Publications

: Category: Digital Law

New guidelines on data processing and sharing have been discussed by the European Commission, which has adopted a proposed regulation to create a sound data-driven economy capable of monitoring the process of digital transformation in the European Union.

The action positions the European Union at the forefront of regulatory initiatives aimed at controlling data flow and digital economy models. It should be emphasized that data flow is a valuable step in a process of digital transformation, and keeping it in balance is as important as the protection of personal data.

The Data Act is part of the discussion of a set of actions and policies of the data strategy to chart Europe's digital future. The strategic plan aims to include measures to digital education and policies in the media to democratize the digital space.

The Regulation aims to consolidate and strengthen the European digital economy by making the sharing and processing of industrial data more fair and safer, stimulating competition in the data market and opening up opportunities for innovation.

Proposals for the Data Act are:

Measures that enable users of connected devices to access the data they generate – often collected exclusively by manufacturers – and share it directly with third parties;
Measures to rebalance the bargaining power over data sharing between companies with very unequal weights, including the adoption of contract models that allow for more equal sharing;
Means for public sector bodies to be able to use data collected by the private sector in cases of emergencies and exceptional circumstances; and
New rules that enable users to establish safeguards against illicit data transfers and
cloud data processing service providers.

Among the main issues is also the control of the flow of data for commercial operations, whether in relation to companies and consumers or between companies involved in negotiations.

The inclusion of safeguards and the ability of the data subject to have greater autonomy and control of information about himself/herself directly impact the evaluation of projects and business strategies. Data are important assets that feed flexible production systems and decision-making. Therefore, delimiting the scope of ownership of these assets is a decisive factor in business relationships.

: Category: Infrastructure and energy

I. Introduction and assumptions

This article is intended to describe the legal framework and business environment of water and sanitation in Brazil. It does not comprise, therefore, specific and defined business opportunities, but rather an overall picture of selected relevant aspects of water and sanitation sector under a strictly legal and regulatory standpoint.

Brazil has approximately 5,000 municipalities and, therefore, potentially more than 5,000 incumbent authorities for water and sanitation services to the population in general. These authorities are not allowed to circumvent the main features of the general guidelines and the national framework discussed hereto, but particularities within the boundaries of the areas under their jurisdiction may arise, and they cannot be captured for this article, which intends not to reflect the local norms and practices existing throughout the country.

For ease of reference, this article is divided into the following sections: (i) Introduction and assumptions; (ii) Regulatory guidelines; and (iii) New Regulatory Framework.

II. Regulatory guidelines

Water and sanitation services to the population in general are legally qualified as utilities (public services) in Brazil. It means that the rendering of such services is not open to competition under the free market, but rather an attribution of the government, which may delegate these services within certain boundaries set forth in the law. Brazilian law recognizes two types of governmental entities as the primary authorities over water and sanitation activities: municipalities and regions (such as metropolitan areas). They can deliver water and sanitation services for the users either directly or by means of operators, to whom the services may be delegated and consisting of state-owned companies (“SOC”) or privately held companies (“PHC”). When services are delegated, municipalities or regions reserve to themselves a role of Granting Authorities (“GA”), overseeing operators, but must engage governmental agencies of another federative entity (for example, a municipality may engage a state agency) to coordinate interests and resolve conflicts among operators, GA and users.

That is to say: water and sanitation utilities are highly regulated activities in Brazil. As it will be discussed in item III, below, this regulation has recently been positively impacted by the enactment of a new framework that establishes national standards fostering private participation in water and sanitation sector (“New Regulatory Framework”). Although New Regulatory Framework is not aimed at deregulating water and sanitation in Brazil, it improves the standards for GA, regulatory agencies and SOC to perform their roles in water and sanitation sector, bringing more transparency, rule of law and long-term policies that result in the enhancement of the business environment in the water and sanitation sector. For details on this enhancement, please refer to section III below.

(a) Models of regulation

Brazilian governmental agencies implement regulation on water and sanitation utilities under two different models: the discretionary regulation, usually applicable to agreements executed by SOC, and the contractual regulation, which must be carried out in compliance with the formal agreements entered with PHC, as predefined in the bid notice. This difference originates predominantly from the proceeding adopted for delegation of services for each type of operator.

(b) Programme Contracts

As a general rule, service agreements entered with SOC do not come from a competitive procurement procedure, but rather from a former statutory authorization, now removed by the New Regulatory Framework, whereby SOC, based only on their state-owned status, could negotiate directly with GA the tariffs, tenor extensions from time to time and other terms and conditions for rendering services to the users. Such service agreements entered by and between SOC and GA (and not preceded by a public bidding) are called “Programme Contracts”.

(c) Concessions

In turn, service agreements granted for PHC are necessarily preceded by a competitive bidding procedure, initiated with the publication of a bid notice by a certain GA, containing a binding draft of the services agreement that will be entered into with the winning bidder. The criteria for choosing the winning bidder may vary from the lowest tariff/payments value up to the highest concession fee (signing bonus) offered by the bidders, under the conditions set forth by the bid notice and the attached services agreement. Service agreements derived from such competitive procurement procedure may have different legal regimes, such as common concessions and public-private partnerships (“PPP”). Most of such agreements are common concessions and will be referred hereto as “Concessions” or “Concession Agreements”, as opposed to the Programme Contracts.

In other words, while discretionary regulation applies to Programme Agreements, contractual regulation governs Concessions.

(d) Tariff review under Programme Contracts

Overall, because they rely on a discretionary regulation, Programme Contracts executed between municipalities (or regions) and SOC do not provide for investments, key performance indicators (“KPI”) and/or goals for universalizing the access to water and sanitation services applicable to the whole timeframe of the agreement. Indeed, the terms of the obligations incumbent on SOC are determined from time to time by the governmental agency in charge of regulating the services delivered in a certain local or region. For such purpose, agencies periodically calculate tariff values valid for the next operation cycle (with a horizon of up to five years) by implementing specific methodologies for projecting values of WACC, CAPEX and OPEX applicable to that operation cycle. Few governmental agencies have detailed methodologies set forth in advance for water and sanitation services.

(e) Tariff review, KPIs, universalization goals and investments under Concessions

On the other hand, Concessions go at the opposite direction: tariffs, obligations (including KPIs and universalization goals) and risk allocation between PHC and GA are predefined in the bid documents, resulting in the initial economic and financial balance of the agreement and, therefore, supporting the offer submitted by the winning bidder. By statutory definition, whenever such initial economic financial balance is affected (and to the extent that such risk has not been allocated to the PHC), the PHC has the right to rebalance the agreement aiming at the maintaining of that initial balance.

In addition, modifications agreed upon between PHC and GA during the Concession (as additional investments to include new neighborhoods as supervening obligations of PHC) may result in amendments that must also assure to PHC appropriate compensation to preserve the initial economic and financial balance of the agreement. Rules for rebalancing the Concession are laid down in detail by the agreement. Governmental agencies coordinate the procedure to rebalance Concessions and have the final word in the administrative level on the amounts and mechanisms for compensating PHC, in accordance with the terms and conditions established by the agreements. When the rebalancing claim is accepted by a governmental agency, the agreement is amended to reflect the compensation mechanism that settle the dispute, which is in most of the cases either a tenor extension of the Concession or an increase in the tariff value.

Economic and financial rebalances are also set forth in Programme Agreements. What makes the rebalancing procedure different for SOC and PHC is the fact that Concessions are not governed by a regulatory WACC. While the cost of capital under the discretionary regulation is arbitrated periodically for SOC, such cost is a market variable for PHC, which undertake interest rates as a risk usually fully allocated to private party under Concessions. Notwithstanding such risk allocation under Concessions, the financial data necessary to carry out rebalance procedures are predefined as a fix value in the bidding procedures.

Alongside the economic and financial rebalance of the Concession, the agreement provides for inflation protection mechanisms structured as an annual price readjustment. Either national indexes of prices, such as IPCA or IGPM, or methods specifically defined by the agreement, with parametric components that reflect price changes from time to time (“fómula paramétrica”), underlie such mechanisms.

(f) Efficiency gains

One difference between discretionary and contractual regulation that warrants attention relates to the appropriation of efficiency gains by SOC and PHC. From one side, under Programme Contracts, tariff review procedures applicable to SOC arbitrate OPEX to calculate the tariff valid for the next cycle as being the OPEX value effectively incurred by SOC in the last cycle. This approach has the practical effect of reducing tariff value for the new cycle, in relation to OPEX, in the total amount of operational efficiency gains that SOC may have achieved during the previous cycle. In other words, SOC are not allowed to appropriate efficiency gains from reducing OPEX from time to time.

On the other side, Concessions go to the opposite direction. Differently from Programme Contracts, Concessions, as a rule, allow PHC not to share with users nor GA the reduction of estimated expenses. Specifically with regards to OPEX value, PHC are expected to have uncapped returns, since tariff review procedures applicable to Concessions do not capture potential efficiency gains that PHC might have achieved.

The difference on the approach to the efficiency gains under tariff review procedures between Programme Agreements and Concessions leads to potential opposite incentives to SOC and PHC to run their OPEX. Since for SOC efficiency will be fully captured for the reduction of the tariff (modicidade tarifária) and become the ceiling for the OPEX in the next operational cycle, such companies are expected to have in comparative terms less incentives as PHC have to carry on OPEX in the most efficient manner.

(g) Intermediary Conclusion

All things considered, one may conclude under Brazilian law and regulatory practices that contractual regulation has relevant upsides when comparing it with the discretionary regulation:

under the discretionary regime, tariff review tends to be much less predictable. While the New Regulatory Framework may enhance the current scenario, since it assigned to Water National Agency (“ANA”) responsibilities on professionalizing and unifying water and sanitation regulation in Brazil, the actual enactment of such uniform rules applicable nationwide will still take time. On the other hand, contractual regulation does not offer so much leeway to agencies for tariff review purposes, considering that such rules are expressed in the agreements, thus bringing more stability for decision making in investing in the water and sanitation sector;

as anticipated, discretionary regulation offers less incentives for efficiency gains, which is the essence for the private participation in the sector. Concessions, in turn, usually allow the appropriation of efficiency gains by PHC. This circumstance fosters attraction to projects modelled under contractual regulation guidelines;

contractual regulation is more consistent with the legal regime of public procurement procedures in Brazil, whereby bidders must be granted with accurate and complete information to enable them to make their best offers.

For the ease of reference, please refer to the table below:

	Affected Companies	Tariff Review Procedure	Efficiency gains
Discretionary Regulation	SOC	Investment goals, OPEX value and WACC are periodically arbitrated by agency	Appropriation applies only during an operational period of time. Efficiency will afterwards reduce tariff values (“modicidade tarifária”)
Contractual Regulation	PHC	Rules are set forth in advance under the bidding documentation	Efficiency gains retained (Uncapped returns)

III. New Regulatory Framework

In July, 2020, the Federal Government enacted Law 14026, which modified Law 11445 of 2007 (known as Statute of National Policy on Basic Sanitation, comprising water and sanitation) among other statutory provisions by stablishing a new legal and regulatory framework on water and sanitation services. New Regulatory Framework results from the necessity of attracting private capital to accelerate the universalization access to water and sanitation services in Brazil.

Nowadays, 100 million people in Brazil (almost 40% of the total population) do not have sewage services and 30 million are deprived from drinking water in their homes. The policy makers behind New Regulatory Framework decided to overcome this scenario until 2033 (with some exceptions up until 2040) when it is expected that Brazilians become duly served with drinking water (99% of the population) and with collection and treatment of sewage (90% of the population). This timeframe brings financial constraints to SOC, which is why PHC are welcome to expand their participation in the sector. In this sense, New Regulatory Framework is essentially a private participation program. Its main features are listed below.

(a) Compliance of SOC with universalization goals

Under New Regulatory Framework, all the agreements in force on the date of the enactment of the new law must be amended up until March 31st, 2022, to set forth explicit universalization goals. Most of Programme Contracts, because of their incompleteness typical of the discretionary regulation, were silent with respect to such goals. For embracing such goals on serious and viable terms, SOC have two basic alternatives to comply with New Regulatory Framework: either by their own financial means or privatization.

(a.1) Evidence of funding capacity^{^[1]}

For complying with New Regulatory Framework by their own financial means, SOC must evidence their funding capacity to meet the universalization goals through appropriating equity or debt funding. Decree regulating New Regulatory Framework determined December 31st, 2021 as a deadline for SOC to demonstrate before the governmental agency in charge of regulation of each Programme Agreement economic and financial means for enabling them to perform the obligations set forth in the new law. Governmental agencies have, on their turn, up until March 31st 2022 to review that information and make a decision. The agencies shall review the financial statements of SOC, feasibility studies and a funding plan. Under the funding plan, SOC must appoint relevant banks providing financing and present the respective engagement letters (not necessarily binding though), evidencing the SOC ability to raise sufficient funds up until December 31st, 2026.

Only the agreements deemed as being feasible under New Regulatory Framework and Decree requirements may be amended for providing the universalization goals in compliance with the new law. The agreements declared not feasible may be early terminated by decision of the respective GA or even judicially.

(a.2) Incentives for privatization

The other alternative for SOC to comply with New Regulatory Framework goals is privatization^{^[2]}.

New Regulatory Framework fosters privatization in two ways:

According to the New Regulatory Framework, privatization will no longer result in the early termination of the Programme Agreements held by the SOC being privatized, subject to certain conditions. Before the enactment of New Regulatory Framework, the change of control of a SOC would implicate the automatic forfeiture of Programme Contracts, rendering privatization of SOC unfeasible under the old legislation;

New Regulatory Framework allowed the extension of Programme Agreements if done as a step towards privatization, by converting them into Concessions. In these situations, consent of relevant GA is still mandatory, because of the extension of the agreement.

New Regulatory Framework does not exclude other private participation arrangements already regulated by previous regulation, such as PPP or even common concessions when combined with the redefinition of SOC role. For example, GA may commission SOC to commercialize treated water to PHC granted with a Concession Agreement, in such a way that SOC becomes solely an upstream operator while PHC is granted with all the other services, including all the relationship with end users.

(b) Prohibition of new Programme Contracts

Aiming at the competitiveness and equal treatment among SOC and PHC, New Regulatory Framework prohibits the execution of new Programme Contracts and even the extension of Programme Contracts (other than as a step towards privatization). SOC may participate in auctions and other bidding procedures on the same terms as any other interested company, with no privileges or distinctions.

(c) ANA: new assignments

Brazil has 27 states and over 5,000 municipalities. As above mentioned, municipalities alongside with regions, which are created by the states, are the incumbent authorities for water and sanitation services under Brazilian law, thus retaining the powers to delegate and regulate services.

Such federative organization on water and sanitation sector led Brazil to have dozens of governmental agencies in charge of regulating either Programme Contracts or Concessions. There are no uniformity and consistency among regulations enacted by each of those governmental agencies. In spite of the fact that each agreement has only one governmental agency in charge for its respective regulation, this multitude of authorities dealing with rules increases transactional costs and hampers the doing business.

