Publications

: Category: Tax

The writ of mandamus is a procedural instrument provided for in the Federal Constitution to protect citizens against abuse of power or illegality committed by a member of the Public Administration. With this constitutional lawsuit, the aim is to re-establish the legal situation and protect the right of the covered person arbitrarily restricted by an authority.

Faced with so many peculiarities in the handling of the writ of mandamus, there is an important point about whether it is possible to withdraw it at any time, especially after the trial denying the order has been issued and regardless of the agreement of the administrative authority.

Law 12,016/09, which establishes the framework of the writ of mandamus, does not address the issue, such that the provisions of the Code of Civil Procedure (CPC) are applicable to the matter.

First of all, it is worth making a distinction between withdrawal and waiver. Withdrawal produces eminently procedural effects, whereas waiver, precisely because it is closely related to the substantive right itself under discussion in the case, receives separate treatment.

If the party in a procedural relationship chooses to withdraw the claim, the effect of this unilateral act is extinguishment of the suit without a resolution of the merits, as provided for in article 485, subsection VIII, of the CPC.[1] This is because, regardless of the reason that led the party to withdraw from the proceeding, such conduct takes on a procedural form, causing only the case itself to cease. That is, there is repercussion only in the procedural field. The substantive right remains intact. In other words, the existing discussion will not be able to affect the underlying substantive right for any purpose. Thus, it is permitted for a private party to file a new lawsuit - writ of mandamus or any other type compatible with the claim made - provided that it is within the deadline for the exercise thereof.

On the other hand, with waiver, the effects arising from such an expression of will affect the underlying substantive right and the party which has granted it recognizes the right of the counterparty, including with retroactive effect. So much so that a trial ratifying the waiver expressed by the party resolves the merits of the case and is equivalent to acceptance of the opposing party's claim. This is the provision of article 487, subsection III, letter 'c' of the CPC.[2]

Faced with the effects that these unilateral statements propagate, the CPC does not contain any provision to condition a trial that resolves the merits (in the event of waiver) with the agreement of the opposing party. On the other hand, paragraph 5 of article 485 of the CPC provides that the withdrawal of the lawsuit may be filed up to the trial. This led to the understanding that, after this decision was issued, its ratification would be conditional on the agreement of the opposing party.

However, in the case of an application for mandamus, unlike in actions involving only private parties, the authority's agreement to the request for withdrawal is dispensable. This is because, while in private relations (fully governed by the CPC) the defendant also has an interest in judicial relief from the moment it joins the case, in disputes against the Public Administration, via the route of mandamus, there is nothing to be said of the State's interest in obtaining a decision that recognizes the legality of the contested act.

In fact, the acts performed by the Public Administration are considered, even if by presumption, in line with the legal system until another one (administrative act or judicial decision) comes about that says otherwise. Therefore, from the Public Administration's perspective, before or after the trial in a writ of mandamus, there is not even a procedural interest that requires ratification of the withdrawal with the agreement of the authority.

Due to the characteristic of self-execution of administrative acts, it is not necessary for the Judiciary to act with the objective of recognizing the existence of a right against the private party. The Administration is allowed to adopt measures for direct execution of its own act. As an example, tax foreclosures.

The matter was examined by the Federal Supreme Court (STF), under the general repercussion system, in the trial of Extraordinary Appeal 669.367-RJ, in which the Court decided that the provision of the Code of Civil Procedure of 1973 (article 267, paragraph 4 - reproduced in article 485, paragraph 5, of CPC/2015) which required the agreement of the adverse party for ratification of the withdrawal after the trial was rendered is not applicable to writs of mandamus.

According to Justice Rosa Weber, who issued the prevailing opinion, even if the trial has granted the mandamus claimed, "by withdrawing from favorable judicial relief in a writ, the applicant is subject to the prevalence of the administrative act that, before, it sought to rule out, as though the writ had never been filed; the self-execution of the administrative act resurfaces in its entirety.”

Necessarily, with the withdrawal in a writ of mandamus manifested after the trial has been rendered - whether it was favorable for or against the private party - the effect is to restore the enforceability of the administrative act challenged in the proceedings. Even in situations where the trial is unfavorable to the private party, the withdrawal from the writ of mandamus will only entail preservation of the act of authority as issued, there being no grounds for objection by the Public Administration.

In the case of a writ of mandamus, it is not in the interest of the Public Administration to obtain a judicial enforcement instrument (res judicata) to protect itself from the taxpayer. The administrative act fought is already endowed with self-execution. With the withdrawal of the claim, its legality is confirmed.

The elements outlined contribute to conclude for the correctness of the position reached by the STF, followed by the Brazilian courts, and on the need to interpret the rules that establish the procedure in line with the particularities of the substantive law discussed in the specific lawsuit.

The withdrawal from the writ of mandamus, regardless of the stage of the proceeding, re-establishes the self-execution of the administrative act contested. Therefore, the requirement that the authority agree to the private party's claim is unnecessary, since the end sought by the Public Administration itself will already be achieved.

[1] Article 485. The judge shall not decide the merits when he: (...)VIII - ratifies withdrawal of the action;

[2] Article 487. There shall be a resolution on the merits when the judge: (...) III - ratifies: (...) c) the waiver of the claim made in the action or in the counterclaim.

: Category: Litigation

When the new Code of Civil Procedure (CPC) entered into force, one of the provisions that generated great stir in legal scholarship was article 139, IV, which gave the judges the power to “determine all inductive, coercive, mandatory, or subrogatory measures necessary to ensure compliance with a judicial order, including in actions that have as their purpose a monetary payment.” The futurology exercises on what claims would be submitted to the judges and to what extent these provisions could give rise to a wave of judicial activism were fruitful.

