The 22^nd Civil Chamber of Rio de Janeiro’s Court of Appeals has recently denied the request of the National Eletric Energy Agency – Aneel and the Union, respectively, to suspend the effects of the first instance decision in two appeals (Appeal n. 0008768-17.2017.8.19.000 and Appeal n. 0008919-80.2017.8.19.000,  reporting judge Carlos Santos de Oliveira). The parties claimed the continuity of the administrative lawsuit of termination of the electric energy’s transmission lines, whose construction is still in progress, owned by the company in judicial reorganization, alleging that the lines were not subject of the reorganization proceeding.

The construction of the transmission lines should have been concluded last year, according to an agreement entered in 2013. However, there is no considerable execution of the building by the concessionaire (which is currently in judicial reorganization) so far, which led Aneel to request the termination of the electric energy production concession. The reporting judge decided that, though the transmission lines are not subject to the judicial reorganization process, due to the Law n. 12,767/2012, it is necessary to relieve that legal prohibition, since the lines constitute a substantial part of the company’s assets and must be included in the reorganization plan in order to make it possible for the debtor to overcome its economic and financial crisis.

The Court grounded its decision on the Principles of preservation of the company and creditor’s satisfaction, and decided to maintain the first instance decision until the final judgement of both appeals, which determined the suspension of the administrative lawsuit and also determined Aneel to recalculate the incoming and the schedule of the construction of the transmission lines. According to the Court, this will enable the manifestation of potential clients before the occurrence of the Creditor’s General Assembly, when it will be discussed the public sale of the operating assets and the public sale of the transmission sale in construction.

In decision rendered in a lawsuit of opposition against the list of creditors, the 2^nd Chamber of Bankruptcies and Judicial Reorganization of São Paulo (lawsuit n. 1088747-75.2015.8.26.0100) decided that the credits of foreign banks without authorization to operate in the Brazilian financial market are subject to the effects of the debtor’s judicial reorganization.

The lawsuit involves a financial agreement entered into with a company in judicial reorganization, in which it provided several chattel mortgages of goods to the bank. In this case, the banks, claimants, requested to exclude the credit of the judicial reorganization due to its position of fiduciary owner, according to the article 49, §3^rd, of Law n. 11,101/05. Initially, the judge accepted the request; however, after a manifestation of the debtor, have changed his position.

According to Law 4,595/64, foreign banks can only operate in Brazil with an permission granted by a decree of the Federal Executive Branch and, in accordance with the decision, the position of fiduciary owner can only be exercised by national financial agents or foreigners with authorization. In the present case, the banks engaged in the operation did not prove the permission to perform in Brazil and, therefore, would not have subjective capacity to appear as fiduciary creditor. Consequently, the chattel mortgages were declared invalid, and the credit, subject to the judicial reorganization.

The Superior Court of Justice’s 4^th Chamber have decided that the judge responsible for the judicial reorganization lawsuit may not convert the proceeding in bankruptcy without a request of the interested parties. The decision has been rendered on the Special Appeal n. 1.587.559/PR, which is related to the fourth biggest bankruptcy case in Brazil, according to the Federal Public Prosecution Office.

The judge in first instance (1^st Civil Court of the city of Cascavel), in 2014, hindered the execution of the reorganization plan due to irregularities that, in his opinion, would compromise its economic feasibility. However, the plan was duly approved by the Creditor’s General Meeting, and the judge did not pointed out in his decision any legal trigger established in the article 73 of Law n. 11,101/2005 (the Brazilian Corporate Reorganization and Bankruptcy Law) that could justify the conversion of the judicial reorganization proceeding into a bankruptcy one. According to the article 73, the judge shall decree the bankruptcy during the judicial reorganization procedure: (i) by resolution of the Creditors’ General Meeting, stating that the company is not able to turn around; (ii) due to failure by the debtor to submit the reorganization plan in the legal term, (iii) when the reorganization plan has been denied by the Creditors’ General Meeting or (iv) due to nonperformance of any obligation assumed under the reorganization plan. The State Court of Appeals have maintained the decision of first instance, what gave cause to the filing of the Special Appeal before STJ.