Considering this scenario, New Regulatory Framework assigned to ANA roles for consolidating and harmonizing regulation and best practices in the sector by means of the enactment of national reference standards. Such standards do not directly bind the municipal and state regulatory agencies, but these subnational agencies have a strong incentive to adhere to them: when local and regional regulation is not conformed to the national standards, the respective operators and projects are prevented from receiving federal financial aids or even facility loans granted by banks controlled by the federal government, such as BNDES and CEF.

On water and sanitation, ANA has enacted only one national standard up until now, which regulates the applicable amendments to Programme Contracts and Concessions for conforming them to New Regulatory Framework.

(d) Regionalization

Regionalization, under the New Legal Framework, consists of joining a number of different municipalities to act as a single block in delegating the services to a concessionaire in charge of providing water and sanitation services to the whole region. Such public policy aims at:

Sustaining water and sanitation services in municipalities with low populational density, in which water and sanitation services might not be economically viable by themselves, by combining their operational revenues with larger, more profitable municipalities;

Increasing state influence and attributions in the water and sanitation sector, since states tend to be more sophisticated and technically prepared to regulate these services;

Fostering private participation in the sector, since operators benefit from larger scale in the context of regionalization of water and sanitation services (as opposed to providing services to a single municipality).

The main tools set forth by the New Regulatory Framework that contribute to the regionalization of water and sanitation services are:

Creation, by the states, of metropolitan areas, urban agglomerations and micro regions, embracing a cluster of municipalities which must share with the state the granting authority on water and sanitation services to the relevant region, to the extent that the municipalities also need to share among themselves or with the state the infrastructure related to these public utilities. Under these regionalized structures and conditions, municipalities are automatically burdened with the obligation to share among themselves and the state where they are located the grating authority on water and sanitation services;

Besides creating metropolitan areas, urban agglomerations and micro regions, states may create regional unities for water and sanitation services. The adhesion of the municipalities to the regional units is not mandatory;

In the event that a particular state does not create the referred regions, federal government is entitled to set interfederative clusters for implementing the regionalization of these services (reference blocks) and adhesion of the municipalities to the reference blocks is not mandatory;

Municipalities may implement another alternatives for regionalizing water and sanitation services, such as by means of public consortia or mutual interest agreements entered into with other municipalities and/or the state where they are located;

In the absence of metropolitan region, urban agglomeration or micro region, with the characteristics summarized in number 1, above, municipalities are incentivized to adhere to/implement a non mandatory regionalized structure, since they are not automatically burdened with the obligation to share the grating authority on water and sanitation services under regional units, reference blocks, public consortia or mutual interest agreement (as opposed to metropolitan areas, urban agglomerations and micro regions, which are mandatory). The main incentive municipalities have by doing so is the access to federal funding for water and sanitation services. Municipalities non-compliant with regionalization requirements are prevented to benefit from federal financial resources otherwise available to water and sanitation.

As a general rule, after Federal Decree 11030/2023, most of municipalities that do not participate of a metropolitan area, urban agglomeration, micro regions, regional units, reference blocks, public consortia or mutual interest agreement have until March 31st, 2023, to adhere to/implement a regionalized structure for providing water and sanitation services. From this date, municipalities that are not regionalized will be prevented to access financial resources provided by Federal Government as explained above.

Prior to the enactment of New Regulatory Framework, the determination of the incumbent authority on water and sanitation services among the federative entities could be debatable. Interpreting our Federal Constitution, most scholars and court precedents deemed municipalities as the natural authorities (treating water and sanitation as local services), but there were doubts with regards to municipalities located in metropolitan areas. Brazilian Supreme Court (“STF”) had three relevant precedents prior to the New Regulatory Framework. Under these precedents, the creation of metropolitan areas, which is a decision reserved to the states only, results in the necessary sharing of powers among the municipalities comprised in the region and additionally with the respective state.

As presented above, New Regulatory Framework consolidated such case law and deepened the general understanding on the matter. According to New Regulatory Framework, all the regions created by states lead to such mandatory sharing^{^[3]}^.. Accordingly, regions became authentic GA of water and sanitation services carried out in their territory. Moreover, considering the governance among the state and the municipalities comprised in the region, as far as region structures are adopted, state government tends to fulfill a predominant role among all the federative entities involved in the coordination and delegation of water and sanitation services.

That leadership of the state government is an upside for private participation in the sector. From a base case standpoint, it is easier for PHC to deal with only one government responsible for a whole region comprising dozens of municipalities. Additionally, as above mentioned, states tend to be a more sophisticated interlocutor for water and sanitation projects when comparing their administrative structure with those of municipalities.

(e) Final Conclusion

Brazil faces an undeniable improvement in its business environment in the water and sanitation sector. The experience on contractual regulation as an alternative more friendly to private investment has been solidified for the last two decades. On the top of that, bidding procedures follow increasingly best practices for auctions and competitiveness, in terms of transparency, anti-corruption rules and equal treatment among national and foreign players. BNDES, since 2016, has been structuring bidding procedures for an increasing number of water and sanitation projects: aside from engaging highly skilled consultants for modelling bid notices and agreements, the bank capitalizes on its structure and reputation to materialize larger and challenging projects, as it was the recent case in Alagoas and Rio de Janeiro.

In parallel, New Regulatory Framework brings relevant keystones for doing water and sanitation business, promoting opportunities without threatening legal stability. Judicialization of certain projects and agreements may take place, although it is worth mentioning that STF, in a recent precedent which discussed the constitutionality of New Regulatory Framework, recognized that the new law is entirely conformed with the Brazilian legal system.

Considering the short-term needs for universalizing the access to water and sanitation services in favor of millions of Brazilians, it is expected a dynamic and legally robust pipeline of projects in the next few years.

^{^[1]} To be updated in attention to the recent enactment of a new decree.

^{^[2]} This provision does not prevent that specific laws at the state level must be enacted for authorizing the divestiture of the stockholding control. Since state governments are the controlling shareholders of SOC, New Regulatory Framework, as a federal legislation, could not have the effect of authorizing such a transaction on the benefit of another federative entity.

^{^[3]} There are few exceptions in which municipalities may withdraw from sharing water and sanitation utilities assigment in regions. For example, when one municipality does not share any infrastructure of water and sanitation with another entity, the former may preserve its exclusive powers on the matter.

: Category: Banking, insurance and finance

Changes in the Brazilian regulatory landscape have intensified in recent years mainly due to the process of social transformation that puts pressure on productive sectors, regulatory agencies and government institutions. After the Legal Framework of Startups and Innovative Entrepreneurship and the General Law for the Protection of Personal Data (LGPD), the wave of changes reaches the world of securitization through Provisional Measure (MP) 1.103/22, which creates the legal framework of securitization. Among other points, MP exponentially amplifies the chances of securitization of securities backed by credit rights.

The framework also fulfills the function of unifying the rules on securitization, until then laid down, mainly, in Law 9.514/97 – which regulates Certificates of Real Estate Receivables (CRI) and was later edited by Law 10.931/04 – and Law 11.076/04 – which regulates Agribusiness Receivables Certificates (CRA). These and other sparse norms left gaps on the subject. CVM Instruction 480/09, for example, does not present a specific treatment for securitizers, treating them only as other issuers of securities.

The discussion on a regulatory framework for securitizations was opened by the Public Hearing SDM 05/20, proposed by the Brazilian Securities and Exchange Commission (CVM), and implemented by the MP, which sought to define its own needs and obligations, aligned with the reality of the entities.

MP is insightful and welcome especially when bringing a clear definition about securitization operations. According to article 17, "securitization transactions are considered to be the issuance and placement of securities with investors, the payment of which is primarily conditional on the receipt of funds from the credit rights that support it".

We understand, therefore, that securitizations may use any credit rights as a ballast of receivables certificates (CR), which "are titles of nominar credits, issued in a book-entry form, issued exclusively by securitizations, free trading, and constitute a promise of payment in cash, preserved the possibility of payment, and extrajudicial executive title", according to art. 19 of the MP.

Until then, this prerogative was limited only to the credit rights arising from CRIs and CRAs. The update therefore expands the securitization market to all sectors.

The standard also raises discussions about the possibility of emissions with restricted efforts from securities other than CRIs and CRAs. Under CVM Instruction 476/09, only these two certificates of receivables can be the subject of public offering with restricted distribution efforts. Considering the new rules on CRs edited by the MP, however, it is possible to understand that securitizers can use debentures or commercial notes to enable these transactions.

Another unfolding of the standard refers to the fiduciary regime and separate assets.

In accordance with Article 24 of the MP, securitizations may institute the fiduciary regime for the purposes of payment of RCs or other securities representing securitization operations, which will allow the individualization of liabilities and assets of an operation. This will give more security to the business and enable the execution of simultaneous operations without risk dependence between them. This concept can be applied, for example, to the issuance of debentures based on financial credits, provided for by Resolution 2,686 of the National Monetary Council.

The standard also expressly establishes the possibility of aggregating new credit rights as a ballast of securitization operations, as provided for in the issuing instrument (Articles 21, X, and 26, §2). The measure can be used by different sectors of the economy, especially with regard to mitigating the risk of asset failure.

In addition, MP provides for the issuance of Letters of Insurance Risks (LRS) and the flexibilization of the requirement of exclusive provision, by financial institution, of the bookkeeping and custody of securities.

LRS is securities linked to a portfolio of insurance and reinsurance policies. With mp, the issuance of LRS will be made through Specific Purpose Insurance Companies (SSPE), whose sole purpose is to carry out operations of acceptance of insurance risks, supplementary pension, supplementary health, reinsurance or retrocession. The flexibility of the exclusive provision requirement, in turn, aims to encourage the development of new technologies and innovations in the Brazilian capital market, by allowing cvm to modulate the requirement and, eventually, to withdraw it in certain markets.

The changes of the Regulatory Framework of Securitization come at a time conducive to the emergence of new types of operations and products. We will continue to watch out for further developments.

: Category: Infrastructure and energy

Coming into force on March 2, 2022, the National Mining Agency (ANM) Resolution 90/21 regulates Articles 43 and 44 of the Mining Code Regulation (Regulamento do Código de Mineração), providing the cases in which mining concessions (concessões minerárias) and mine manifests (manifestos de mina) can be offered as collateral for transactions aiming at financing mineral enterprises.

The new resolution is a result of contributions made by industry specialists, companies and other stakeholders under the public consultation (consulta pública) held on the second semester of 2020, and provides the requirements and conditions for the transfer of such mining rights in case of foreclosure.

The issue has long been the subject of debate. The possibility of granting mineral rights as collateral for financial transaction is a long-lasting request by players of the industry. Until the publication of the new resolution, the granting of mining assets as collaterals was regulated by Opinion JT-05 (Parecer JT-05), binding to the federal administration in light of its presidential approval.

In summary, such Opinion addressed exclusively the constitution of pledge over mineral rights and concluded that the encumbrance would be applied only to mining concessions (concessões de lavra). Furthermore, it provided that a prior approval by the National Defense Council (Conselho de Defesa Nacional) would be required for the registration of the encumbrances before ANM in relation to mining concessions located on border areas (área de faixa de fronteira). Given the precarious nature of the binding Opinion - the only instrument that regulated the subject -, the absence of sectoral regulation resulted in legal uncertainty for financiers, companies and the ANM itself.

The matter was originally given prominence with the attempt to reform the Mining Code (Código Minerário) by the government of former President Michel Temer in 2017, by means of the Provisional Measure (Medida Provisória) 790/17, which expired after it ran its 120 days course without approval by the National Congress. The subject was later included in the reform of the Mining Code Regulation (Regulamento do Código de Mineração), concluded in 2018 with the enactment of Decree 9.406/18, which provided the possibility of granting mining concession as collateral for financing purposes, but stipulated that the regulation of its requirements and conditions would be provided by ANM resolutions.

Main innovations

ANM Resolution 90/21 (Resolução ANM 90/21) introduced important advances and clarifications, such as:

The possibility of burdening mine manifests as a mining collateral, provided that it is constituted by means of a public instrument;
The definition of the finance transactions that can be secured by mineral rights as fundraising transactions, under any legal modality, for the financing of mining enterprises, their installation, expansion or regularization, including finance within the national financial system, as well as other structured project financing transactions;
The definition that the collateralization of mineral rights is materialized by means of the registration before ANM of the respective public or private instruments, as applicable, by and between the mineral right’s titleholder (concessionária) and the financier. These contractual instruments shall be deemed confidential and should not have their access released to the public in the Electronic Information System (SEI – Sistema Eletrônico de Informações). Any third party, however, may request a certificate of the encumbrance, which must inform the value of the credit, its term, interest rate, the purpose of the transaction, the names of the financing institution, the debtor and the holder of the collateral, the date of registration and its write-off;
the obligation for ANM to maintain a public consultation platform by means of which interested parties may consult the existence of mining collaterals;
Clarification that, during the period of validity of the collateral over mineral rights:
titleholders of mineral rights may not waive the mining title or surrender it in whole or in part without the express consent of the creditor;
titleholders of the mineral rights shall remain responsible for the fulfilment of the obligations inherent to the mineral right and for the exercise of all acts necessary for their regularity and maintenance, including the possibility of expiry of the mining right;
the impossibility of practice of any act or measure, whether or not provided for in the security agreement, which may compromise or hinder the operationalization and continuity of the mining right. The financial institution may, nevertheless, perform acts in an exceptional basis in order to avoid the perishing of the mineral right granted as collateral, including during the period between the judicial or amicable foreclosure of the mining collateral and the registration, before the ANM, of the transfer of such mining right to the new titleholder.
The effective transfer of the mineral right foreclosed may only be perfected with the prior consent by the ANM. The transferee pursuant to a foreclosing auction shall be an entity legally able to hold mineral rights, satisfying the criteria provided by the Brazilian Federal Constitution and the Mining Code.

The new regulation provides, in addition to the above, that the request to collateralize a mineral right must inform the amount of the debt secured, its payment term, interest rate, the information of the collateralized mineral right and the purpose of the financing transaction, observing the requirements for the effectiveness of pledges provided for in Article 1,424 of Law 10.406/02 (the Brazilian Civil Code).

The ANM Resolution 90/21 provided that the secured financier has the right to access, upon prior request to ANM, the information of the collateralized mineral right submitted to ANM by the titleholder regarding:

its safety and integrity;
its collection of taxes and royalties;
the results of its mineral exploration; and
its exploitation and mineral production information.

By preventing the practice of any act or measure that compromise or hinder the operationalization and continuity of the activities for the use of mineral resources authorized by the granting power in the mining title, the new ANM Resolution 90/21 embraces similar rules applicable to the oil and gas industry, provided by ANP Resolution 785/19, which prohibits the influence of the financier on the management or execution of the assets object of a public concession.

Although ANM Resolution 90/21 has set out that the resources must be allocated to mining ventures, there is no restriction for the resources obtained from finances to be reverted to the collateralized mineral right itself, bringing legal certainty and paving the way for new capital flows to be directed to the mineral industry overall.

