Law No. 11,101/2005, known as the Business Recovery and Bankruptcy Law (LREF), represents a significant milestone in the evolution of Brazilian business law. This legal instrument came to replace the old “concordata” regime, seeking to offer more efficient and modern mechanisms for overcoming the economic-financial crisis faced by viable companies.
Judicial reorganization emerges as a response to the need for company preservation, recognizing its social function and crucial role in the economy. This institute aims to provide companies with financial difficulties the opportunity to restructure, maintaining jobs, honoring commitments to creditors, and continuing to generate wealth for society.
The implementation of this model reflects a paradigm shift in the treatment of companies in crisis in Brazil. Instead of focusing only on liquidating assets to pay creditors, the new system prioritizes the recovery of economically viable companies, recognizing the broader social and economic impact of business bankruptcy.
Prior to Law 11,101/2005, Decree-Law 7,661/1945 regulated the "concordata" regime, which proved insufficient for modern business complexities. The "concordata" had significant limitations. It focused mainly on extending debt payment deadlines, lacked effective business restructuring mechanisms, and excluded creditor participation in the recovery process. Furthermore, it was restricted to unsecured debts, lacked flexibility for personalized recovery plans, and did not preserve business activity during the process. These limitations necessitated legislative reform to meet the demands of an increasingly complex and globalized business scenario.
Law 11,101/2005 introduced judicial reorganization, inspired by international models, especially Chapter 11 of the U.S. Bankruptcy Code. Key objectives included preserving the company and its social function, maintaining productive sources and jobs, stimulating economic activity, protecting creditors' interests more equitably, and allowing more active creditor participation. The LREF brought a comprehensive and flexible approach, enabling recovery plans tailored to specific company needs. It introduced mechanisms like the stay period, the possibility of selling isolated productive units, and active creditor participation in plan approval.
The Brazilian model drew inspiration from international experiences, notably Chapter 11 of the U.S. Bankruptcy Code. Elements such as active creditor participation, flexible recovery plan elaboration, and the "debtor in possession" concept were incorporated. The model also integrated elements from French and German systems, adapting them to Brazil's economic and legal reality.
The Brazilian model is based on several key principles. The principle of company preservation recognizes the company's value as a productive unit. The social function principle acknowledges the company's role beyond profit generation. Active creditor participation provides for creditor involvement in plan approval and execution monitoring. The par conditio creditorum principle ensures equal treatment among creditors of the same class. The transparency principle requires disclosure of relevant information about the company's situation. Lastly, the company viability principle establishes that reorganization should be granted only to companies demonstrating recovery potential.
The process follows a defined structure with stages and deadlines. In the postulatory phase, the debtor presents the initial petition with economic-financial situation proof. The judge then analyzes formal requirements and grants processing if met. The deliberative phase involves judicial administrator appointment. the company presenting a reorganization plan within 60 days, publication of the creditors list, creditors presenting objections to the plan, and a General Meeting of Creditors convened if objections exist. The execution phase includes plan approval (by assembly or judicial cram down) or rejection, followed by a two-year judicial supervision period, and closure of judicial reorganization after obligation fulfillment.
Key features of the Brazilian model include a flexible recovery plan that allows companies to propose measures adapted to their specific reality. The stay period provides 180 days of suspension of actions and executions against the debtor. Credit classification establishes an order influencing payment priority and voting classes. Credit novation subjects pre-request credits to plan conditions. The Brazilian-style cram down allows judge approval without agreement of all creditor classes. The debtor-in-possession approach generally maintains original company management during reorganization. Asset sale without succession allows the sale of branches or isolated productive units without buyer succession in debtor obligations. Lastly, a special procedure for small businesses provides a simplified process for microenterprises and small businesses.
Despite advancements, the model faces several challenges. Process slowness due to complexity and Judiciary overload often results in prolonged processes. High costs, including fees for professionals involved, can be prohibitive for smaller companies. Companies in reorganization often struggle to obtain new financing, facing credit access difficulties. The non-inclusion of tax credits represents a significant obstacle as tax debts often form a large portion of liabilities. There are concerns about improper use by companies without real recovery viability using the process to postpone bankruptcy. Debates also exist around the treatment of certain "extraconcursal" creditors, like fiduciary guarantee holders.
Law 14,112/2020 brought important changes to address these challenges. It introduced DIP (Debtor-in-Possession) financing, extended the stay period possibility, implemented new voting process rules for recovery plans, encouraged mediation and conciliation, regulated transnational insolvency, and created an Extrajudicial Recovery System by Adhesion. Future trends and proposals include greater use of alternative conflict resolution methods, improvement of financing protection mechanisms for companies in reorganization, pursuit of greater procedural speed, harmonization with international best practices, improvement of tax credit treatment, and development of prevention and early warning mechanisms.
The Brazilian judicial reorganization model, instituted by Law 11,101/2005 and improved by Law 14,112/2020, represents a significant milestone in the evolution of the treatment of companies in crisis in the country. This system, which replaced the old “concordata” regime, brought a more modern and flexible approach, aligned with international best practices and adapted to the complexities of the contemporary business scenario.