In fact, it is a provision that gives room for the creativity of the parties and judges, since its objective is to select and apply the measures that, in the specific case, have the greatest chance of compelling the debtor to comply with a certain judicial order or obligation. At first, a series of very original claims could be identified: suspension of social network accounts and blocking of instant messaging applications, blocking of credit cards, prohibition of access to condominium leisure areas by defaulters, sealing of commercial establishments, or part of commercial activity, among others.

This diversity of claims challenged the courts to develop some criteria for applying atypical measures to balance the creditor's enforcement claim and the rights - particularly fundamental rights - of the debtor. In addition, it was necessary to carry out an examination of the measures required that would be effective in motivating the fulfillment of the obligation and which would be emulative and motivated by vengefulness or merely punitive intent. These criteria have been outlined around the concepts of reasonableness, proportionality, and the use of atypical measures as the ultima ratio.

More than two thirds of decisions on atypical measures involve suspension or seizure of CNH and passport

The application of these criteria over the four years of the CPC has finally defined a certain typicity to the atypical measures most demanded and therefore most often granted. Thus, although the legal provision gives the judge broad powers to define the best atypical measure to be applied in the specific case, most of the claims for application of article 139, IV, of the CPC and, consequently, of the decisions that grant the application of the atypical enforcement measures, revolve around the suspension or seizure of the National Driver's License (CNH) and passports. At the São Paulo Court of Appeals (TJSP), for example, 362 out of 544 judgments on atypical measures issued between 2016 and 2019 dealt with claims of this nature - over 66%, therefore.[1]

In view of this, the delimitation of the criteria for granting and maintaining atypical enforcement measures, and the current stage of this discussion with the higher courts - as will be seen below - is already occurring in a much more controlled environment, with a much smaller variety of claims and decisions. The same was observed in the TJSP during the new coronavirus pandemic.

The case law of the STJ and the parameters for granting atypical measures

The case law of the Superior Court of Appeals (STJ) regarding atypical measures, following the trend observed with the TJSP (and other state courts), has also been forming around claims for suspension or apprehension of CNH and passports. Therefore, it is not uncommon for the parameters for granting or revoking atypical enforcement measures to be found in a habeas corpus suit, on the grounds that they constrain the fundamental rights of debtors to come and go.

The following is an analysis of some recent judgments by the STJ aimed at identifying which parameters have prevailed for the application of atypical measures.

Resp 1.788.950/MT (decided on April 23, 2019)

Execution of an extrajudicial enforcement order brought by the appellant against Mr. Fernando Bardi. At the trial level, an interlocutory decision was issued rejecting the claim for suspension of the CNH and seizure of the passport of the judgment debtor. The appellant filed an interlocutory appeal, which was denied relief. Thereafter, the appellant filed a special appeal for annulment alleging, among other things, violation of article. 139, IV, of the CPC, since it would be "appropriate and necessary to adopt an atypical enforcement measure, as it is essential for satisfaction of the obligation in the execution proceeding, considering that numerous attempts have already been made to locate assets liable to constriction, all of them unsuccessful."

Appellate Decision. In the opinion, it was stated that application of article 139, IV, of the CPC requires:

The prior summons of the judgment debtor to pay the debt or to present assets intended to settle it, followed, as a corollary, by the typical acts of expropriation;
The prior exhaustion of the typical means of satisfaction of the debt executed;
The existence of minimal indications that the judgment debtor possesses assets capable of satisfying the debt; and
The decision to authorize the use of indirect enforcement measures must also be duly reasoned, according to the specific circumstances of the case (case-by-case analysis).

In the specific case, the STJ held that, despite having exhausted the traditional means of satisfaction of the debt, there were no signs that the debtor was hiding its assets, but rather that it did not possess assets to pay off the debt, which is why it dismissed the special appeal, as highlighted by the reporting judge Nancy Andrighi in her opinion:

"In short, it is possible for the judge to adopt atypical enforcement means provided that, if there is evidence that the debtor possesses assets capable of fulfilling the obligation imposed on it, such measures are adopted in a secondary manner, by means of a decision that contains adequate grounds for the specificities of the concrete scenario, with due regard for the substantantive adversarial process and the requirement of proportionality."

More recently, the same grounds were adopted in the following appeals: REsp 1.782.418/RJ (DJe April 26, 2019), 1.828.969/MT (DJe September 5, 2019); REsp 1.854.289/PB (DJe February 26, 2020), and REsp 1864190 (Dje June 19, 2020).

2. HC 558.313/SP (decided on June 23, 2020)

Collection action in view of execution of judgment. In this case, the partners of the judgment debtor company (whose corporate veil was pierced) filed a writ of habeas corpus in order to vacate the order restricting the departure of the patients from the national territory, without a prior guarantee of execution.

Appellate Decision. In the opinion, it was stated that application of article 139, IV, of the CPC requires:

Meet the requirements of necessity, adequacy, and proportionality of the measure;
There are indications that the debtor has expropriated assets or has been hiding its assets to frustrate the execution; and
The typical execution measures are found to be ineffective.

In the specific case, it was found that (i) the international trips taken by the patients are not be compatible with the allegation of lack of funds to pay the amounts due, (ii) the typical measures proved ineffective, and, (iii) although the judgment debtors claimed that the atypical enforcement measure was disproportionate, they did not present any alternative, less burdensome, and more effective executive means, as incumbent on them, for which reason the habeas corpus was not heard and the constriction was maintained.