Market expectations

ANM Resolution 90/21 did not address the possibility of constituting fiduciary collaterals over mineral rights. Although collaterals of this nature are part of the set of security for project finance transactions, the constitution of collaterals of such nature over mineral rights continues to be a controversy between experts and players in the sector.

ANM Resolution 90/21 also refrained from addressing the possibility of constituting collaterals on mineral exploration permits. The measure would be especially relevant for the promotion of smaller companies involved in greenfield projects (the so-called "junior companies") and who typically face greater restrictions to access traditional forms of credit.

: Category: Infrastructure and energy

Por Rafael Vanzella, Debora Leal, Gabriel Rapoport Furtado and Gabriel Nagle

Law No. 14.286/21 (New Foreign Exchange Law), enacted on December 30, 2021, represents a milestone in Brazilian law regarding foreign currency transactions, including project financing on infrastructure sectors in Brazil. The new regulation is part of the “BC agenda”, promoted by the Central Bank of Brazil (BCB), which aims to rearrange Brazilian foreign exchange legislation in order to improve a formerly diffuse and anachronic legal framework and consolidate it in light of modern economic and commercial practices.

Therefore, such legal milestone plays the crucial role of consolidating a refined regulatory environment, based on contemporary international standards. It will come into force on December 30, 2022, after one year of its official enactment. In parallel, BCB and the National Monetary Council (CMN) will be responsible for the subsequent regulation of several topics aroused by the New Foreign Exchange Law.

Among the innovations carried out by the new law, it should be mentioned the facilitation of the circulation of the Brazilian Real abroad. Accordingly, Section 6 of the Law provides that banks authorized to operate in foreign exchange markets may "comply with payment orders in Brazilian Reais received from abroad or sent abroad", pursuant to future BCB regulations. Thus, the possibility of investing funds raised in Brazil in foreign operations is enabled, through the use of current accounts, denominated in Brazilian Reais, kept in banks by institutions domiciled or based abroad, subject to the regulation and financial supervision of the respective country of origin. As a possible effect, there is an increase in the circulation of Brazilian Reais in international markets, while mitigating the existing limitations for the application, abroad, of funds raised in Brazil.

From the perspective of infrastructure projects, there are also relevant changes, systematized under the guidelines of Section 13, which addresses the payment in foreign currency of obligations enforceable in the Brazilian territory. Initially, it is important to note that Law No. 14.286/21 entails, among other effects, the repeal of Decree-Law No. 857/69, which, although derived from a different macroeconomic reality, is still in force during the vacatio legis of the new regulation. The elements introduced by Section 13 of the New Foreign Exchange Law expand certain provisions formerly contained in said decree-law, providing for a broader range of possibilities and consolidating a new business environment, whose practical contours have been established through the interaction of market agents and financial institutions.

Hence, item VII of Section 13 introduces the possibility of payment in foreign currency of obligations enforceable in Brazil, in connection to "contracts concluded by exporters in which the counterpart is a concessionaire, permit holder, authorized entity or lessee in the infrastructure sectors". Accordingly, the amendment allows legal business between exporters and infrastructure project holders to be indexed directly in foreign currency, within the framework of contracts concluded in areas such as energy, logistics and transport in general, basic sanitation and facilities, government agencies, among others.

Current analyses of this subject have not given account of the extent of this novel legal instrument. There is a greater enthusiasm in the energy sector, given the possibility, now expressly permitted by law, that contracts for the purchase and sale of energy (Power Purchase Agreements – PPAs) are indexed in foreign currencies such as the US dollar and the euro. In the case of electricity generators, financed in foreign currency, as an imported equipment, their debt service is mostly tied to the dollar. Thus, the celebration of dollarized PPAs will allow an immediate upside, so that revenues can be backed by an equivalent indexer.

However, the wording of this new law provides for an even more comprehensive array of opportunities because several areas of infrastructure, besides the energy sector, could also benefit from the new perspectives. Transport contracts and other businesses related to cargo handling, for example, may also be concluded in foreign currency. Considering general market practices, which make large use of take or pay provisions in contractual arrangements within such sectors, the possibility of revenues denominated in foreign currency will facilitate the creation of guarantees for financing taken through the same indexer. In basic sanitation, likewise, it is expected that associated projects, aimed at meeting the needs of large consumers, usually the exporters themselves, will originate contracts denominated in foreign currency. This will allow water and sewage system operators to diversify their debt portfolio to include indexed financing, or even more complex swap operations, which will mitigate foreign exchange risks in the import of effluent treatment equipment and technologies.

The importance of the measure introduced by the New Foreign Exchange Law is, consequently, remarkable, since contracts under the new rules are directly related to investments in infrastructure and accurately capture the link between the infrastructure sector and the international trade, either by the provision of transportation services, the import of pivotal equipment, or by the operation of essential public services such as water and energy supply. In the impossibility of concluding contracts with the features mentioned in Section 13, holders of infrastructure projects not only have their access to the international credit market hampered, but also expose themselves to a greater amount of risks related to exchange rate variation, when indispensable inputs need to be imported. Under the New Foreign Exchange Law, those holders of infrastructure projects will have access to new sources of financing at a global level and will also be able to coordinate complex operations of revenues and expenses under the same exchange rate indexer, particularly when the transaction involves a counterpart qualified as an exporter.

The effect of mitigating foreign exchange risk on infrastructure projects was expressly contemplated by item VIII of the same Section 13 of the new law, by additionally enabling payments in foreign currency "in the situations provided for in the regulations issued by the National Monetary Council, when the stipulation in foreign currency can mitigate foreign exchange risk or increase the efficiency of the business".

In these respects, the New Foreign Exchange Law makes the regulatory approach to foreign exchange operations more flexible, by delegating the regulation of opportunities for exchange rate indexation of legal transactions governed by Brazilian law to BCB and CMN, which will allow greater agility in the provision of relevant standards to keep up with market dynamics. At the same time, the new law already contains, with regard to some opportunities in the infrastructure sector, objective parameters which, in principle, will not require further regulation from monetary authorities. In conclusion, real transformations of contractual modeling are expected, not only in consolidated sectors, such as energy, but also in more incipient ones, such as railways, ports and basic sanitation, to keep just a few examples.

: Category: Restructuring and insolvency

The changes brought about by Law No. 14,112/20 to Law No. 11,101/05 (which deals with judicial reorganization, extrajudicial reorganization, and bankruptcy), Law No. 10,522/02 (which regulates the informational registry of unpaid debts of federal agencies and entities) and Law No. 8,929/94 (which institutes the Rural Product Note) came into effect at the end of January of 2021.

The president of Brazil had vetoed 14 points of Law No. 14,112/20, but on March 17, 2021, the Brazilian Congress overrode 12 of the 14 vetoes. The vetoes related to the provisions that governed (i) the possibility for the Ministry of Agriculture, Livestock, and Supply to define which events could be characterized as unforeseeable circumstances and force majeure for the purposes of any submission of debts and guarantees linked to Rural Product Notes (CPRs), with physical settlement, to judicial reorganization, and (ii) suspension of labor executions against co-obligors of debtors in possession were maintained.

In this article we present an updated comparison of the original wording of Law No. 11,101/05 with the new wording in force. The main changes relate to:

legal certainty and “super priority” in relation to the granting of loans during judicial reorganization;
legal certainty and modification of some of the asset sale rules;
cross-border bankruptcy and cooperation between domestic and foreign courts in such cases;
more expeditious bankruptcy in terms of sale of assets and extinguishment of obligations, with changes also to articles 83 and 84 of Law 11,101/05, which regulate the list of in bankruptcy and extra-bankruptcy creditors, respectively;
impossibility of extending the effects of bankruptcy;
general rules for extrajudicial reorganization, with the possibility of including labor claims and reducing the quorum required for approval of the plan;
installment payment of debts with the Federal Government and other tax matters; and
judicial reorganization of rural producers.

Besides the points above, among the vetoes rejected by the Brazilian Congress was the change in Law No. 8,929/94, more specifically in article 11, head paragraph, to expressly provide that claims and security interests linked to CPRs with physical settlement, in the event of partial or full advance of the price, or also representing an exchange operation for inputs (barter) shall not be subject to the effects of judicial reorganization. The new wording of the article also establishes that the creditor continues to be entitled to the restitution of such assets that are in the possession of the issuer of the note or any third party, except for reasons of unforeseeable circumstances or force majeure that can be proven to prevent the partial or total fulfillment of the delivery of the product.

In the event of doubt, Machado Meyer's debt restructuring and bankruptcy and tax teams are at your disposal.

Partners of the Restructuring team responsible for this newsletter: Renata Oliveira and Renato Maggio.

Partner of the Tax team responsible for this newsletter: Bruna Marrara.

