Government sends project to Congress to reformulate Bankruptcy Law

The president Luiz Inácio Lula da Silva (PT) sent a PL (project and law) to the National Congress that proposes improving bankruptcy processes. O dispatch published on Wednesday (10.jan.2024) on GIVE (Official Diary of the Union) was forwarded with constitutional urgency. Under this regime, the Chamber has 45 days to vote on the matter and the Senate another 45 days to consider it.

The text changes the law no. 11,101/2005, known as Bankruptcy Law. In the PL justification, sent by the Ministry of Finance to the president, the project intends to expand the powers of creditors, “since they are the main stakeholders in the efficient liquidation of the active assets of companies that have become unviable”.

According to the Ministry of Finance, the measure aims to increase the transparency of bankruptcy processes and modernize the administration of the bankrupt estate. Although the Bankruptcy Law was reformed in 2005, most of the current regulations date back to the 1980s. In some cases, the department explained, the processes take up to 11 years.

Bankruptcy plan

One of the main proposed changes is to allow creditors themselves to choose a manager to manage the bankruptcy estate (fiduciary manager). This manager will manage the bankruptcy process and sell assets to pay creditors. Currently, a judicial administrator is appointed by the judge.

The project also creates the “bankruptcy plan”, which must be prepared by the fiduciary manager and submitted to creditors. This plan may propose various forms of sale, with individual goods or as a group. With its approval by the general meeting of creditors and approval by the judge, the project proposes to waive court authorization to sell assets and pay liabilities. The device shortens the process and makes it faster.

Another change is the exemption from the asset valuation process, if approved by creditors, so that the assets can go directly to auction. Currently, the evaluation takes, on average, 5 years. In most cases, the Ministry of Finance reported, the process focuses on low-value items, such as tables, chairs and computers. With the new proposal, the bankruptcy plan itself will be able to determine which assets will be directly auctioned.

Queue of creditors

The project also aims to reduce disputes and speed up payment to creditors after the sale of assets. Creditors whose priority is unquestionable, such as workers (by law), will receive first. Then, creditors will be able to approve a plan by majority, without everyone's agreement, to establish a payment queue.

Currently, the amount raised from the sale of assets in bankruptcy is allocated in the following order:

• labor credits of up to 150 minimum wages or work accidents;
• credits with real guarantee, such as real estate;
• tax credits, such as taxes;
• and other credits, such as debts with suppliers and injured consumers.

This queue tends to generate huge legal disputes, which delay the process.

Judicial recovery

The proposal wants to extend provisions similar to judicial recovery processes, modernized several times over the last few years, to bankruptcy. According to the Ministry of Finance, the fiduciary manager will be able to sell the assets of the bankrupt estate more quickly and obtain more resources to pay off the debts.

During judicial recovery, the assets of the bankrupt estate are sold to pay creditors. If the debtor company is unable to pay its debts and comply with the recovery plan, creditors may demand execution of the agreement or file for bankruptcy. If the judge declares bankruptcy, the company closes permanently, and the assets of the bankrupt estate are auctioned to pay off at least part of the debt.

According to the Ministry of Finance, the bill was discussed with the private sector in the department's Economic Reform Agenda. This agent intends to improve regulations to make the production sector more efficient.

With information from Brazil Agency.