3. HC 453870/PR (decided on June 25, 2019)

Tax execution filed by the municipality of Foz do Iguaçu (PR). In this case, the debtor filed a habeas corpus suit to vacate the order that seized his passport and suspended his CNH.

Appellate Decision. At the time of the judgmnet, it was stated that, in tax collection proceedings, atypical personal coercive measures, such as suspension of passport and driver’s licence, are not fitting, as application thereof in this context would result in excess. To this end, the STJ held that the State has super priority in its capacity as creditor, and tax debt is highly resistent to the risk of default by its own “legal and procedural conformation”.

In view of this, the STJ granted habeas corpus for the exclusion of the atypical measures contained in the judgment under appeal, since they were excessive, stating that, in the record, there was already indication of attachment of 30% of the salary the defendant receives at Sanepar (the Paraná Sanitation Company).

Atypical enforcement measures during the pandemic

The new coronavirus pandemic has placed greater emphasis on the need for a careful and a thorough examination of the necessity, adequacy, and proportionality of the atypical enforcement measures requested. The decrease in income and the financial difficulties caused by the health crisis have increased both the creditors' need to receive and the debtors' solvency problems, making the judge's actions even more critical, as they are responsible for balancing the interests expressed by the parties in the case.

Because of the short time that has elapsed since the restrictive measures adopted by the public authorities to contain the advance of the pandemic began, few judgments on the application of atypical enforcement measures in the context of the pandemic have reached the courts.

In the scope of execution for a certain amount, the TJSP, despite finding that, in theory, the atypical measure claimed as a way to ensure the success of the enforcement claim, opted for the non-applicability of article 139, IV, of the CPC, in view of the exceptional situation caused by the pandemic. According to the judgment, this guidance would persist until, in principle, the return to economic normalcy:

"EXECUTION FOR CERTAIN AMOUNT. FINANCING AGREEMENT, GUARANTEED BY MORTGAGE. ATYPICAL COERCIVE MEASURES UNDER ARTICLE 139, IV, OF THE CPC. SUSPENSION OF CREDIT CARD. REASONABILITY. PROPORTIONALITY. 1. Atypical coercive measures may be used to compel the debtor to perform his duty (CPC, article 139, IV). 2. However, they should not be merely a means of constricting the debtor, as a mere punishment, without bringing about for the creditor the possibility of satisfaction of the debt. The measures must be useful to that satisfaction, as well as proportionate and reasonable. 3. The blocking of credit cards seems to us, as a rule, an appropriate measure that contributes to the achievement of the scope of the execution process, aiming at removing debtors from their inertia. 4. Considering, however, the situation of deep economic and financial crisis imposed by the Covid-19 pandemic, without prospects for improvement in the scenario of global recession in the short term, we have to maintain the decision under appeal, at least until the resumption of economic normality, when the issue may be reviewed. Appeal denied relief, with an observation.” (TJSP; Interlocutory Appeal 2092438-16.2020.8.26.0000; reporting judge: Melo Colombi; Adjudicatory Body: 14^th Chamber of Private Law; Central Civil Courts - 4^th Civil Court; Date of Judgment: June 17, 2020; date of registration: June 17, 2020)

Excerpt from the opinion of the reporting judge:

"The blocking of cards of [...] would work as a stimulus for the discharge of their debts, without so much recalcitrance, being useful, therefore, for the scope of the execution process. It so happens that the current scenario in which we find ourselves does not recommend the adoption of this measure. [...]

The moment, therefore, does not favor the blocking of funds and means of acquisition of basic survival inputs of people (individuals or companies) who were already experiencing financial difficulties even before the arrival of the epidemic in our country."

The discussion regarding the applicability of atypical measures during the new coronavirus pandemic was given greater prominence in the area of alimony suits. In this case, there was discussion of the possibility of imposing house arrest on the alimony debtor in this context (cf. CNJ Resolution No. 62) and adopting, first, other atypical enforcement measures (credit card blocking, CNH etc.) before civil imprisonment. The application of a prison sentence in the current health crisis scenario would potentially expose the debtor to a substantially higher risk of contamination, which is why other legal restrictions have been adopted to encourage the payment of the alimony debt.

On the other hand, and considering the indispensable adequacy link between the atypical measure applied and the incentive given to the debtor to pay the debt, it is certain that, at the present time, restrictions such as suspension or seizure of a passport will not have the same effectiveness as in other times, considering the current limitations on international travel.

Thus, with the pandemic, the complex task of the courts to strike a balance between legitimately inducing compliance with a court order or obligation litigated and overly restricting the rights of debtors has become even more arduous and with potentially more serious consequences for the parties.

Parameters consolidating

The application of atypical enforcement measures, under the terms of article 139, IV of the CPC, brings with it the challenge of pondering and weighing up the interests of creditors and debtors, going beyond the sphere of assets and entering into the sphere of fundamental rights. With the submission of the subject to the scrutiny of the STJ, a list of parameters has been formed that should guide judges and courts in the application of the concept.

Currently, in order to maintain the constriction of CNH and passport due to default or debt, it is necessary to observe the following issues:

Exhaustion of the typical means of satisfying the obligation (atypical measures as ultima ratio);
Indications that the debtor is voluntarily concealing assets capable of discharging the debt;
The appropriateness and proportionality of the measure, analyzed in the specific case; and
Balanced relationship between the litigant parties.

Thus, although case law has tried to establish predictability in the application of these measures, there is still a high degree of subjectivity bequeathed to judges and courts to assess the advisability and effectiveness of atypical constrictions requested by creditors in each specific case.