analysis of the main changes
LAW NO. 11,101/05 BEFORE LAW NO. 14,112/20	LAW NO. 11,101/05 AFTER LAW NO. 14,112/20
Prior finding There was no legal provision for a prior finding. In practice, some judges ordered the holding of a prior finding before the granting of judicial reorganization, in line with Recommendation No. 57 of the Brazilian Judicial Review Board (CNJ).	Prior finding The prior finding is provided for in Law No. 11,101/05, allowing the judge to perform it when deemed necessary (article 51-A). The expert appointed by the judge has a time period of no more than five days to submit a report issuing findings on the actual operating conditions of the debtor and the good order of the documentation submitted with the complaint (article 51-A, paragraph 2). Dismissal of the processing of the judicial reorganization based on an analysis of the debtor's economic feasibility is prohibited (article 51-A, paragraph 5). If the preliminary finding detects strong evidence of fraudulent use of the judicial reorganization, the judge may reject the application, without prejudice to the issuance of an official letter to the Public Prosecutor's Office to take any criminal action that may be appropriate (article 51-A, paragraph 6). If the prior finding shows that the debtor's principal place of business is not within the court's jurisdiction, the judge should order the case to be referred urgently to the competent court (article 51-A, paragraph 7).
Stay period After the granting of a petition for judicial reorganization, the stay period began, an interval of 180 days for suspension of executions and acts of constriction against the debtor by creditors subject to the proceeding, which is intended to give breath to the negotiation of the judicial reorganization plan. This period would be non-extendable under Law No. 11,101/05, but case law has admitted extension, occasionally even more than once, when the vote on the plan did not take place within 180 days for acts not attributable to the debtor. For reference, votes on plans for reorganizations in progress in the State of São Paulo have taken an average of 517 days, according to data from the 2nd Phase of the Bankruptcy Observatory of NEPI-PUC/SP and ABJ. Bankruptcy-exempt creditors and the tax authorities are not affected by the stay period a priori. However, constrictions and foreclosures of essential capital goods are prohibited in such a period. According to the Superior Court of Appeals (STJ), the competent court to decide on the matter is that of the judicial reorganization. There was no legal provision for a stay period in relation to mediation or extrajudicial reorganization.	Stay period It expressly provides for the possibility of extending the stay of 180 days for an equal period and a single time, provided that the failure to vote on the plan is not attributed to the debtor in possession. The stay period may be extended a second time if creditors submit an alternative judicial reorganization plan, in the cases provided for in article 6, paragraph 4-A, and article 56, paragraph 4 (article 6, paragraph 4 and 4-A). The stay period is counted from the granting of the processing of the case, as prior to Law No. 14,112/20, but in the event of urgency, in limine relief may be granted for its effects to begin, in whole or in part, as of the filing of the case. The rule regarding the possibility of execution and constriction by the tax authorities and bankruptcy-exempt creditors continues. There is an express legal definition of the jurisdiction of the court overseeing the reorganization to deal with the issue of essential capital goods in article 6, paragraphs 7 and 7-A. There is a legal provision for a stay period in the prior mediation and extrajudicial reorganization (for more details, see item on the subject, below).
Verification and registration of claims Such provisions were listed in articles 7 to 20 of Law No. 11,101/05, and there were no express previsions regarding what happens with the registrations and objections in course, in the event of closure of the judicial reorganization.	Verification and registration of claims There is an express rule as to the possibility of closing the judicial reorganization even if the General Table of Creditors has not been approved. With this, late registrations and objections will be reassigned to the judicial reorganization court as autonomous actions through the common procedure, and late registrations will have the competent credit reserve (article 10, paragraphs 7 to 9). There is specific treatment for registration of tax debts in the bankruptcy (article 7-A). In addition, paragraph 4, subsections I and II, of this article delimits which issues related to tax debts would fall under the bankruptcy court's jurisdiction and which would fall under the tax foreclosure court's jurisdiction. In this context, in line with the CTN and the Tax Foreclosure Law, whose article 5 provides that the competence to hear and decide foreclosure of the Public Treasury's outstanding debt excludes from any other court, including the bankruptcy court, the competence to assess the existence, enforceability, and value of the claim, which will be that of the tax foreclosure court. In other words, the analysis of the merits of the tax foreclosure will not be done by the bankruptcy court, but will be heard by the tax foreclosure court. On the other hand, it is incumbent on the bankruptcy court not only to examine matters such as calculation and classification of claims, but also those related to asset collection, realization of assets, and payment to creditors. Subsection V of the article in question, subject to the jurisdiction of the tax enforcement court to examine the above-mentioned matter, establishes that "tax enforcement actions shall remain suspended until the bankruptcy is terminated, without prejudice to the possibility of proceeding against the co-responsible parties." However, despite the changes introduced by Law No. 14,112/20, which came into force on January 23, 2021, the 1st Section of the Superior Court of Appeals (STJ), in May of this year, unanimously affected to the procedure of repetitive appeals REsp 1.891.836/SP, under topic 1092, with the following controverted theory: "Possibility for the Public Treasury to qualify a tax debt in bankruptcy proceedings subject to a tax foreclosure in progress." In the event of bankruptcy, there is a three-year lapse period, counted from the decree of bankruptcy, for registrations and requests for a credit reserve (article 10, paragraph 10). This rule applies to bankruptcies decreed after the law went into effect. Apportionment in bankruptcy may occur even if the General Table of Creditors is not formed, provided that the class of creditors to be satisfied has already had all the judicial objections filed within the term provided for in article 8, except for the reserve of the disputed claims due to the delayed registration of claims distributed until then and not yet judged (article 16).
Labor claims They was to be discharged within up to one year, and five minimum wages per employee of the strictly wage claims due in the three months preceding the claim was to be paid within 30 days.	Labor claims The five minimum wages rule mentioned above was maintained and the remainder may be paid within up to two years, provided that the plan, at the discretion of the judge: (i) provides sufficient guarantees; (ii) has been approved in class I; and (iii) guarantees payment of all labor claims (article 54, paragraphs 1 and 2).
Tax issues When judicial reorganization is granted, the applicant must submit a clearance CND (article 57). However, since the law that provides for tax installments was slow to be enacted and, when it was, it received criticism, the case law has been softening this requirement. The regulated tax issue was the absence of succession of the purchaser of an isolated productive unit (IPU) in the judicial sale approved in the plan, provided that such purchaser is not (i) a partner of the bankrupt company or a company controlled by the debtor; (ii) a relative, in a straight or collateral line up to the fourth (4th) degree, by blood or by marriage, of the debtor or a partner of the bankrupt company; or (iii) identified as an agent of the debtor with the purpose of defrauding the succession.	Tax issues The requirement of article 57 continues. Tax treatment applicable to capital gains on the judicial sale of IPUs: the portion of net income resulting from capital gains on the judicial sale of IPUs may be fully offset against tax losses from priors years, without the limitation of 30%. To this end, the divestiture should take place between independent parties. Also, Corporate Income Tax (IRPJ) and Social Contribution on Net Income (CSLL) due on capital gains may be paid in installments. Tax treatment of the effects of reducing the value of debts in the event of renegotiation (haircut): regardless of the accounting effects and provided that the renegotiation of debts occurs between unrelated parties, even if the debts are not subject to the judicial reorganization plan, the effects of reduction thereof have the following tax treatment: (i) revenue will not be taxed by PIS and Cofins; (ii) the gain may be fully offset against tax losses from prior years, without the limitation of 30%. Deductibility of expenses: expenses corresponding to the obligation assumed in the plan will be considered deductible from the calculation basis for the IRPJ and the CSLL. Acts of constriction of assets in the scope of tax foreclosures: despite the discretionary power of the tax foreclosure court to order acts of constriction of assets, the reorganization court has the power to order the substitution of such acts that fall on capital assets essential for the maintenance of the business activity, to be exercised through judicial cooperation. Payment of tax debts: once the judicial reorganization proceeding has been granted, federal tax debts may be settled on a consolidated basis within 120 months. Payments will be calculated in such a way that those due in the first years are lower than those due in subsequent years. As for debts managed by the Brazilian Federal Revenue Service, up to 30% of the consolidated debt may be settled using tax loss credits and the remainder may be paid in 84 installments. The value of the installments will also be lower in the first years of payment. Other modalities of installment payment are also available, under the terms of Law No. 10,522/2002, as amended. Settlement: once the processing of the judicial reorganization has been granted, the taxpayer may submit a proposed settlement to the Brazilian Treasury Attorney's Office. The conditions of the settlement must include payment within 120 months, reductions of up to 70% in the amount of the debt, among other things.
Role of the judicial trustee There was no legal provision obliging judicial trustees to maintain a website with information on the proceedings in which they serve. The judicial trustee was not obliged to certify the veracity of the information provided by the debtor, nor to supervise the negotiations held between debtors and creditors. There was no provision for alternative methods of deliberations by creditors (e.g., by means of an consent form or electronic voting) and, therefore, there was no legal obligation for the judicial trustee to supervise such acts. The obligation to sell the assets of the bankrupt estate had no time limit. The judicial trustee could request that the judge sell in advance perishable goods, which are deteriorable or subject to considerable devaluation or to risky or costly conservation. In addition, there was no express obligation for the judicial trustee to collect in bankruptcy the amounts of deposits in proceedings to which the bankrupt was a party, although it is currently understood that this is an implicit obligation. There was no provision for cooperation mechanisms for transnational bankruptcy proceedings.	Role of the judicial trustee The judicial trustee should encourage mediation, conciliation, and other alternative methods of dispute resolution. The judicial trustee should maintain an e-mail address with updated information on bankruptcy and judicial reorganization proceedings, with the main filings in the proceedings and monthly activity reports, and on the judicial reorganization plan, as well as for receipt of registrations and disagreements in the administrative sphere, unless a court decision to the contrary is entered. The scope of the judicial trustee's duties under the judicial reorganization process is broadened, notably (i) to inspect the veracity and conformity of the information provided by the debtor for purposes of preparing the monthly activity report; (ii) to inspect the negotiations between debtors and creditors, ensuring that the parties do not adopt dilatory or prejudicial arrangements; (iii) to inspect, by means of issuance of an opinion regarding their good standing, the decisions of the General Meeting of Creditors (GMC) by means of a consent form, electronic voting, or some other suitable mechanism (article 39, paragraph 5); (iv) to submit for a vote at the GMC that rejects the judicial reorganization plan proposed by the debtor the granting of a 30-day period for presentation of the judicial reorganization plan by the creditors (article 56, paragraph 4); (v) to submit within 48 hours a report of the creditors' responses regarding the holding of a General Meeting to resolve on the sale of assets, requesting its call. The scope of the judicial trustee's duties within the scope of the bankruptcy proceedings is broadened, namely: (i) the obligation to submit within 60 days of its appointment a detailed plan for realization of the assets; (ii) proceed with sale of all assets of the bankrupt estate within a maximum period of 180 days, as of the date of the filing of the notice of filing of the notice of collection, under penalty of dismissal, except for justified impossibility, recognized by a court decision; (iii) in the event of insufficiency of the assets for the expenses of the proceedings, procure sale of the attached assets within a maximum period of 30 days, for personal property, and 60 days, for real property, if the creditors do not request continuation of the bankruptcy; (iv) to collect the amounts of the deposits made in administrative or judicial proceedings in which the bankrupt appears as a party, arising from attachments, freezes, seizures, auctions, judicial sales, and other events of judicial constriction, with the exception of the deposits of federal taxes. There is a provision for actions in the scope of transnational bankruptcy proceedings, notably (i) authorization to appear in foreign judicial proceedings in the capacity of representative of the Brazilian judicial proceedings, in the event of bankruptcy; and (ii) obligation of cooperation and communication with the foreign authority and with the foreign representatives.
Means of judicial reorganization The conversion of debt into capital (only the increase in share capital) was not expressly provided for, but was a means of reorganization used. There was no provision for full sale of the debtor.	Means of judicial reorganization The conversion of debt into capital began to be included in the list of article 50 of Law No. 11,101/05 and there is no risk of succession or liability for debts to third parties. The same rule of absence of liability and succession is express for officers and directors who replace former officers and directors as a means of reorganization and for creditors who make contributions of funds (article 50, paragraph 3). The creditors' alternative plan may also provide for the capitalization of claims, including foreign exchange of control, allowing the debtor's partner the right to withdraw (article 56, paragraph 7). Full sale of the debtor: it becomes a means of reorganization provided for in the list of article 50 of Law No. 11,101/05 and can be used when the situation of the creditors who are not subject to the proceedings and who are not members is at least the same as it would be in a bankruptcy. In this scenario, the rule of absence of succession of the IPU will be applied.
DIP financing The treatment provided for in article 67 of Law No. 11,101/05 was insufficient and did not provide the necessary super priority. Thus, the vast majority of cases of financing in Brazil have always relied on guarantees, especially those of a fiduciary nature, and contractual arrangements for obtaining super-priority. There was also no express provision in Law No. 11,101/05 protecting third parties in good faith. There was no provision in Law No. 11,101/05 authorizing the creation of a subordinated guarantee on assets of the debtor without the consent of the holder of the original guarantee. Experience showed that DIP financing cases ended up involving much litigation.	DIP financing Super priority is provided for by law (article 84). However, a fiduciary guarantee continues to be advisable, because a claim for restitution in natura is not subject to the competition of creditors. Doubts whether judicial authorization is required (advisable). Article 69-B provides that a change in the level of appeal against the decision authorizing the engagement may not alter the bankruptcy-exempt nature or the guarantees given by the debtor to the lender in good faith, if disbursement has been made. Article 69-C authorizes the establishment of a subordinated guarantee on one or more of the debtor's assets in favor of the lender of a debtor under judicial reorganization, waiving the consent of the holder of the original guarantee, with the proviso that the subordinated guarantee, in any event, will be limited to any excess resulting from the disposal of the asset subject to the original guarantee and that such provision will not apply to any type of fiduciary sale or fiduciary assignment. Article 69-E provides that financing may be provided by any person, including family members, partners, and members of the debtor’s group. Article 69-D provides that, in the event of conversation of the reorganization into bankruptcy, the financing agreement will be considered automatically terminated and the guarantees provided and preferences will be preserved up to the limit of the amounts actually delivered to the debtor before the date of the judgment that converted the judicial reorganization into bankruptcy.
Consolidation	Consolidation
It was not regulated in Law No. 11,101/05. Procedural consolidation was allowed on the basis of the rules for joint litigation in the Code of Civil Procedure (CPC), which applied where not incompatible with bankruptcy procedure, pursuant to article 189 of Law No. 11,101/05. There was no consensus in the case law regarding the requirements, the competence of the decision on the subject, criteria, and quorums applicable to voting.	Law No. 11,101/05 has a provision stipulating the competent court, the requirements, the necessary documentation, and the form of voting in case of procedural consolidation (article 69-G). The decision on the substantial consolidation may, exceptionally, be made by the judge and the requirements for its acceptance are the finding of interconnection and confusion between assets or liabilities of debtors belonging to the same economic group, such that it is not possible to identify their ownership without excessive expenditure of time or resources, through the finding of at least two of the following events (i) existence of cross guarantees; (ii) relationship of control or dependency; (iii) identity of the corporate structure; and (iv) joint action in the market, which has generated criticism (article 69-J). In case of substantive consolidation, there is immediate extinguishment of fiduciary guarantees and claims held by one debtor against the other (article 69-K). There is a rule providing that secured guarantees will not be prejudiced in any substantive consolidation, except with the approval of the holder (article 69-K).
Partner or supporting creditor It was not regulated in Law No. 11,101/05 Doctrinal and jurisprudential creation based on the spirit of article 67 of Law No. 11,101/05, which allowed, based on the provisions in the plan and with justifications, that a certain creditor, named partner, or supporter, HAVE privileged treatment in judicial reorganization in relation to other creditors of the same class.	Partner or supporting creditor Article 67, sole paragraph, permits differentiated treatment of claims subject to judicial reorganization for suppliers of goods or services that continue to provide them normally after the application for judicial reorganization, provided that such goods or services are necessary for the maintenance of the activities and that the differentiated treatment is appropriate and reasonable as regards the future business relationship. There is treatment in article 84 of Law No. 11,101/05.
Matched transactions and derivatives No treatment in Law No. 11,101/05. In practice, early maturity and offsetting were allowed.	Matched transactions and derivatives The possibility of early maturity and offsetting is provided for by law, and any remaining claim is subject to judicial reorganization, unless there is a fiduciary guarantee.
Sale of assets IPU: there was no legal definition of what an IPU is. The no-succession rule exemplified only tax and labor obligations and, following the example of IA 2237160-80.2019.8.26.0000 of the TJSP, most of the judgments held that the sale must be made by some form of competition per article 142 of Law No. 11,101/05 to guarantee the absence of succession (there was, however, already a precedent of the STJ allowing another type of sale of an IPU within a judicial reorganization, provided it is authorized by a special quorum and indicating that the rule of absence of succession should prevail: REsp No. 1.689.187-RJ). Assets: if there was no provision in the plan, the sale and encumbrance of assets required the judge's authorization, after hearing the creditors' committee (if any), and the judge must analyze the evident usefulness of the transaction. Rule of succession: the general rules of succession of the acquirer in the sale of assets applied in reorganization proceedings not carried out in the form of an IPU (i.e., propter rem). Means of competition: auction, tender, and closed bid. Price: Discussions regarding inadequate price were not uncommon. Summons: summons of the Public Prosecutor's Office mandatory. Third party in good faith: no express provision in Law No. 11,101/05 protecting their interests.	Sale of assets UPI: there is legal definition (goods, rights and assets, tangible or intangible, such as corporate interest), the examples of absence of succession covers all obligations, including environmental obligations and those under the Anti-Corruption Law, and the obligation to follow one of the competition modalities of article 142 of Law No. 11,101/05 continues (articles 60 and 60-A), but in a more flexible way, including the use of a market agent. Assets: if there is no provision in the plan, sale and encumbrance of non-current assets (this is the novelty) will require the authorization of the judge, after hearing the creditors' committee, if any (the requirement of evident utility ceased to exist). Creditors with a joint claim in excess of 15% of the total amount of the liabilities, if they provide a bond and provided that they present justified reasons, may request a GMC to resolve on the matter, and the judicial trustee will explain the matter to the judge, convening a GMC, if the requirements are met. All this should be done quickly, in accordance with the legal deadlines and in the least costly manner, with the objecting creditors bearing the associated costs. Rule of succession: Articles 60, sole paragraph, and 66, paragraph 3, of Law No. 11,101/05 leave no room for doubt that the asset sold during the judicial reorganization will be free of any encumbrance and that the purchaser will not succeed the debtor in its obligations. These obligations include environmental, labor, regulatory, administrative, criminal, and anti-corruption obligations. Tax obligations were already excepted in the original wording of Law No. 11,101/05. The inclusion of paragraph 3 of article 66 in Law No. 11,101/05 ends any discussion and establishes that sales made with judicial authorization are also shielded from encumbrances. Means of competition: article 142 of Law No. 11,101/05 provides for an electronic auction, a competitive process organized by a specialized agent of unblemished reputation and any other modality approved under the law. Price: there can no longer be any discussion of a negligible or inadequate price. A third party contesting the sale must make or present a firm offer from a third party and a guarantee 10% of the value of the offer. Raising an undue objection on any point is an act that undermines the dignity of justice. Summons: a summons of the Public Prosecutor's Office and the tax authorities is mandatory. Third party in good faith: the sale of assets or guarantee granted by the debtor to a bona fide purchaser or lender, provided that it is carried out by express judicial authorization or provided for in an approved judicial or extrajudicial reorganization plan, may not be annulled or rendered ineffective after the consummation of the legal transaction with the receipt of the corresponding funds by the debtor.