The transition from “concordata” to judicial reorganization was not just a change in nomenclature, but a profound conceptual and procedural reformulation. While “concordata” was essentially a legal favor granted to the debtor, with little creditor participation, judicial reorganization is based on a negotiation process, in which creditors and debtors jointly seek solutions to overcome the business crisis.
The guiding principles of judicial reorganization - such as company preservation, social function, active creditor participation, and transparency - reflect a sophisticated understanding of the role of the company in modern society. It is recognized that the company is not just a source of profits for its owners, but a complex organism that generates jobs, pays taxes, fosters innovation, and contributes to the economic and social development of the country.
The procedural structure established by law, with its well-defined phases - postulatory, deliberative, and execution - seeks to provide an organized and predictable environment for negotiation and implementation of recovery plans. This structure, while offering legal security, also allows the necessary flexibility to accommodate the particularities of each case.
The innovations brought by the Brazilian model, such as flexibility in the elaboration of recovery plans, the stay period, credit classification, and the cram down mechanism, demonstrate the legislator's intention to create an adaptable and efficient system. These tools, when well used, can provide viable companies with a real opportunity to overcome the crisis.
However, practical experience with the judicial reorganization model over the years has revealed significant challenges. The slowness of processes, often aggravated by the complexity of the issues involved and the overload of the Judiciary, has been an obstacle to the effectiveness of the institute. The high costs associated with the process, including fees for lawyers and judicial administrators, can be prohibitive for smaller companies, precisely those that most need an efficient restructuring mechanism.
The difficulties in accessing credit faced by companies in judicial reorganization represent another crucial challenge. The lack of efficient mechanisms for financing companies in crisis can seriously compromise the chances of recovery, creating a vicious cycle of financial deterioration.
The treatment of tax credits, excluded from the judicial reorganization process, has been the subject of intense debate. The non-inclusion of these credits in the process can represent a significant obstacle to recovery, especially considering the weight of tax debts in the liabilities of many Brazilian companies.
Criticisms regarding the possible abuse of the institute by companies without real economic viability point to the need for more rigorous criteria in evaluating the viability of companies seeking judicial reorganization. This is a delicate balance: on one hand, it is important to avoid improper use of the institute; on the other, it is crucial not to create excessive barriers that may prevent viable companies from benefiting from the process.
Recent reforms, notably Law 14,112/2020, represent an important effort to improve the system. The introduction of mechanisms such as DIP financing, extension of the stay period, encouragement of mediation, and regulation of transnational insolvency are significant steps in the right direction. These changes demonstrate the ability of the Brazilian legal system to evolve and adapt to market needs and international best practices.
Looking to the future, it is evident that continuous improvement of the judicial reorganization model is essential. The growing complexity of business relationships, market globalization, and rapid technological advancement will require constant adaptations of the system. Greater use of alternative means of conflict resolution, development of more efficient financing mechanisms for companies in crisis, pursuit of greater procedural speed, and harmonization with international best practices are some of the trends that will likely shape the future of the institute.
It is also fundamental to develop prevention and early warning mechanisms capable of identifying companies at risk before the crisis becomes irreversible. Early intervention, combined with more agile and less costly restructuring procedures, can significantly increase the chances of recovery.
The treatment of tax credits in the context of judicial reorganization is another issue that will demand attention in the coming years. The search for a balance between protecting the interests of the Public Treasury and enabling the recovery of companies will be crucial for improving the system.
Ultimately, the success of the Brazilian judicial reorganization model will depend on its ability to adapt to economic and social changes while remaining faithful to the fundamental principles that guide it. The challenge is to create a system that is both robust and flexible, capable of providing a real second chance to viable companies, protecting creditors' rights, and promoting the broader public interest.
Judicial reorganization is not just a legal procedure, but an instrument of economic and social policy. Its continuous improvement is essential for promoting a healthy business environment, preserving jobs, and fostering sustainable economic development. In this sense, the involvement and collaboration of all actors - legislators, judges, lawyers, judicial administrators, entrepreneurs, and academics - will be fundamental in shaping an increasingly efficient judicial reorganization system aligned with the needs of Brazilian society.
As Brazil continues to face economic challenges and seek its place in an increasingly competitive global economy, the importance of an effective judicial reorganization system only tends to grow. The Brazilian model, with its innovations and particularities, has the potential to become an international reference, as long as it continues to evolve and adapt to the ever-changing needs of the business world.
In conclusion, the Brazilian judicial reorganization model, despite its challenges, represents a significant advance in the treatment of companies in crisis. Its continuous improvement is not just a legal issue, but an economic and social imperative for the country's sustainable development. The future of the institute will depend on the ability of all involved to learn from past experiences, adapt to present changes, and anticipate future challenges, always with the aim of creating a more resilient and prosperous business environment for all Brazilians.