The pandemic, which has significantly altered the financial condition of some creditors and debtors as well as the national and international travel dynamics of all individuals, has also interfered with the parameters for the application of the most common atypical measures and their effectiveness in effecting satisfaction of debtors’ obligations.

[1] Empirical research conducted in March of 2019, with the collection and analysis of all judgments with the term "atypical measures" available for consultation on the website of the Court of Appeals of São Paulo and relating to cases judged since March of 2016.

: Category: Corporate

On November 13, the Board of the Brazilian Securities and Exchange Commission (CVM) decided CVM Administrative Proceeding SEI No. 19957.005563/2020-75, which arose from an appeal filed against the understanding of the Bureau of Corporate Relations (SEP), manifested in Report No. 083/2020, to the effect that the founding shareholders of Linx S.A. are prevented from voting on certain matters on the agenda of the extraordinary general meeting (EGM) of the company called to resolve on the merger of all its shares into STNE Participações S.A.

Per the SEP’s understanding, the impediment on voting results from the receipt of a private benefit by the founding shareholders, pursuant to article 115, paragraph 1,[1] of the Brazilian Corporations Law (Law No. 6404/76), since the latter, due to the merger of shares, would enter into non-competition and consulting agreements with the acquiring company (ancillary contracts), and would be remunerated for the obligations assumed.

The founding shareholders argued that the benefit derived from the ancillary contracts was not linked to Linx's status as a shareholder, nor was it even a direct result of the decision at the meeting, which is why the compensation received could not qualify as a private benefit for the purpose of disqualification from voting under the Brazilian Corporations Law (LSA).

SEP, on the other hand, argued that "it would not be appropriate to believe the case of a private benefit provided for in article 115, paragraph 1, of Law No. 6,404/76 as restricted to benefits received in the condition of shareholders, either because there is nothing in the law that restricts this interpretation, or because article 109 itself already provides that the shares of each class will confer equal rights to their holders." From this point of view, a meeting resolution that intended to confer special rights to certain shareholders, in this condition as shareholder, would not be admissible according to article 109.

Also for SEP, "in spite of the non-competition commitments and the fact that the proposal to hire the [founding shareholder] is not, in itself, the subject matter of a resolution at a meeting, such agreements are an essential condition for the transaction, they originate precisely from STNE's proposal to take over Linx], and there is, therefore, an undeniable direct and intrinsic relationship between the benefit that will be received and the transaction to be resolved on at an EGM. This is not a circumstantial and uncertain situation which may potentially generate an environment that benefits the shareholder in some way. On the contrary, these are contracts signed in the context of a restructuring and whose effects only require approval of the transaction at a meeting.”

Within the scope of the proceeding, the Board of the CVM, by majority of votes, granted the appeal[2] filed by the founding shareholders, to admit their vote at Linx's EGM, which resolve on the transaction based on the following grounds (presented in summary form):

The ancillary contracts are not the subject of a resolution at the EGM, nor do they have Linx as a counterparty or intervening party, nor do they generate obligations or encumbrances for the company;
The benefits do not derive from the status of partner of the founding shareholders and are not even related to the position of those shareholders in Linx's capital stock. In this sense, they do not constitute a breach of equality in the treatment of shareholders, a necessary condition to establish the legal scenario for an impediment to voting;
The ancillary contracts are not "born" out of the decision of the Linx shareholders meeting regarding the matters on the agenda of the EGM in question, but out of the ability and expertise of the founding shareholders to compete with Linx after the transaction has been completed or to provide the services contracted, as the case may be;
There is clearly a correlation between the meeting resolution and ancillary contracts, due to the connection for generating effects, but even so, it is not characterized as a direct benefit to which the shareholders will give cause through the meeting decision; and
The interpretation that the concept of a private benefit would encompass indirect benefits, whether derived from contracts of any nature or from other sources (and not those received as shareholders), would create too great an intersection between the concepts of private benefit and conflicting interest.

In a dissenting vote, and corroborating the understanding expressed by SEP, board member Henrique Machado found an impediment to vote due to the private benefit or, alternatively, due to a conflict of interest, based on the following grounds:

The principle of equal treatment of all shareholders continued to be protected by article 109, paragraph 1, of the LSA, and thus the appropriate interpretation of the scenario for a private benefit under article 115, paragraph 1, is that which presupposes equal treatment among shareholders and provides abstention from voting regardless of whether the advantage to be gained is linked to the condition of shareholder, provided that it is not extended to the other partners;
Although the ancillary contracts are not resolved on by the EGM, the fact remains that they were negotiated together and are included in the conditions and characteristics of the transaction;
In the field of governance, there is a typical situation of adverse selection prior to the formation of the contract (ex ante) that should give rise to the adoption of mechanisms to prevent the risk of expropriation and encourage the alignment of interests between management and minority shareholders, such as recusal from voting; and
Even if one could rule out the possibility of a private benefit, the potential conflict between Linx's interests and those of its founding shareholders resulting from ancillary contracts, whose imperative expression "may not vote" in article 115, paragraph 1, of the LSA prevents the participation of the founding shareholders.

In his statement of vote, board member Alexandre Costa Rangel diverged from board members Marcelo Barbosa and Flávia Perlingeiro exclusively in relation to the recognition of the impediment to voting by shareholders in cases of conflict of interest, under the following terms: "I do not envisage legal support to prevent in advance the exercise of the right to vote of a shareholder in a conflict of interest, based on article 115, paragraph 1, in fine, of Law 6,404/76. In my opinion, the legal framework provided for by the Brazilian Corporations Law does not authorize formal prohibition a priori of the vote of a shareholder in the event of a conflict of interest, in accordance with the aforementioned provision."