Alternative plan proposed by the creditors There was no provision in that regard. Only the debtor could propose a plan for judicial reorganization, and any proposal for change made by creditors should have the debtor's express agreement. Rejection of the plan without meeting the requirements for a cram down entailed conversion of the judicial reorganization into bankruptcy.	Alternative plan proposed by the creditors Creditors may submit an alternative plan if the debtor, after the extension of the stay period, is unable to put a plan to a vote or if, after the rejection of the plan at the GMC, the creditors vote for the granting of a 30-day period to do so, in which case the alternative plan must be voted on within 90 days of the GMC that decided on the submission of the plan. The alternative plan should have a specific quorum of support from creditors representing, alternatively, more than 25% of the total claims subject to judicial reorganization or more than 35% of the claims of the creditors present at the GMC that decided to submit an alternative plan (article 56, paragraph 6, III); there may be no new obligations not provided for by law or in prior agreements with the debtor's partners; there will be a provision for exemption from personal guarantees provided by individuals with respect to claims held by creditors who supported/voted in favor of the alternative plan, which may not impose greater sacrifice on the debtor and its partners than that which would result from liquidation in bankruptcy. (article 56, paragraphs 4 to 9). The plan proposed by the creditors may provide for the capitalization of the claims, including the consequent change in the control of the debtor, allowing the exercise of the right of withdrawal by the debtor's partner (article 56, paragraph 7). The alternative plan will only apply to judicial reorganizations filed after the entry into force of Law No. 14,112/20.
GMC In person is the rule provided for in Law No. 11,101/05, but because of the covid-19 pandemic, virtual GMCs were admitted by the case law, including with the issuance of Recommendation No. 63 by the Brazilian Judicial Review Board (CNJ) in this regard.	GMC It may be virtual and may also be replaced, with the same effect, by a consent signed by creditors who meet the specific approval quorum or other mechanism deemed sufficiently secure by the judge (article 39, paragraph 4). In addition to the duties provided for in Law No. 11,101/05, it may resolve on the approval of disposal of assets or rights of the debtor's non-current assets, not provided for in the judicial reorganization plan (article 35, item g). Article 56, paragraph 9, provides that, in the event of suspension of the GMC convened for the purpose of voting on the judicial reorganization plan, the meeting must be adjourned within 90 days from the date it was convened.
Abusive vote There was no specific provision in Law No. 11,101/05, but there were decisions in which so-called abusive votes from significant creditors were disregarded whose contrary votes would prevent the achievement of the plan's quorum for approval.	Abusive vote Legal provision that the vote will be exercised by the creditor in the interest and in accordance with its judgment of advisability and declared null and void for abusiveness only when manifestly exercised to obtain an illicit advantage for itself or others (article 39, paragraph 6).
Judicial reorganization of a rural producer Law No. 11,101/05 did not regulate the possibility for individual rural producers to request judicial reorganization. There was a divergence in the case law regarding whether the registration of rural producers is a declaratory or constitutive in nature and, therefore, whether the period of activity prior to registration should be taken into account in order to fulfill the requirement of at least two years of activity provided for in the head paragraph of article 48 of Law No. 11,101/05 and whether or not the debts taken on prior to registration are subject to the judicial reorganization.	Judicial reorganization of a rural producer Rural producers acting as individuals may request judicial reorganization. The special plan for rural producers may not involve debts of more than R$ 4.8 million (article 70-A). The proof of the two-year period of activity established in the head paragraph of article 48 is admitted through the Tax Accounting Book (ECF), or legal obligation to keep accounting records that may replace it (in the case of rural activity exercised by a legal entity), the Rural Producer Digital Cash Book (LCDPR), or legal obligation of accounting records that may replace it, the Income Tax Return, and balance sheet (in the case of rural activity exercised by an individual) (article 48, paragraphs 2 and 3). Only claims arising exclusively from rural activities, even if not past due, will be subject to judicial reorganization (article 49, paragraph 6). Appeals controlled and covered under articles 14 and 21 of Law No. 4,829/65 (article 49, paragraph 7) will not be subject to the judicial reorganization. However, if they have not been renegotiated before the application for judicial reorganization, in the form of an act of the Executive, such claims will be subject to the effects of the plan (article 49, paragraph 8). Claims relating to debts incurred in the last three years prior the request for judicial reorganization, as well as the respective guarantees, will also not be subject to judicial reorganization (article 49, paragraph 9). Contracts and obligations arising from cooperative acts performed by cooperative societies with their members, pursuant to article 79 of Law No. 5,764/71. One must also consider the amendment to article 11 of Law No. 8,929/94, mentioned above.
Possibility for the tax authorities to file for bankruptcy of the debtor Although article 97, IV, of Law No. 11,101/05 provides that any creditor may file for bankruptcy of the entrepreneur and of the business company, the until then settled understanding of the STJ was to the effect that the Public Treasury did not have standing to file for bankruptcy for companies and/or businessmen. However, in an extended judgment held in August of 2020, the 1st Chamber of Business Law of the Court of Appeals of the State of São Paulo (TJSP), by majority vote, upheld the appeal so as to (i) annul the decision that had rejected the complaint and extinguished the proceeding without a resolution of the merits, on the grounds that the Brazilian Treasury had no procedural interest; and (ii) order the regular continuation of the petition for bankruptcy filed by the Federal Government, represented by the Attorney’s Office for the Federal Revenue Service, against a company engaged in the trade and distribution of food products. The TJSP emphasized that, in the case at hand, the petition for bankruptcy was not based on article 94, subsection I of Law No. 11,101/05 (whose more restrictive understanding should prevail) but on article 94, subsection II, since the Federal Revenue Service, although it filed for a tax foreclosure, has not located sufficient assets of the debtor to satisfy the debt. Having exhausted the means to satisfy its claim, it would not be possible to withdraw from the public body the possibility of filing for bankruptcy of the debtor.	Possibility for the tax authorities to file for bankruptcy of the debtor The tax authorities may petition for judicial reorganization of the debtor in bankruptcy if (i) there is nonperformance of the installment payments of the debts provided for in article 68 of Law No. 11,101/05 or the settlement provided for in article 10-C of Law No. 10,522/2020; or (ii) when the debtor's assets are identified as being depleted, resulting in substantial liquidation of the company, to the detriment of creditors not subject to the judicial reorganization, as is the case of the Public Treasury. Depletion is considered substantial when assets, rights, or future cash flow projections are not reserved sufficient to maintain economic activity for the purpose of fulfilling its obligations. In the event that bankruptcy is decreed by the substantial depletion of the company, the disposals made will be preserved and considered effective, so as not to harm a bona fide third party purchaser. The proceeds of such disposals, on the other hand, should be blocked, with the consequent return to the debtor of the amounts already distributed to any creditors, which will now be available to the court.
Closing of the judicial reorganization Two years of judicial supervision. In view of this, it was not possible to close it. When there was a grace period of more than two years, some judges extended the judicial supervision period. An attempt has already been made to close supervision early, but this was not allowed.	Closing of the judicial reorganization Supervision is for a maximum of two years, and judicial reorganization may be terminated prior to that, regardless of the grace period and the closure of the registrations and consolidation of the general list of creditors (article 61).
Extrajudicial reorganization The debtor, provided that 3/5 of the class(es)/subclass(es) of creditors covered by the extrajudicial reorganization plan have joined, could request in court approval of the plan, which was mandatory for all creditors of that (those) class(es)/subclass(es) after approval. The debtor was free to indicate the class(es)/subclass(es) involved, and may not cover labor creditors, bankruptcy-exempt creditors, and the tax authorities. Law No. 11,101/05 did not provide for a stay period for extrajudicial reorganization, but in some cases and in relation to the creditors covered by extrajudicial reorganization there were judgements that granted such a suspension pending ratification of the judicial reorganization plan approved by 3/5 of the creditors covered. There was no protection of absence of succession of the purchaser of the debtor's IPUs in extrajudicial reorganization.	Extrajudicial reorganization The quorum for participating became 50%. The process may begin with the signature of 1/3 of the class(es)/subclass(es) involved, and the reorganization may obtain the 50% needed in the course of the proceeding within 90 days. If such additional adherence is not obtained, the debtor may apply for judicial reorganization. The labor class may participate in the proceeding, provided that there is collective negotiation with the labor union of the respective professional category. There is a legal provision for the possibility of a stay period to reach the class(es)/subclass(es) involved as of the request. There is still be no provision for the absence of succession of the purchaser of an IPU in the obligations and debts of the debtor in possession.
Fresh start Law No. 11,101/05 did not concern itself with this. Bankruptcy in Brazil is time-consuming and highly contentious. The requirements for closure of the bankruptcy and extinguishment of the bankrupt's obligations were lengthy.	Fresh start The changes seek to create a rapid bankruptcy process, with rapid sale of assets (and even the possibility of donating assets without interested parties) and reducing questions on this point, including placing responsibility and a burden on objectors (article 143). The fresh start is established in positive law as a principle to be sought in bankruptcy (article 75), but it is applicable to the individual entrepreneur. There is also the possibility of termination of the bankrupt's obligations in shorter periods and under less onerous conditions (article 158), and the rules in force of article 5 of Law No. 14,112/20 must be observed.
Extension of the effects of the bankruptcy There was no legal provision, but case law admitted and confused extension of the effects of bankruptcy with piercing the corporate veil.	Extension of the effects of the bankruptcy Extension of the effects of bankruptcy is expressly prohibited for limited liability companies. Piercing of the corporate veil should respect the precepts of the Code of Civil Procedure and the Civil Code (article 82-A). Such rules apply only to new bankruptcies.
List of creditors in bankruptcy The list of creditors was provided for in articles 83 and 84 of Law No. 11,101/05.	List of creditors in bankruptcy The ranking order of competing debts remains the same, but the table has been simplified, with the elimination of the privileged class (article 83). Interest accrued after the bankruptcy decree (article 124) were expressly included last in the classification of competing debt claims (article 83, IX). In relation to subordinated creditors, it was clarified that partners without an employment relationship hold this classification only in relation to claims taken on without observing strictly fair conditions and market practices (article 83, VIII, “b”). The order of the extra-bankruptcy creditors (article 84) was amended, highlighting: (i) inclusion of the provisions of articles 150 and 151, debt claims already had priority in terms of payment in the original version of the law, but were not expressly listed in the list of the old wording; (ii) priority of debt claims arising from DIP financing; (iii) higher priority treatment to debts called partner suppliers/collaborating suppliers (article 67); and (iv) inclusion of a new case of extra-bankruptcy debt: tax debts from triggering events occurring after the bankruptcy decree. Claims of foreign creditors arising from transnational bankruptcy proceedings (Chapter IV-A) and which do not qualify as subordinated (foreign claims of a tax and social security nature, and criminal and administrative monetary penalties - article 167-G, I) or extra-bankruptcy (in the case of a foreign representative, article 167-G, II) are classified as unsecured. Such rules apply only to new bankruptcies.
Rapid closure of bankruptcy in the event of absence of assets There was no express provision in Law No. 11,101/05.	Rapid closure of bankruptcy in the event of absence of assets If there are no assets to be collected, or if they are not sufficient to pay the expenses of the proceeding, the judicial trustee will immediately report this fact to the judge, who, after hearing the representative of the Public Prosecutor's Office, will schedule, via call notice, a 10 day period for interested parties to request what is rightfully due. If they choose to proceed, the creditors must bear the costs of the judicial trustee. Otherwise, the bankruptcy will be terminated after the sale of existing assets within a maximum period of 30 days for personal property and 60 days for real estate.
Sale of assets in bankruptcy There was no maximum term for the judicial trustee to carry out sale of assets in bankruptcy. Discussions regarding inadequate price were common. There was no provision for donation/return of unsold assets to the debtor.	Sale of assets in bankruptcy There is a maximum period of 180 days for the judicial trustee to proceed with the sale of all the assets of the bankrupt estate. The time period is counted from the date of the filing of the notice of collection, under penalty of dismissal, except for reasoned impossibility, recognized by a judicial decision. The sale does not require consolidation of the general list of creditors. The sale is not subject to application of the inadequate and negligent price concept. A third party contesting the sale must make or present a so-called “firm offer” and guarantee 10% of the value of the offer. The improper raising of an objection on a point is considered an act against the dignity of Justice. Once the attempt at sale of the assets has been frustrated, and when there is no concrete proposal from the creditors to assume them, the assets may be considered as having no market value and sent for donation or returned to the debtor, if there is no interest in donation. Pursuant to a resolution passed under article 42, creditors may obtain the assets sold in bankruptcy or acquire them through the formation of a company, fund, or other investment vehicle, with the participation, if necessary, of the debtor's current shareholders or third parties, or through the conversion of debt into capital.
Extinguishment of the obligations of the debtor Requirements for the extinguishment of the obligations of the debtor were laid down in article 158 of Law No. 11,101/05 and were the following: (i) payment of more than 50% of the unsecured claims; (ii) lapse of the period of five years from the closing of the bankruptcy; or (iii) in the event of conviction for a bankruptcy crime, a period of 10 years from the closing of the bankruptcy.	Extinguishment of the obligations of the debtor Changes have been inserted into article 158 to speed up the extinguishment of the bankrupt debtor’s obligations. The current requirements are for extinguishment of the bankrupt debtor’s obligations: (i) payment of all claims; (ii) payment of more than 25% of the unsecured claims; (iii) expiration of three years, as of the decree of bankruptcy, except for the use of assets previously seized, which will be sent for liquidation to satisfy registered creditors or creditors with a request for reserve; (iv) closing of the bankruptcy pursuant to article 114-A (absence of assets of the debtor) or article 156. The rule in force of article 5 of Law No. 14,112/20 must be observed.
Assignment of claim The assignment of a debt claim was possible in practice, but not regulated in Law No. 11,101/05. In bankruptcy, the assignment of labor debts denatured their characteristics, and the claim became unsecured.	Assignment of claim The institute is expressly provided for in the law, and the promise of assignment or transfer must be immediately communicated to the reorganization court (article 39, paragraph 7). In bankruptcy, any assignment of a claim maintains the classification and characteristics of the claim (article 83, paragraph 5).
Prevention of the court The rule of jurisdiction of the court by prevention did not cover requests for approval of extrajudicial reorganization plans previously filed, although case law already recognized this possibility on the basis of an expansive interpretation of the rule.	Prevention of the court The assignment a petition for an extrajudicial reorganization plan also results in preventive jurisdiction of the court for any other bankruptcy, judicial reorganization, or extrajudicial reorganization petition concerning the same debtor (article 2, paragraph 8).
Dividend distribution Law No. 11,101/05 did not govern the subject.	Dividend distribution Until the approval of the judicial reorganization plan, the debtor is prohibited from distributing profits or dividends to partners and shareholders (article 6-A)
Application of the Code of Civil Procedure The suppletory application of the Code of Civil Procedure was provided for in Law No. 11,101/05. However, as the new CPC establishes the counting of time limits in business days and restricts when interlocutory appeals may be filed, debates have arisen regarding application of the new rules to bankruptcy proceedings.	Application of the Code of Civil Procedure It is expressly provided that all time limits provided for in Law No. 11,101/05 will be counted in calendar days and that the applicable appeal against the decisions rendered in the course of the proceedings is the interlocutory appeal, unless otherwise provided for in Law No. 11,101/05. The new wording given to article 189 of Law No. 11,101/05 provides that "all time limits provided for therein or arising therefrom shall be counted in calendar days" (paragraph 1, subsection I), which makes it possible to argue that procedural deadlines would be in business days. In fact, the TJSP recently decided that: "At first, contrary to what was proposed by the appellee, subsection I, of paragraph 1 of article 189 of Law No. 11,101/2005, as amended by Law No. 14,112/2020, does not affect the time limit for filing appeals in judicial reorganizations, which continues to be counted in business days, according to the general rule of article 219, head paragraph, of the CPC of 2015, and, therefore, the appeal is timely. The text of the head paragraph of this same article 189 is very clear, as it excepts the deadlines specifically provided for in the procedural legislation, as is the case of that of article 1,003, paragraph 5, of the Code of Civil Procedure of 2015, as regards appeals in general. This results in rejection of the threshold issue raised.” (TJSP, AI 2063796-96.2021.8.26.0000, 1^st Chamber Reserved for Business Law, opinion drafted by Fortes Barbosa, decided on May 6, 2021) The Judiciary must give priority to bankruptcy proceedings over the others, except for habeas corpus and the priorities established in special laws.
Conciliation, mediation, and arbitration Law No. 11,101/05 did not govern the practice of conciliation and mediation prior or incidental to a judicial reorganization proceeding. In practice, mediation has already been adopted in some judicial reorganizations, especially with a view to speeding up the procedures related to ancillary proceedings for verification of claims and to defining the means of reorganization and payment conditions to be arranged in the judicial reorganization plan. The majority case law already required respect for arbitration agreements.	Conciliation, mediation, and arbitration Conciliation and mediation are encouraged before and during judicial reorganization, at any level of appeal (article 20-A). It is possible to obtain urgent relief for the suspension of executions against the debtor for a period of up to 60 days prior to the filing of the judicial reorganization, for an attempt to reach a settlement with its creditors in a mediation or conciliation proceeding already instituted before the Judicial Center for Settlement of Conflicts and Citizenship. In the event of a subsequent request for judicial or extrajudicial reorganization, the time limit will be deducted from the stay period provided for in article 6 of Law No. 11,101/05 (article 20-B, paragraphs 1 and 3). Conciliation and mediation on the legal nature and classification of claims, as well as on voting criteria at the GMC is be prohibited (article 20-B, paragraph 2). Settlements reached through conciliation or mediation must be approved by the competent court (article 20-C). If judicial or extrajudicial reorganization is requested within 360 days as of the settlement signed in the conciliation or pre-trial mediation, the rights and guarantees of the creditors will be reconstituted on the terms originally contracted, with the exception of acts validly performed within the scope of the proceeding (article 20-C, sole paragraph). The need to respect the arbitration agreement by the debtor in possession or bankrupt party, represented by the judicial trustee, is established in positive law (article 6, paragraph 9).
Transnational Bankruptcy Issue not regulated by Law No. 11,101/05. In the case of foreign companies that are part of the same economic group as Brazilian companies requested reorganization in Brazil and whose center of main interest is Brazil, as in the case of offshore vehicles used to raise funds, there was case law allowing such companies to be applicants submitting the request for judicial reorganization.	Transnational Bankruptcy Transnational bankruptcy rules introduced in Brazil, along the lines of the Uncitral Model Law. The principles for governing transnational bankruptcy, such as cooperation between judges and maximization of assets, are established, and institutes (e.g. what is considered foreign proceedings, main proceedings, foreign non-main proceedings and others) are conceptualized. The following are the cases in which the provisions relating to transnational bankruptcy are applied: (i) a foreign authority needing assistance in Brazil for foreign proceedings; (ii) assistance related to proceedings governed by Law No. 11,101/05 filed in a foreign country; (iii) foreign proceedings and proceedings governed by Law No. 11,101/05 relating to the same debtor underway simultaneously; and (iv) creditors or interested parties with an interest in requesting or participating in proceedings governed by Law No. 11,101/05. The jurisdiction of the place of the debtor's main establishment in Brazil is established for recognition of a foreign proceeding and for cooperation with foreign authorities. There is express authorization for the debtor and the judicial trustee to act in other countries, regardless of judicial decision, provided that the provision is admitted in the country where the foreign proceeding is being processed. With respect to access to the Brazilian jurisdiction, the provisions clarify that: (i) the foreign representative is entitled to submit filings directly with the Brazilian judge; and (ii) foreign creditors have the same rights as granted to domestic creditors. The documents to support the application for recognition of foreign proceedings and the effects of such recognition are indicated. Rules for the coordination of competing cases are provided for. On May 18, 2021, the Brazilian Judicial Review Board, in its 331st ordinary session, unanimously approved a resolution related to Normative Act 0001834-33.2021.2.00.0000, which internalizes the Judicial Insolvency Network (JIN), an international agreement with rules for cooperation and direct communication with foreign bankruptcy courts.^{^[1]} ^[1] At the time of drafting of this article, the resolution had not yet been published. According to information on the CNJ website, "the communications must be recorded and all parties involved should be aware of them. (...) Another novelty that the agreement will allow is for a court to authorize a party or interested parties to present their case and be heard by a foreign court, provided that the decision is endorsed by the court indicated. In addition, the judge may authorize the party or interested parties in proceedings taking place in another country to appear and be heard, without there being any change in the jurisdiction over the case.” https://www.cnj.jus.br/justica-internaliza-tratado-de-comunicacao-em-insolvencia-internacional/ (accessed on May 19, 2021)