The Special Appeal’s reporting judge, Minister Luís Felipe Salomão, considered that the Creditors’ General Meeting is the most important deliberative body in the judicial reorganization procedure and that the judge in first instance has not demonstrated the occurrence of any legal trigger which would cause the conversion of the judicial reorganization proceeding into bankruptcy, but, on the contrary, made the analysis of the plan’s economic feasibility.

The reporting Minister mentioned that the economic feasibility is not one of the legal triggers of bankruptcy provided in article 73 of the Law n. 11,101/05. Moreover, he stated that the Judiciary has no jurisdiction to stop corporations in judicial reorganization’s activities without the participation and consent of the Creditors’ General Assembly, because this kind of decision conflicts with the Preservation of the Company’s Principle established by the Law n. 11,101/2005. Therefore, the Creditors’ General Meeting hold the power to decide the future of companies in reorganization: whether the procedure may continue, the debtor shall present a new plan or even whether the bankruptcy should be decreed.

The judge of the 13^th Civil Chamber of Vitória/ES (lawsuit n. 0006983-85.2016.8.08.0024) determined the inclusion of a company in the judicial reorganization proceeding of another member of the same economic group. The decision was due to the discovery of misappropriation of assets by the company in judicial reorganization just before the granting of the proceeding, through the sale of assets to another corporation, what caused damages to creditors and employees.

The decision was rendered considering the fact that the shareholders of the company which had its inclusion in the judicial reorganization are employees of other companies of the same economic group – what led the judge to the conclusion that the shareholders would not have financial conditions to constitute their company’s assets, evaluated on over one hundred million Reais. Furthermore, the judge stated that the company had the same operational structure of the company in judicial reorganization, and even the employees were paid by it.

In this sense, the operation between was considered in fraud against creditors by the Judge, and the decision determined the inclusion of the company in the judicial reorganization proceeding, the exclusion of its shareholders and the rectification of the reorganization plan presented, in order to adapt it to the new condition of the companies.

The 5^th Civil Chamber of TJRS (Appeal n. 70069927945, Reporting Judge Jorge Luiz Lopes do Canto) rendered decision suspending the public sale of the good, which was provided as fiduciary property. According to the reporting Judge, the asset represents an essential property to the company’s economic activities and it is an important source of income, due to a lease agreement, which would be decisive for the compliance of the reorganization plan and  for the overcome of the economic and financial crisis.

The majority of  the doctrine and the jurisprudence interprets the article 49, combined with the article 6^th, §4^th, of the Law n. 11,101/05, in order to spread the enforcement of the stay period to creditor not subject to the judicial reorganization’s effects (e.g. those who holds the position of fiduciary owner). However, it has been growing the number of decisions in second instance denying requests of confirmation of the ownership to fiduciary owner and/or judicial sale of debtor’s assets after the approval of the reorganization plan. Those decisions use the argument of the essentiality of the real state – or its resulting income – to the debtor in judicial reorganization and the compliance of the reorganization plan approved by de General Meeting of Creditors.

On March 14th, 2017, it was formed a Joint Committee responsible to analyze the Provisional Measure n. 766/17, which establishes the Tax Regularization Program (PRT) that may enable the regularization of tax debts before the Brazilian Federal Revenue Office – RFB and the National Treasury Attorney-General Office – PGFN. According to reporting Congressman, Newton Cardoso Jr. (PMDB/MG), one of the amendments to the Provisional Measure n. 766/17 shall allow companies in judicial reorganization to adopt the Federal Tax Recuperation Program (Refis).

The first deliberative meeting of the Joint Committee should have been taken place in April 19^th, but it had to be canceled. There is no new date assigned for the meeting yet. It is possible to monitor the progress of the Committee’s activities in the website:

http://www25.senado.leg.br/web/atividade/materias/-/materia/127896.