As a result, the lawsuit reversed SEP's understanding, and the CVM's Board stated that, for the facts under analysis (those suggested in the SEP Report and others heard up to the judgment date), Linx's founding shareholders would not be prevented from voting at the EGM called to approve the transaction.

[1] Article 115. Shareholders must exercise the right to vote in the interest of the company; votes exercised in order to cause damage to the company or other shareholders, or to obtain, for oneself or for others, an advantage to which one is not entitled and which results, or may result, in prejudice to the company or to other shareholders are considered abusive.

Paragraph 1. Shareholders may not vote on resolutions of the general meeting on the valuation report of assets with which to contribute for the formation of the capital stock and approval of their accounts as officer, or on any others that may benefit them in a particular way, or in which they have an interest conflicting with that of the company.

[2] With votes in favor by Marcelo Barbosa, chairman, and the directors Flávia Perlingeiro and Alexandre Costa Rangel.

: Category: Restructuring and insolvency

Bill 4,458/20, approved by the Senate on November 25 of this year, amends laws - 11,101/05, 10,522/02, and 8,929/94, to update the legislation on judicial reorganizations, extrajudicial reorganizations, and bankruptcy of entrepreneurs and business companies. The bill stems from Bill 6,229/05, which was passed in the House of Representatives on August 26.

The signature of the President of Brazil is now expected to take place by December 24 of this year. If the current wording of the bill is maintained, the main points of change in the institutes of the current reorganization and bankruptcy legislation will be those indicated in the table below.

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;

fresh start;

general rules for extrajudicial reorganization, with the possibility of including labor credits 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.

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 on the Tax team responsible for this newsletter: Bruna Marrara.