analysis of the main changes

LAW NO. 11,101/05 BEFORE LAW NO. 14,112/20

LAW NO. 11,101/05 AFTER LAW NO. 14,112/20

Prior finding

There was no legal provision for a prior finding.
In practice, some judges ordered the holding of a prior finding before the granting of judicial reorganization, in line with Recommendation No. 57 of the Brazilian Judicial Review Board (CNJ).

Prior finding

The prior finding is provided for in Law No. 11,101/05, allowing the judge to perform it when deemed necessary (article 51-A).
The expert appointed by the judge has a time period of no more than five days to submit a report issuing findings on the actual operating conditions of the debtor and the good order of the documentation submitted with the complaint (article 51-A, paragraph 2).
Dismissal of the processing of the judicial reorganization based on an analysis of the debtor's economic feasibility is prohibited (article 51-A, paragraph 5).
If the preliminary finding detects strong evidence of fraudulent use of the judicial reorganization, the judge may reject the application, without prejudice to the issuance of an official letter to the Public Prosecutor's Office to take any criminal action that may be appropriate (article 51-A, paragraph 6).

If the prior finding shows that the debtor's principal place of business is not within the court's jurisdiction, the judge should order the case to be referred urgently to the competent court (article 51-A, paragraph 7).

Stay period

After the granting of a petition for judicial reorganization, the stay period began, an interval of 180 days for suspension of executions and acts of constriction against the debtor by creditors subject to the proceeding, which is intended to give breath to the negotiation of the judicial reorganization plan.
This period would be non-extendable under Law No. 11,101/05, but case law has admitted extension, occasionally even more than once, when the vote on the plan did not take place within 180 days for acts not attributable to the debtor. For reference, votes on plans for reorganizations in progress in the State of São Paulo have taken an average of 517 days, according to data from the 2nd Phase of the Bankruptcy Observatory of NEPI-PUC/SP and ABJ.
Bankruptcy-exempt creditors and the tax authorities are not affected by the stay period a priori. However, constrictions and foreclosures of essential capital goods are prohibited in such a period. According to the Superior Court of Appeals (STJ), the competent court to decide on the matter is that of the judicial reorganization.
There was no legal provision for a stay period in relation to mediation or extrajudicial reorganization.

Stay period

It expressly provides for the possibility of extending the stay of 180 days for an equal period and a single time, provided that the failure to vote on the plan is not attributed to the debtor in possession.
The stay period may be extended a second time if creditors submit an alternative judicial reorganization plan, in the cases provided for in article 6, paragraph 4-A, and article 56, paragraph 4 (article 6, paragraph 4 and 4-A).
The stay period is counted from the granting of the processing of the case, as prior to Law No. 14,112/20, but in the event of urgency, in limine relief may be granted for its effects to begin, in whole or in part, as of the filing of the case.
The rule regarding the possibility of execution and constriction by the tax authorities and bankruptcy-exempt creditors continues. There is an express legal definition of the jurisdiction of the court overseeing the reorganization to deal with the issue of essential capital goods in article 6, paragraphs 7 and 7-A.
There is a legal provision for a stay period in the prior mediation and extrajudicial reorganization (for more details, see item on the subject, below).

Verification and registration of claims

Such provisions were listed in articles 7 to 20 of Law No. 11,101/05, and there were no express previsions regarding what happens with the registrations and objections in course, in the event of closure of the judicial reorganization.

Verification and registration of claims

There is an express rule as to the possibility of closing the judicial reorganization even if the General Table of Creditors has not been approved. With this, late registrations and objections will be reassigned to the judicial reorganization court as autonomous actions through the common procedure, and late registrations will have the competent credit reserve (article 10, paragraphs 7 to 9).
There is specific treatment for registration of tax debts in the bankruptcy (article 7-A). In addition, paragraph 4, subsections I and II, of this article delimits which issues related to tax debts would fall under the bankruptcy court's jurisdiction and which would fall under the tax foreclosure court's jurisdiction. In this context, in line with the CTN and the Tax Foreclosure Law, whose article 5 provides that the competence to hear and decide foreclosure of the Public Treasury's outstanding debt excludes from any other court, including the bankruptcy court, the competence to assess the existence, enforceability, and value of the claim, which will be that of the tax foreclosure court. In other words, the analysis of the merits of the tax foreclosure will not be done by the bankruptcy court, but will be heard by the tax foreclosure court. On the other hand, it is incumbent on the bankruptcy court not only to examine matters such as calculation and classification of claims, but also those related to asset collection, realization of assets, and payment to creditors. Subsection V of the article in question, subject to the jurisdiction of the tax enforcement court to examine the above-mentioned matter, establishes that "tax enforcement actions shall remain suspended until the bankruptcy is terminated, without prejudice to the possibility of proceeding against the co-responsible parties." However, despite the changes introduced by Law No. 14,112/20, which came into force on January 23, 2021, the 1st Section of the Superior Court of Appeals (STJ), in May of this year, unanimously affected to the procedure of repetitive appeals REsp 1.891.836/SP, under topic 1092, with the following controverted theory: "Possibility for the Public Treasury to qualify a tax debt in bankruptcy proceedings subject to a tax foreclosure in progress."
In the event of bankruptcy, there is a three-year lapse period, counted from the decree of bankruptcy, for registrations and requests for a credit reserve (article 10, paragraph 10). This rule applies to bankruptcies decreed after the law went into effect.
Apportionment in bankruptcy may occur even if the General Table of Creditors is not formed, provided that the class of creditors to be satisfied has already had all the judicial objections filed within the term provided for in article 8, except for the reserve of the disputed claims due to the delayed registration of claims distributed until then and not yet judged (article 16).

Labor claims

They was to be discharged within up to one year, and five minimum wages per employee of the strictly wage claims due in the three months preceding the claim was to be paid within 30 days.

Labor claims

The five minimum wages rule mentioned above was maintained and the remainder may be paid within up to two years, provided that the plan, at the discretion of the judge: (i) provides sufficient guarantees; (ii) has been approved in class I; and (iii) guarantees payment of all labor claims (article 54, paragraphs 1 and 2).

Tax issues

When judicial reorganization is granted, the applicant must submit a clearance CND (article 57). However, since the law that provides for tax installments was slow to be enacted and, when it was, it received criticism, the case law has been softening this requirement.
The regulated tax issue was the absence of succession of the purchaser of an isolated productive unit (IPU) in the judicial sale approved in the plan, provided that such purchaser is not (i) a partner of the bankrupt company or a company controlled by the debtor; (ii) a relative, in a straight or collateral line up to the fourth (4th) degree, by blood or by marriage, of the debtor or a partner of the bankrupt company; or (iii) identified as an agent of the debtor with the purpose of defrauding the succession.

Tax issues

The requirement of article 57 continues.
Tax treatment applicable to capital gains on the judicial sale of IPUs: the portion of net income resulting from capital gains on the judicial sale of IPUs may be fully offset against tax losses from priors years, without the limitation of 30%. To this end, the divestiture should take place between independent parties. Also, Corporate Income Tax (IRPJ) and Social Contribution on Net Income (CSLL) due on capital gains may be paid in installments.
Tax treatment of the effects of reducing the value of debts in the event of renegotiation (haircut): regardless of the accounting effects and provided that the renegotiation of debts occurs between unrelated parties, even if the debts are not subject to the judicial reorganization plan, the effects of reduction thereof have the following tax treatment:

(i) revenue will not be taxed by PIS and Cofins;

(ii) the gain may be fully offset against tax losses from prior years, without the limitation of 30%.

Deductibility of expenses: expenses corresponding to the obligation assumed in the plan will be considered deductible from the calculation basis for the IRPJ and the CSLL.
Acts of constriction of assets in the scope of tax foreclosures: despite the discretionary power of the tax foreclosure court to order acts of constriction of assets, the reorganization court has the power to order the substitution of such acts that fall on capital assets essential for the maintenance of the business activity, to be exercised through judicial cooperation.
Payment of tax debts: once the judicial reorganization proceeding has been granted, federal tax debts may be settled on a consolidated basis within 120 months. Payments will be calculated in such a way that those due in the first years are lower than those due in subsequent years. As for debts managed by the Brazilian Federal Revenue Service, up to 30% of the consolidated debt may be settled using tax loss credits and the remainder may be paid in 84 installments. The value of the installments will also be lower in the first years of payment.
Other modalities of installment payment are also available, under the terms of Law No. 10,522/2002, as amended.
Settlement: once the processing of the judicial reorganization has been granted, the taxpayer may submit a proposed settlement to the Brazilian Treasury Attorney's Office. The conditions of the settlement must include payment within 120 months, reductions of up to 70% in the amount of the debt, among other things.

Role of the judicial trustee

There was no legal provision obliging judicial trustees to maintain a website with information on the proceedings in which they serve.
The judicial trustee was not obliged to certify the veracity of the information provided by the debtor, nor to supervise the negotiations held between debtors and creditors.
There was no provision for alternative methods of deliberations by creditors (e.g., by means of an consent form or electronic voting) and, therefore, there was no legal obligation for the judicial trustee to supervise such acts.
The obligation to sell the assets of the bankrupt estate had no time limit. The judicial trustee could request that the judge sell in advance perishable goods, which are deteriorable or subject to considerable devaluation or to risky or costly conservation. In addition, there was no express obligation for the judicial trustee to collect in bankruptcy the amounts of deposits in proceedings to which the bankrupt was a party, although it is currently understood that this is an implicit obligation.
There was no provision for cooperation mechanisms for transnational bankruptcy proceedings.

Role of the judicial trustee

The judicial trustee should encourage mediation, conciliation, and other alternative methods of dispute resolution.
The judicial trustee should maintain an e-mail address with updated information on bankruptcy and judicial reorganization proceedings, with the main filings in the proceedings and monthly activity reports, and on the judicial reorganization plan, as well as for receipt of registrations and disagreements in the administrative sphere, unless a court decision to the contrary is entered.
The scope of the judicial trustee's duties under the judicial reorganization process is broadened, notably (i) to inspect the veracity and conformity of the information provided by the debtor for purposes of preparing the monthly activity report; (ii) to inspect the negotiations between debtors and creditors, ensuring that the parties do not adopt dilatory or prejudicial arrangements; (iii) to inspect, by means of issuance of an opinion regarding their good standing, the decisions of the General Meeting of Creditors (GMC) by means of a consent form, electronic voting, or some other suitable mechanism (article 39, paragraph 5); (iv) to submit for a vote at the GMC that rejects the judicial reorganization plan proposed by the debtor the granting of a 30-day period for presentation of the judicial reorganization plan by the creditors (article 56, paragraph 4); (v) to submit within 48 hours a report of the creditors' responses regarding the holding of a General Meeting to resolve on the sale of assets, requesting its call.
The scope of the judicial trustee's duties within the scope of the bankruptcy proceedings is broadened, namely: (i) the obligation to submit within 60 days of its appointment a detailed plan for realization of the assets; (ii) proceed with sale of all assets of the bankrupt estate within a maximum period of 180 days, as of the date of the filing of the notice of filing of the notice of collection, under penalty of dismissal, except for justified impossibility, recognized by a court decision; (iii) in the event of insufficiency of the assets for the expenses of the proceedings, procure sale of the attached assets within a maximum period of 30 days, for personal property, and 60 days, for real property, if the creditors do not request continuation of the bankruptcy; (iv) to collect the amounts of the deposits made in administrative or judicial proceedings in which the bankrupt appears as a party, arising from attachments, freezes, seizures, auctions, judicial sales, and other events of judicial constriction, with the exception of the deposits of federal taxes.
There is a provision for actions in the scope of transnational bankruptcy proceedings, notably (i) authorization to appear in foreign judicial proceedings in the capacity of representative of the Brazilian judicial proceedings, in the event of bankruptcy; and (ii) obligation of cooperation and communication with the foreign authority and with the foreign representatives.

Means of judicial reorganization

The conversion of debt into capital (only the increase in share capital) was not expressly provided for, but was a means of reorganization used.
There was no provision for full sale of the debtor.

Means of judicial reorganization

The conversion of debt into capital began to be included in the list of article 50 of Law No. 11,101/05 and there is no risk of succession or liability for debts to third parties.
The same rule of absence of liability and succession is express for officers and directors who replace former officers and directors as a means of reorganization and for creditors who make contributions of funds (article 50, paragraph 3).
The creditors' alternative plan may also provide for the capitalization of claims, including foreign exchange of control, allowing the debtor's partner the right to withdraw (article 56, paragraph 7).
Full sale of the debtor: it becomes a means of reorganization provided for in the list of article 50 of Law No. 11,101/05 and can be used when the situation of the creditors who are not subject to the proceedings and who are not members is at least the same as it would be in a bankruptcy. In this scenario, the rule of absence of succession of the IPU will be applied.

DIP financing

The treatment provided for in article 67 of Law No. 11,101/05 was insufficient and did not provide the necessary super priority. Thus, the vast majority of cases of financing in Brazil have always relied on guarantees, especially those of a fiduciary nature, and contractual arrangements for obtaining super-priority.
There was also no express provision in Law No. 11,101/05 protecting third parties in good faith.
There was no provision in Law No. 11,101/05 authorizing the creation of a subordinated guarantee on assets of the debtor without the consent of the holder of the original guarantee.
Experience showed that DIP financing cases ended up involving much litigation.

DIP financing

Super priority is provided for by law (article 84). However, a fiduciary guarantee continues to be advisable, because a claim for restitution in natura is not subject to the competition of creditors. Doubts whether judicial authorization is required (advisable).
Article 69-B provides that a change in the level of appeal against the decision authorizing the engagement may not alter the bankruptcy-exempt nature or the guarantees given by the debtor to the lender in good faith, if disbursement has been made.
Article 69-C authorizes the establishment of a subordinated guarantee on one or more of the debtor's assets in favor of the lender of a debtor under judicial reorganization, waiving the consent of the holder of the original guarantee, with the proviso that the subordinated guarantee, in any event, will be limited to any excess resulting from the disposal of the asset subject to the original guarantee and that such provision will not apply to any type of fiduciary sale or fiduciary assignment.
Article 69-E provides that financing may be provided by any person, including family members, partners, and members of the debtor’s group.
Article 69-D provides that, in the event of conversation of the reorganization into bankruptcy, the financing agreement will be considered automatically terminated and the guarantees provided and preferences will be preserved up to the limit of the amounts actually delivered to the debtor before the date of the judgment that converted the judicial reorganization into bankruptcy.

Consolidation

It was not regulated in Law No. 11,101/05.
Procedural consolidation was allowed on the basis of the rules for joint litigation in the Code of Civil Procedure (CPC), which applied where not incompatible with bankruptcy procedure, pursuant to article 189 of Law No. 11,101/05.
There was no consensus in the case law regarding the requirements, the competence of the decision on the subject, criteria, and quorums applicable to voting.

Law No. 11,101/05 has a provision stipulating the competent court, the requirements, the necessary documentation, and the form of voting in case of procedural consolidation (article 69-G).
The decision on the substantial consolidation may, exceptionally, be made by the judge and the requirements for its acceptance are the finding of interconnection and confusion between assets or liabilities of debtors belonging to the same economic group, such that it is not possible to identify their ownership without excessive expenditure of time or resources, through the finding of at least two of the following events (i) existence of cross guarantees; (ii) relationship of control or dependency; (iii) identity of the corporate structure; and (iv) joint action in the market, which has generated criticism (article 69-J).
In case of substantive consolidation, there is immediate extinguishment of fiduciary guarantees and claims held by one debtor against the other (article 69-K).
There is a rule providing that secured guarantees will not be prejudiced in any substantive consolidation, except with the approval of the holder (article 69-K).

Partner or supporting creditor

It was not regulated in Law No. 11,101/05
Doctrinal and jurisprudential creation based on the spirit of article 67 of Law No. 11,101/05, which allowed, based on the provisions in the plan and with justifications, that a certain creditor, named partner, or supporter, HAVE privileged treatment in judicial reorganization in relation to other creditors of the same class.

Partner or supporting creditor

Article 67, sole paragraph, permits differentiated treatment of claims subject to judicial reorganization for suppliers of goods or services that continue to provide them normally after the application for judicial reorganization, provided that such goods or services are necessary for the maintenance of the activities and that the differentiated treatment is appropriate and reasonable as regards the future business relationship. There is treatment in article 84 of Law No. 11,101/05.

Matched transactions and derivatives

No treatment in Law No. 11,101/05. In practice, early maturity and offsetting were allowed.

Matched transactions and derivatives

The possibility of early maturity and offsetting is provided for by law, and any remaining claim is subject to judicial reorganization, unless there is a fiduciary guarantee.

Sale of assets

IPU: there was no legal definition of what an IPU is. The no-succession rule exemplified only tax and labor obligations and, following the example of IA 2237160-80.2019.8.26.0000 of the TJSP, most of the judgments held that the sale must be made by some form of competition per article 142 of Law No. 11,101/05 to guarantee the absence of succession (there was, however, already a precedent of the STJ allowing another type of sale of an IPU within a judicial reorganization, provided it is authorized by a special quorum and indicating that the rule of absence of succession should prevail: REsp No. 1.689.187-RJ).
Assets: if there was no provision in the plan, the sale and encumbrance of assets required the judge's authorization, after hearing the creditors' committee (if any), and the judge must analyze the evident usefulness of the transaction.
Rule of succession: the general rules of succession of the acquirer in the sale of assets applied in reorganization proceedings not carried out in the form of an IPU (i.e., propter rem).
Means of competition: auction, tender, and closed bid.
Price: Discussions regarding inadequate price were not uncommon.
Summons: summons of the Public Prosecutor's Office mandatory.

Third party in good faith: no express provision in Law No. 11,101/05 protecting their interests.

Sale of assets

UPI: there is legal definition (goods, rights and assets, tangible or intangible, such as corporate interest), the examples of absence of succession covers all obligations, including environmental obligations and those under the Anti-Corruption Law, and the obligation to follow one of the competition modalities of article 142 of Law No. 11,101/05 continues (articles 60 and 60-A), but in a more flexible way, including the use of a market agent.
Assets: if there is no provision in the plan, sale and encumbrance of non-current assets (this is the novelty) will require the authorization of the judge, after hearing the creditors' committee, if any (the requirement of evident utility ceased to exist). Creditors with a joint claim in excess of 15% of the total amount of the liabilities, if they provide a bond and provided that they present justified reasons, may request a GMC to resolve on the matter, and the judicial trustee will explain the matter to the judge, convening a GMC, if the requirements are met. All this should be done quickly, in accordance with the legal deadlines and in the least costly manner, with the objecting creditors bearing the associated costs.
Rule of succession: Articles 60, sole paragraph, and 66, paragraph 3, of Law No. 11,101/05 leave no room for doubt that the asset sold during the judicial reorganization will be free of any encumbrance and that the purchaser will not succeed the debtor in its obligations. These obligations include environmental, labor, regulatory, administrative, criminal, and anti-corruption obligations. Tax obligations were already excepted in the original wording of Law No. 11,101/05. The inclusion of paragraph 3 of article 66 in Law No. 11,101/05 ends any discussion and establishes that sales made with judicial authorization are also shielded from encumbrances.
Means of competition: article 142 of Law No. 11,101/05 provides for an electronic auction, a competitive process organized by a specialized agent of unblemished reputation and any other modality approved under the law.
Price: there can no longer be any discussion of a negligible or inadequate price. A third party contesting the sale must make or present a firm offer from a third party and a guarantee 10% of the value of the offer. Raising an undue objection on any point is an act that undermines the dignity of justice.
Summons: a summons of the Public Prosecutor's Office and the tax authorities is mandatory.
Third party in good faith: the sale of assets or guarantee granted by the debtor to a bona fide purchaser or lender, provided that it is carried out by express judicial authorization or provided for in an approved judicial or extrajudicial reorganization plan, may not be annulled or rendered ineffective after the consummation of the legal transaction with the receipt of the corresponding funds by the debtor.

Alternative plan proposed by the creditors

There was no provision in that regard. Only the debtor could propose a plan for judicial reorganization, and any proposal for change made by creditors should have the debtor's express agreement. Rejection of the plan without meeting the requirements for a cram down entailed conversion of the judicial reorganization into bankruptcy.

Alternative plan proposed by the creditors

Creditors may submit an alternative plan if the debtor, after the extension of the stay period, is unable to put a plan to a vote or if, after the rejection of the plan at the GMC, the creditors vote for the granting of a 30-day period to do so, in which case the alternative plan must be voted on within 90 days of the GMC that decided on the submission of the plan.
The alternative plan should have a specific quorum of support from creditors representing, alternatively, more than 25% of the total claims subject to judicial reorganization or more than 35% of the claims of the creditors present at the GMC that decided to submit an alternative plan (article 56, paragraph 6, III); there may be no new obligations not provided for by law or in prior agreements with the debtor's partners; there will be a provision for exemption from personal guarantees provided by individuals with respect to claims held by creditors who supported/voted in favor of the alternative plan, which may not impose greater sacrifice on the debtor and its partners than that which would result from liquidation in bankruptcy.
(article 56, paragraphs 4 to 9).
The plan proposed by the creditors may provide for the capitalization of the claims, including the consequent change in the control of the debtor, allowing the exercise of the right of withdrawal by the debtor's partner (article 56, paragraph 7).

The alternative plan will only apply to judicial reorganizations filed after the entry into force of Law No. 14,112/20.

GMC

In person is the rule provided for in Law No. 11,101/05, but because of the covid-19 pandemic, virtual GMCs were admitted by the case law, including with the issuance of Recommendation No. 63 by the Brazilian Judicial Review Board (CNJ) in this regard.

GMC

It may be virtual and may also be replaced, with the same effect, by a consent signed by creditors who meet the specific approval quorum or other mechanism deemed sufficiently secure by the judge (article 39, paragraph 4).
In addition to the duties provided for in Law No. 11,101/05, it may resolve on the approval of disposal of assets or rights of the debtor's non-current assets, not provided for in the judicial reorganization plan (article 35, item g).
Article 56, paragraph 9, provides that, in the event of suspension of the GMC convened for the purpose of voting on the judicial reorganization plan, the meeting must be adjourned within 90 days from the date it was convened.

Abusive vote

There was no specific provision in Law No. 11,101/05, but there were decisions in which so-called abusive votes from significant creditors were disregarded whose contrary votes would prevent the achievement of the plan's quorum for approval.

Abusive vote

Legal provision that the vote will be exercised by the creditor in the interest and in accordance with its judgment of advisability and declared null and void for abusiveness only when manifestly exercised to obtain an illicit advantage for itself or others (article 39, paragraph 6).

Judicial reorganization of a rural producer

Law No. 11,101/05 did not regulate the possibility for individual rural producers to request judicial reorganization. There was a divergence in the case law regarding whether the registration of rural producers is a declaratory or constitutive in nature and, therefore, whether the period of activity prior to registration should be taken into account in order to fulfill the requirement of at least two years of activity provided for in the head paragraph of article 48 of Law No. 11,101/05 and whether or not the debts taken on prior to registration are subject to the judicial reorganization.

Judicial reorganization of a rural producer

Rural producers acting as individuals may request judicial reorganization.
The special plan for rural producers may not involve debts of more than R$ 4.8 million (article 70-A).
The proof of the two-year period of activity established in the head paragraph of article 48 is admitted through the Tax Accounting Book (ECF), or legal obligation to keep accounting records that may replace it (in the case of rural activity exercised by a legal entity), the Rural Producer Digital Cash Book (LCDPR), or legal obligation of accounting records that may replace it, the Income Tax Return, and balance sheet (in the case of rural activity exercised by an individual) (article 48, paragraphs 2 and 3).
Only claims arising exclusively from rural activities, even if not past due, will be subject to judicial reorganization (article 49, paragraph 6). Appeals controlled and covered under articles 14 and 21 of Law No. 4,829/65 (article 49, paragraph 7) will not be subject to the judicial reorganization. However, if they have not been renegotiated before the application for judicial reorganization, in the form of an act of the Executive, such claims will be subject to the effects of the plan (article 49, paragraph 8).
Claims relating to debts incurred in the last three years prior the request for judicial reorganization, as well as the respective guarantees, will also not be subject to judicial reorganization (article 49, paragraph 9). Contracts and obligations arising from cooperative acts performed by cooperative societies with their members, pursuant to article 79 of Law No. 5,764/71.
One must also consider the amendment to article 11 of Law No. 8,929/94, mentioned above.

Possibility for the tax authorities to file for bankruptcy of the debtor

Although article 97, IV, of Law No. 11,101/05 provides that any creditor may file for bankruptcy of the entrepreneur and of the business company, the until then settled understanding of the STJ was to the effect that the Public Treasury did not have standing to file for bankruptcy for companies and/or businessmen.
However, in an extended judgment held in August of 2020, the 1st Chamber of Business Law of the Court of Appeals of the State of São Paulo (TJSP), by majority vote, upheld the appeal so as to (i) annul the decision that had rejected the complaint and extinguished the proceeding without a resolution of the merits, on the grounds that the Brazilian Treasury had no procedural interest; and (ii) order the regular continuation of the petition for bankruptcy filed by the Federal Government, represented by the Attorney’s Office for the Federal Revenue Service, against a company engaged in the trade and distribution of food products.
The TJSP emphasized that, in the case at hand, the petition for bankruptcy was not based on article 94, subsection I of Law No. 11,101/05 (whose more restrictive understanding should prevail) but on article 94, subsection II, since the Federal Revenue Service, although it filed for a tax foreclosure, has not located sufficient assets of the debtor to satisfy the debt. Having exhausted the means to satisfy its claim, it would not be possible to withdraw from the public body the possibility of filing for bankruptcy of the debtor.