Analysis of the main changes
Law No. 11,101/05 before the approval of the Bill	Law No. 11,101/05 after the approval of the Bill
Stay period After the petition for judicial reorganization is granted, the stay period begins, 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 the LRF, but case law has admitted extension, occasionally even more than once, when the vote on the plan does 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 is no legal prohibition on continuing or suspending labor executions for collection of debts subject to judicial reorganization against jointly and severally liable parties. There is 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 will continue to start from the granting of the processing of the case, 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 will continue. There will be 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. Labor executions will be suspended in relation to the jointly and severally liable parties until the plan is approved or the judicial reorganization is converted into bankruptcy (article 6, paragraph 10). There will be a legal provision for a stay period in the prior mediation and extrajudicial reorganization (for more details, see item on the subject, below).
Prevention of the court The rule of jurisdiction of the court by prevention did not cover requests for approval of out-of-court 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 extra reorganization plan will also result in preventive jurisdiction of the court for any other bankruptcy, judicial reorganization, or extra reorganization petition concerning the same debtor (article 2, paragraph 8).
Arbitration agreement The LRF is silent on this point, but case law already required companies in crisis to respect arbitration agreements.	Arbitration agreement The need to respect the arbitration agreement by the debtor in possession or bankrupt party, represented by the judicial trustee, will be established in positive law (article 6, paragraph 9).
Distribution of profits or dividends The LRF does not have provisions on the subject.	Distribution of profits or dividends Until the approval of the judicial reorganization plan, the debtor will be prohibited from distributing profits or dividends to partners and shareholders (article 6-A).
Verification and registration of credits Such provisions are listed in articles 7 to 20 of the LRF, and there are 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 credits There will be an express rule as to the possibility of closing the judicial reorganization even if the General List 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 will be specific treatment for registration of tax debts in the bankruptcy (article 7-A). In the event of bankruptcy, there will be a three-year lapse period, counted from the decree of bankruptcy, for registrations and requests for a credit reserve (article 10, paragraph 10). Apportionment in bankruptcy may occur even if the General List 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 credits due to the delayed registration of credits distributed until then and not yet judged (article 16).
Assignment of credits Practice possible, but not regulated in the LRF. In bankruptcy, the assignment of labor debts denatures their characteristics, and the credits becomes unsecured.	Assignment of credits Promise of assignment or assignment must be immediately reported to the court overseeing the reorganization (article 39, paragraph 7). In bankruptcy, any assignment of a credit will maintain the classification and characteristics of the credit (article 83, paragraph 5).
Conciliation and mediation The LRF does 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 credits.	Conciliation and mediation Conciliation and mediation should be encouraged before and during judicial reorganization, at any level of appeal (article 20-A). It will be 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 the LRF (article 20-B, paragraphs 1 and 3). Conciliation and mediation on the legal nature and classification of credits, as well as on voting criteria at the General Meeting of Creditors (GMC) will 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).
Role of the judicial trustee Although it is currently common practice, there is no legal provision obliging judicial trustees to maintain a website with information on the proceedings in which they serve. The judicial trustee is not obliged to certify the veracity of the information provided by the debtor, nor to supervise the negotiations held between debtors and creditors. There is no provision for alternative methods of deliberations by creditors (e.g., by means of an consent form or electronic voting) and, therefore, there is no legal obligation for the judicial trustee to supervise such acts. Obligation to sell the assets of the bankrupt estate has no time limit. The judicial trustee will 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 is no express obligation for the judicial trustee to collect in bankruptcy the amounts of deposits in proceedings to which the bankrupt is a party, although it is currently understood that this is an implicit obligation. There is no provision for cooperation mechanisms for transnational bankruptcy proceedings.	Role of the judicial trustee The judicial trustee will encourage mediation, conciliation, and other alternative methods of dispute resolution. The judicial trustee will 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 will be 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 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 will be 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 will be 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.
GMC In person is the rule provided for in the LRF, 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 National 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 the LRF, it may resolve on the approval of financing and disposal of assets or rights of the debtor's non-current assets, not provided for in the judicial reorganization plan (article 35, items g and h).
Abusive vote There is no specific provision in the LRF, but there are 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 The LRF does not regulate the possibility for individual rural producers to request judicial reorganization. There is 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 must 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 the LRF and whether or not the debts taken on prior to registration are subject to the judicial reorganization.	Judicial reorganization of a rural producer It will be defined that rural producers acting as individuals will be able to request judicial reorganization. The special plan for rural producers may not involve debts of more than R$ 4.8 million (article 70-A). Proof of the two-year period of activity established in the head paragraph of article 48 will be 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). The debts or guarantees linked to Rural Product Notes (CPR) with physical liquidation will not be subject to judicial reorganization, in the event of partial or full acceleration, or even representative of the exchange transaction for inputs (barter), the creditor being 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 (article 11, paragraph 1). Only credits 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 effects of judicial reorganization. However, if they have been renegotiated, such credits will be subject to the effects of the plan (article 49, paragraph 8). Credits relating to debts incurred in the last three years prior the request for judicial reorganization, as well as the respective guarantees, will not be subject to judicial reorganization (article 49, paragraph 9).
Means of judicial reorganization The conversion of debt into capital (only the increase in share capital) is not expressly provided for, but is a means of reorganization used. There is no provision for full sale of the debtor.	Means of judicial reorganization The conversion of debt into capital will now be included in the list of article 50 of the LRF and there will be no risk of succession or liability for debts to third parties. The same rule of absence of liability and succession will be 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 credits, including foreign exchange of control, allowing the debtor's partner the right to withdraw (article 56, paragraph 7). Full sale of the debtor: it will become a means of reorganization provided for in the list of article 50 of the LRF 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 isolated productive unit (UPI) will be applied.
Prior finding There is no legal provision for prior finding. In practice, some judges order the holding of a prior finding before the granting of judicial reorganization, in line with Recommendation No. 57 of the National Judicial Review Board (CNJ).	Prior finding The prior finding will be provided for in the LRF, allowing the judge to carry it out when he deems it necessary (article 51-A). The expert appointed by the judge will have 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 will be 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).
Alternative plan proposed by the creditors There is no provision in this regard. Only the debtor may propose a plan for judicial reorganization, and any proposal for change made by creditors must have the debtor's express agreement. Rejection of the plan without meeting the requirements for a cram down entails 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 credits subject to judicial reorganization or more than 35% of the credits 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 credits 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 credits, 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).
Labor credits They must be discharged within up to one year, and five minimum wages per employee of the strictly wage credits due in the three months preceding the credit must be paid within 30 days.	Labor credits The five minimum wages rule mentioned above will be 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 credits (article 54, paragraphs 1 and 2).
Sale of assets UPI: there is no legal definition of what is an isolated productive unit (UPI). The no-succession rule exemplifies only tax and labor obligations and, following the example of IA 2237160-80.2019.8.26.0000 of the TJSP, most of the judgments hold that the sale must be made by some form of competition per article 142 of LRF to guarantee the absence of succession (there is, however, already a precedent of the STJ allowing another type of sale of a UPI within a judicial reorganization, provided it is authorized by a special quorum and indicating that the rule of absence of succession should prevail: REsp 1.689.187-RJ). Assets: if there is no provision in the plan, the sale and encumbrance of assets require 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 apply in reorganization proceedings not carried out in the form of a UPI. Means of competition: auction, tender, and closed bid. Price: discussions regarding inadequate price are not uncommon. Summons: summons of the Public Prosecutor's Office is mandatory. Third party in good faith: no express provision in the LRF protecting their interests.	Sale of assets UPI: there will be legal definition (goods, rights and assets, tangible or intangible, such as corporate interest), the examples of absence of succession will cover all types of 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 the LRF will continue (articles 60 and 60-A). 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 will cease to exist). Creditors with a joint credit 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: provided that the disposal is carried out in the manner set forth in article 141, paragraph 1, and in article 142 of the LRF, the object of the disposal must be free of any encumbrance and there will be no succession of the acquirer in the debtor's obligations. Means of competition: article 142 of the LRF will provide 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 will be an act that undermines the dignity of justice. Summons: a summons of the Public Prosecutor's Office and the tax authorities will be 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.