Possibility for the tax authorities to file for bankruptcy of the debtor

The tax authorities may petition for judicial reorganization of the debtor in bankruptcy if (i) there is nonperformance of the installment payments of the debts provided for in article 68 of Law No. 11,101/05 or the settlement provided for in article 10-C of Law No. 10,522/2020; or (ii) when the debtor's assets are identified as being depleted, resulting in substantial liquidation of the company, to the detriment of creditors not subject to the judicial reorganization, as is the case of the Public Treasury.
Depletion is considered substantial when assets, rights, or future cash flow projections are not reserved sufficient to maintain economic activity for the purpose of fulfilling its obligations.
In the event that bankruptcy is decreed by the substantial depletion of the company, the disposals made will be preserved and considered effective, so as not to harm a bona fide third party purchaser. The proceeds of such disposals, on the other hand, should be blocked, with the consequent return to the debtor of the amounts already distributed to any creditors, which will now be available to the court.

Closing of the judicial reorganization

Two years of judicial supervision. In view of this, it was not possible to close it. When there was a grace period of more than two years, some judges extended the judicial supervision period. An attempt has already been made to close supervision early, but this was not allowed.

Closing of the judicial reorganization

Supervision is for a maximum of two years, and judicial reorganization may be terminated prior to that, regardless of the grace period and the closure of the registrations and consolidation of the general list of creditors (article 61).

Extrajudicial reorganization

The debtor, provided that 3/5 of the class(es)/subclass(es) of creditors covered by the extrajudicial reorganization plan have joined, could request in court approval of the plan, which was mandatory for all creditors of that (those) class(es)/subclass(es) after approval.
The debtor was free to indicate the class(es)/subclass(es) involved, and may not cover labor creditors, bankruptcy-exempt creditors, and the tax authorities.
Law No. 11,101/05 did not provide for a stay period for extrajudicial reorganization, but in some cases and in relation to the creditors covered by extrajudicial reorganization there were judgements that granted such a suspension pending ratification of the judicial reorganization plan approved by 3/5 of the creditors covered.
There was no protection of absence of succession of the purchaser of the debtor's IPUs in extrajudicial reorganization.

Extrajudicial reorganization

The quorum for participating became 50%. The process may begin with the signature of 1/3 of the class(es)/subclass(es) involved, and the reorganization may obtain the 50% needed in the course of the proceeding within 90 days. If such additional adherence is not obtained, the debtor may apply for judicial reorganization.
The labor class may participate in the proceeding, provided that there is collective negotiation with the labor union of the respective professional category.
There is a legal provision for the possibility of a stay period to reach the class(es)/subclass(es) involved as of the request.
There is still be no provision for the absence of succession of the purchaser of an IPU in the obligations and debts of the debtor in possession.

Fresh start

Law No. 11,101/05 did not concern itself with this. Bankruptcy in Brazil is time-consuming and highly contentious. The requirements for closure of the bankruptcy and extinguishment of the bankrupt's obligations were lengthy.

Fresh start

The changes seek to create a rapid bankruptcy process, with rapid sale of assets (and even the possibility of donating assets without interested parties) and reducing questions on this point, including placing responsibility and a burden on objectors (article 143).
The fresh start is established in positive law as a principle to be sought in bankruptcy (article 75), but it is applicable to the individual entrepreneur.
There is also the possibility of termination of the bankrupt's obligations in shorter periods and under less onerous conditions (article 158), and the rules in force of article 5 of Law No. 14,112/20 must be observed.

Extension of the effects of the bankruptcy

There was no legal provision, but case law admitted and confused extension of the effects of bankruptcy with piercing the corporate veil.

Extension of the effects of the bankruptcy

Extension of the effects of bankruptcy is expressly prohibited for limited liability companies. Piercing of the corporate veil should respect the precepts of the Code of Civil Procedure and the Civil Code (article 82-A). Such rules apply only to new bankruptcies.

List of creditors in bankruptcy

The list of creditors was provided for in articles 83 and 84 of Law No. 11,101/05.

List of creditors in bankruptcy

The ranking order of competing debts remains the same, but the table has been simplified, with the elimination of the privileged class (article 83). Interest accrued after the bankruptcy decree (article 124) were expressly included last in the classification of competing debt claims (article 83, IX).
In relation to subordinated creditors, it was clarified that partners without an employment relationship hold this classification only in relation to claims taken on without observing strictly fair conditions and market practices (article 83, VIII, “b”).
The order of the extra-bankruptcy creditors (article 84) was amended, highlighting: (i) inclusion of the provisions of articles 150 and 151, debt claims already had priority in terms of payment in the original version of the law, but were not expressly listed in the list of the old wording; (ii) priority of debt claims arising from DIP financing; (iii) higher priority treatment to debts called partner suppliers/collaborating suppliers (article 67); and (iv) inclusion of a new case of extra-bankruptcy debt: tax debts from triggering events occurring after the bankruptcy decree.
Claims of foreign creditors arising from transnational bankruptcy proceedings (Chapter IV-A) and which do not qualify as subordinated (foreign claims of a tax and social security nature, and criminal and administrative monetary penalties - article 167-G, I) or extra-bankruptcy (in the case of a foreign representative, article 167-G, II) are classified as unsecured.
Such rules apply only to new bankruptcies.

Rapid closure of bankruptcy in the event of absence of assets

There was no express provision in Law No. 11,101/05.

Rapid closure of bankruptcy in the event of absence of assets

If there are no assets to be collected, or if they are not sufficient to pay the expenses of the proceeding, the judicial trustee will immediately report this fact to the judge, who, after hearing the representative of the Public Prosecutor's Office, will schedule, via call notice, a 10 day period for interested parties to request what is rightfully due. If they choose to proceed, the creditors must bear the costs of the judicial trustee. Otherwise, the bankruptcy will be terminated after the sale of existing assets within a maximum period of 30 days for personal property and 60 days for real estate.

Sale of assets in bankruptcy

There was no maximum term for the judicial trustee to carry out sale of assets in bankruptcy.
Discussions regarding inadequate price were common.
There was no provision for donation/return of unsold assets to the debtor.

Sale of assets in bankruptcy

There is a maximum period of 180 days for the judicial trustee to proceed with the sale of all the assets of the bankrupt estate. The time period is counted from the date of the filing of the notice of collection, under penalty of dismissal, except for reasoned impossibility, recognized by a judicial decision.
The sale does not require consolidation of the general list of creditors.
The sale is not subject to application of the inadequate and negligent price concept. A third party contesting the sale must make or present a so-called “firm offer” and guarantee 10% of the value of the offer. The improper raising of an objection on a point is considered an act against the dignity of Justice.
Once the attempt at sale of the assets has been frustrated, and when there is no concrete proposal from the creditors to assume them, the assets may be considered as having no market value and sent for donation or returned to the debtor, if there is no interest in donation.

Pursuant to a resolution passed under article 42, creditors may obtain the assets sold in bankruptcy or acquire them through the formation of a company, fund, or other investment vehicle, with the participation, if necessary, of the debtor's current shareholders or third parties, or through the conversion of debt into capital.

Extinguishment of the obligations of the debtor

Requirements for the extinguishment of the obligations of the debtor were laid down in article 158 of Law No. 11,101/05 and were the following: (i) payment of more than 50% of the unsecured claims; (ii) lapse of the period of five years from the closing of the bankruptcy; or (iii) in the event of conviction for a bankruptcy crime, a period of 10 years from the closing of the bankruptcy.

Extinguishment of the obligations of the debtor

Changes have been inserted into article 158 to speed up the extinguishment of the bankrupt debtor’s obligations. The current requirements are for extinguishment of the bankrupt debtor’s obligations: (i) payment of all claims; (ii) payment of more than 25% of the unsecured claims; (iii) expiration of three years, as of the decree of bankruptcy, except for the use of assets previously seized, which will be sent for liquidation to satisfy registered creditors or creditors with a request for reserve; (iv) closing of the bankruptcy pursuant to article 114-A (absence of assets of the debtor) or article 156.
The rule in force of article 5 of Law No. 14,112/20 must be observed.

Assignment of claim

The assignment of a debt claim was possible in practice, but not regulated in Law No. 11,101/05.
In bankruptcy, the assignment of labor debts denatured their characteristics, and the claim became unsecured.

Assignment of claim

The institute is expressly provided for in the law, and the promise of assignment or transfer must be immediately communicated to the reorganization court (article 39, paragraph 7).
In bankruptcy, any assignment of a claim maintains the classification and characteristics of the claim (article 83, paragraph 5).

Prevention of the court

The rule of jurisdiction of the court by prevention did not cover requests for approval of extrajudicial reorganization plans previously filed, although case law already recognized this possibility on the basis of an expansive interpretation of the rule.

Prevention of the court

The assignment a petition for an extrajudicial reorganization plan also results in preventive jurisdiction of the court for any other bankruptcy, judicial reorganization, or extrajudicial reorganization petition concerning the same debtor (article 2, paragraph 8).

Dividend distribution

Law No. 11,101/05 did not govern the subject.

Dividend distribution

Until the approval of the judicial reorganization plan, the debtor is prohibited from distributing profits or dividends to partners and shareholders (article 6-A)

Application of the Code of Civil Procedure

The suppletory application of the Code of Civil Procedure was provided for in Law No. 11,101/05. However, as the new CPC establishes the counting of time limits in business days and restricts when interlocutory appeals may be filed, debates have arisen regarding application of the new rules to bankruptcy proceedings.

Application of the Code of Civil Procedure

It is expressly provided that all time limits provided for in Law No. 11,101/05 will be counted in calendar days and that the applicable appeal against the decisions rendered in the course of the proceedings is the interlocutory appeal, unless otherwise provided for in Law No. 11,101/05.
The new wording given to article 189 of Law No. 11,101/05 provides that "all time limits provided for therein or arising therefrom shall be counted in calendar days" (paragraph 1, subsection I), which makes it possible to argue that procedural deadlines would be in business days. In fact, the TJSP recently decided that: "At first, contrary to what was proposed by the appellee, subsection I, of paragraph 1 of article 189 of Law No. 11,101/2005, as amended by Law No. 14,112/2020, does not affect the time limit for filing appeals in judicial reorganizations, which continues to be counted in business days, according to the general rule of article 219, head paragraph, of the CPC of 2015, and, therefore, the appeal is timely. The text of the head paragraph of this same article 189 is very clear, as it excepts the deadlines specifically provided for in the procedural legislation, as is the case of that of article 1,003, paragraph 5, of the Code of Civil Procedure of 2015, as regards appeals in general. This results in rejection of the threshold issue raised.” (TJSP, AI 2063796-96.2021.8.26.0000, 1^st Chamber Reserved for Business Law, opinion drafted by Fortes Barbosa, decided on May 6, 2021)

The Judiciary must give priority to bankruptcy proceedings over the others, except for habeas corpus and the priorities established in special laws.

Conciliation, mediation, and arbitration

Law No. 11,101/05 did not govern the practice of conciliation and mediation prior or incidental to a judicial reorganization proceeding.
In practice, mediation has already been adopted in some judicial reorganizations, especially with a view to speeding up the procedures related to ancillary proceedings for verification of claims and to defining the means of reorganization and payment conditions to be arranged in the judicial reorganization plan.
The majority case law already required respect for arbitration agreements.

Conciliation, mediation, and arbitration

Conciliation and mediation are encouraged before and during judicial reorganization, at any level of appeal (article 20-A).
It is possible to obtain urgent relief for the suspension of executions against the debtor for a period of up to 60 days prior to the filing of the judicial reorganization, for an attempt to reach a settlement with its creditors in a mediation or conciliation proceeding already instituted before the Judicial Center for Settlement of Conflicts and Citizenship. In the event of a subsequent request for judicial or extrajudicial reorganization, the time limit will be deducted from the stay period provided for in article 6 of Law No. 11,101/05 (article 20-B, paragraphs 1 and 3).
Conciliation and mediation on the legal nature and classification of claims, as well as on voting criteria at the GMC is be prohibited (article 20-B, paragraph 2). Settlements reached through conciliation or mediation must be approved by the competent court (article 20-C).
If judicial or extrajudicial reorganization is requested within 360 days as of the settlement signed in the conciliation or pre-trial mediation, the rights and guarantees of the creditors will be reconstituted on the terms originally contracted, with the exception of acts validly performed within the scope of the proceeding (article 20-C, sole paragraph).
The need to respect the arbitration agreement by the debtor in possession or bankrupt party, represented by the judicial trustee, is established in positive law (article 6, paragraph 9).

Transnational Bankruptcy

Issue not regulated by Law No. 11,101/05.
In the case of foreign companies that are part of the same economic group as Brazilian companies requested reorganization in Brazil and whose center of main interest is Brazil, as in the case of offshore vehicles used to raise funds, there was case law allowing such companies to be applicants submitting the request for judicial reorganization.

Transnational Bankruptcy

Transnational bankruptcy rules introduced in Brazil, along the lines of the Uncitral Model Law.
The principles for governing transnational bankruptcy, such as cooperation between judges and maximization of assets, are established, and institutes (e.g. what is considered foreign proceedings, main proceedings, foreign non-main proceedings and others) are conceptualized.
The following are the cases in which the provisions relating to transnational bankruptcy are applied: (i) a foreign authority needing assistance in Brazil for foreign proceedings; (ii) assistance related to proceedings governed by Law No. 11,101/05 filed in a foreign country; (iii) foreign proceedings and proceedings governed by Law No. 11,101/05 relating to the same debtor underway simultaneously; and (iv) creditors or interested parties with an interest in requesting or participating in proceedings governed by Law No. 11,101/05.
The jurisdiction of the place of the debtor's main establishment in Brazil is established for recognition of a foreign proceeding and for cooperation with foreign authorities.
There is express authorization for the debtor and the judicial trustee to act in other countries, regardless of judicial decision, provided that the provision is admitted in the country where the foreign proceeding is being processed.
With respect to access to the Brazilian jurisdiction, the provisions clarify that: (i) the foreign representative is entitled to submit filings directly with the Brazilian judge; and (ii) foreign creditors have the same rights as granted to domestic creditors.
The documents to support the application for recognition of foreign proceedings and the effects of such recognition are indicated.
Rules for the coordination of competing cases are provided for.

On May 18, 2021, the Brazilian Judicial Review Board, in its 331st ordinary session, unanimously approved a resolution related to Normative Act 0001834-33.2021.2.00.0000, which internalizes the Judicial Insolvency Network (JIN), an international agreement with rules for cooperation and direct communication with foreign bankruptcy courts.^{^[1]}

^[1] At the time of drafting of this article, the resolution had not yet been published. According to information on the CNJ website, "the communications must be recorded and all parties involved should be aware of them. (...) Another novelty that the agreement will allow is for a court to authorize a party or interested parties to present their case and be heard by a foreign court, provided that the decision is endorsed by the court indicated. In addition, the judge may authorize the party or interested parties in proceedings taking place in another country to appear and be heard, without there being any change in the jurisdiction over the case.” https://www.cnj.jus.br/justica-internaliza-tratado-de-comunicacao-em-insolvencia-internacional/ (accessed on May 19, 2021)

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