Partner or supporting creditor Doctrinal and jurisprudential creation based on the spirit of article 67 of the LRF, which allows, based on the provisions in the plan and with justifications, that a certain creditor, named partner, or supporter, has privileged treatment in judicial reorganization in relation to other creditors of the same class.	Partner or supporting creditor Article 67, sole paragraph, will permit differentiated treatment of credits 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.
DIP financing The treatment provided for in article 67 of the LRF is insufficient and does not provide the necessary super priority. Thus, the vast majority of cases of financing that have existed in Brazil have always relied on guarantees, especially those of a fiduciary nature, and contractual arrangements for obtaining super-priority. There is also no express provision in the LRF protecting third parties in good faith. There is no provision in the LRF authorizing the creation of a subordinated guarantee on assets of the debtor without the consent of the holder of the original guarantee. Experience shows that DIP financing cases ended up involving much litigation.	DIP financing Superpriority will be provided for by law (article 84). Article 69-B will provide 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 will authorize 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 will provide that financing may be provided by any person, including family members, partners, and members of the debtor’s group. Article 69-D will provide 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.
Procedural and substantive consolidation Not regulated in the LRF. Procedural consolidation is allowed on the basis of the rules for joint litigation in the Code of Civil Procedure (CPC), which apply where not incompatible with bankruptcy procedure, pursuant to article 189 of the LRF. Substantive consolidation has divergent case law regarding the requirements, the competence of the decision on the subject, criteria, and quorums applicable to voting.	Procedural and substantive consolidation The LRF will have 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 will be 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 of the bill (article 69-J). In case of substantive consolidation, there will be immediate extinguishment of fiduciary guarantees and credits held by one debtor against the other (article 69-K). There will be a rule providing that secured guarantees will not be prejudiced in substantive consolidation, except with the approval of the holder (article 69-K).
Possibility for the tax authorities to file for bankruptcy of the debtor Although article 97, IV, of the LRF provide that any creditor may file for bankruptcy of the entrepreneur and of the business company, the currently settled understanding of the STJ is to the effect that the Public Treasury does 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 application and extinguished the proceeding without a resolution of the merits, on the grounds that the National 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 the LRF (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 credit, 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 the LRF or the transaction 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 will be 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. It will be excepted expressly that, 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 There is two years of judicial supervision. In view of this, it is not possible to close it. When there is a grace period of more than two years, some judges extend 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 will be 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).
Fresh start The LRF does 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 are 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 will be established in positive law as a principle to be sought in bankruptcy (article 75). There will also be the possibility of termination of the bankrupt's obligations in shorter periods and under less onerous conditions (article 158).
Extension of the effects of the bankruptcy There is no legal provision, but case law admits and confuses extension of the effects of bankruptcy with piercing the corporate veil.	Extension of the effects of the bankruptcy Extension of the effects of bankruptcy will be expressly prohibited for limited liability companies. Piercing of the corporate veil must respect the precepts of the Code of Civil Procedure and the Civil Code (article 82-A).
List of creditors in bankruptcy The list of creditors is provided for in articles 83 and 84 of the LRF.	List of creditors in bankruptcy The order of classification will remain the same, but the list will be simplified, with the elimination of the class with privilege (article 83). In relation to subordinated creditors, it will be clarified that partners without an employment relationship will hold this classification only in relation to credits taken on without observing strictly fair conditions and market practices (article 83, VIII, “b”).
Rapid closure of bankruptcy in the event of absence of assets There is no express provision in the LRF.	Rapid closure of bankruptcy in the event of absence of assets If there are no assets to be collected, or even 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 ten-day period for interested parties to request what is rightfully due. If the creditors choose to proceed, they will 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 is no maximum term for the judicial trustee to carry out sale of assets in bankruptcy. Discussions regarding inadequate price are common. There is no provision for donation/return of unsold assets to the debtor.	Sale of assets in bankruptcy There will be a maximum period of 180 days for the judicial trustee to proceed with the sale of all the assets of the bankrupt estate. It will be 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 will not require consolidation of the general list of creditors. The sale will not be subject to application of the inadequate and negligent price concept. 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 a point will be an act that undermines the dignity of Justice. In the event of failure to sell the assets, and if there is no concrete proposal from the creditors to assume them, they 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 laid down in article 158 of the LRF: (i) payment of more than 50% of the unsecured credits; (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 ten years from the closing of the bankruptcy.	Extinguishment of the obligations of the debtor Amendments were inserted to speed up the extinguishment of the debtor's obligations and to allow a fresh start, which will occur in the following events: (i) payment of more than 25% of the unsecured credits; (ii) 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; (iii) closing of the bankruptcy pursuant to article 114-A (absence of assets of the debtor) or article 156.
Extrajudicial reorganization The debtor, provided that 3/5 of the class(es)/subclass(es) of creditors covered by the extra reorganization plan have joined, may request in court approval of the plan, which will be mandatory for all creditors of that (those) class(es)/subclass(es) after approval. The debtor is free to indicate the class(es)/subclass(es) involved, and may not cover labor creditors, bankruptcy-exempt creditors, and the tax authorities. The LRF does not provide for a stay period for extra reorganization, but in some cases and in relation to the creditors covered by extra reorganization there are judgements that grant such a suspension pending ratification of the judicial reorganization plan approved by 3/5 of the creditors covered. There is no protection of absence of succession of the purchaser of the debtor's UPIs in extrajudicial reorganization.	Extrajudicial reorganization The quorum for participating will no longer be 3/5 but 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 will be legal provision for the possibility of a stay period to reach the class(es)/subclass(es) involved as of the request. There will still be no provision for the absence of succession of the purchaser of a UPI in the obligations and debts of the debtor in possession.
Transnational Bankruptcy Issue not regulated by the LRF. In the case of foreign companies that are part of the same economic group as Brazilian companies requesting reorganization in Brazil and whose center of main interest is Brazil, as in the case of offshore vehicles used to raise funds, there is case law allowing such companies to be applicants submitting the request for judicial reorganization.	Transnational Bankruptcy Transnational bankruptcy rules will be 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, will be established, and institutes (e.g. what is considered foreign proceedings, main proceedings, foreign non-main proceedings and others) will be conceptualized. The following are the cases in which the provisions relating to transnational bankruptcy may be applied: (i) a foreign authority needing assistance in Brazil for foreign proceedings; (ii) assistance related to proceedings governed by the LRF filed in a foreign country; (iii) foreign proceedings and proceedings governed by the LRF relating to the same debtor underway simultaneously; and (iv) creditors or interested parties with an interest in requesting or participating in proceedings governed by the LRF. The jurisdiction of the place of the debtor's main establishment in Brazil will be established for recognition of a foreign proceeding and for cooperation with foreign authorities. There will be 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 will clarify that (i) the foreign representative will be entitled to submit filings directly with the Brazilian judge; and (ii) foreign creditors will 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 will be indicated. Rules for the coordination of competing cases will be provided for.
Application of the Code of Civil Procedure The suppletory application of the Code of Civil Procedure is provided for in the LRF. 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 will be expressly provided that all time limits provided for in the LRF will be counted in calendar days and that the applicable appeal against the decisions rendered in the course of the proceedings will be the interlocutory appeal, unless otherwise provided for in the LRF. The LRF will also give priority to bankruptcy proceedings, except for habeas corpus and the priorities established in special laws.
Matched transactions and derivatives Without treatment in the LRF and in practice, early maturity and offsetting have been allowed.	Matched transactions and derivatives The possibility of early maturity and offsetting will be provided for by law, and any remaining credit will be subject to judicial reorganization, unless there is a fiduciary guarantee.
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 is the absence of succession of the purchaser of an UPI 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 will continue. Tax treatment applicable to capital gains on the judicial sale of UPIs: the portion of net income resulting from capital gains on the judicial sale of UPIs 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): Even if the debts are not subject to the judicial reorganization plan, the effects of reduction thereof have the following tax treatment, regardless of the accounting effects and provided that the renegotiation of debts occurs between unrelated parties: Revenue will not be taxed by PIS and Cofins; 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 National 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.

: Category: Tax

The Brazilian Federal Revenue Service (RFB) has expressed its position, through Solution of Consultation No.206/03 and No. 232/07 and SRF Interpretative Declaratory Act No. 25/03, to the effect that it suffices to have the final and unappealable decision in an action recognize the right to restitution of amounts to call for the levying of IRPJ and CSLL for legal entities submitted to the accrual method.

Specifically in SRF Interpretative Declaratory Act No. 25/03, the RFB presents two scenarios for tax assessment purposes when the court decision does not define the amount to be refunded: the date of sending of the judicial payment order or, if a motion to stay execution is filed, the date of the final and unappealable judgment.

In this scenario, with the growing number of final and unappealable cases that recognize the right to repetition, many taxpayers have opted to go to court to litigate the time when the IRPJ and CSLL are levied, if whether:

at the time of the final and unappealable decision that declared only the right to set off, the calculation/settlement of which will occur administratively;

at the time of registration of the administrative claim; or

in the transmission of setoff declarations (DCOMPs).

The federal circuit courts have been providing different solutions for the issue and have, in general, analyzed the issue according to the concepts of asset increase and economic and legal availability, and the (i) liquidity of the credit recognized by the final and unappealable decision, for the purposes of levying IRPJ and CSLL.

Recently, the Federal Court of Appeals for the 3rd Circuit[1] expressed its position in favor of the taxpayer's theory and set aside the levying of IRPJ and CSLL, inasmuch as the final decision had only assured the right to offset, without identifying the amount actually due. The court established that IRPJ and CSLL are due only when the tax authorities approve the offset.

Along the same lines, there is the recent decision by the Federal Court of Appeals for the 5th Circuit,[2] which found that IRPJ and CSLL will be levied if, on the date of the final and unappealable judgment, the decision defines the amount to be returned. If only the right to offset is recognized, taxes are not required at the time of the final and unappealable judgment.

The Federal Court of Appeals for the 2nd Circuit,[3] in turn, has precedents to the contrary, since it concluded that "once the taxpayer's right to a setoff credit is recognized by a final and unappealable decision, the legal availability of the revenue (asset increase) will already be accrued, and the triggering event for the IRPJ and CSLL is established.

Along the same lines argued by taxpayers, the Superior Court of Appeals (STJ) reviewed an analogous claim and recognized that mere expectation of right and indebtedness resulting from the final and unappealable decision does not represent an asset increase to be taxed by IRPJ and CSLL, as established in article 43 of the National Tax Code.

Considering the divergent decisions rendered by the federal circuit courts regarding the interpretation of federal legislation, it will be incumbent on the STJ to give the final word on the matter, in order to provide legal certainty to taxpayers as to when they will offer the tax credits to the tax authorities.

[1]TRF 3rd Circuit, Ap 5004691-74.2019.4.03.6114, opinion drafted by Federal Appellate Judge Antonio Carlos Cedenho, decided on July 24, 2020; AI 5010177-15.2020.4.03.0000, opinion drafted by Federal Appellate Judge Marli Marques Ferreira, decided on July 20, 2020.

[2]Ap 08107154820194058400, Federal Appellate Judge Rogério de Meneses Fialho Moreira, 3rd PANEL, decided on July 2, 2020.

[3]TRF 2nd Circuit, 3rd Specialized Panel, Appeal 5004097-22.2019.4.02.5101, opinion drafted by Federal Appellate Judge THEOPHILO ANTONIO MIGUEL FILHO, decided on December 3, 2019; TRF 2nd Circuit, 3rd Specialized Panel, Appeal 5035622-22.2019.4.02.5101, opinion drafted by Federal Appellate Judge MARCUS ABRAHAM, decided on August 10, 2020.

: Category: Real estate

The Brazilian Code of Civil Procedure (Federal Law No. 13,105/15) lists in its articles 879 and 880 the events for forced sale of assets of the judgment debtor in the course of lawsuits. These are the award, sale by private initiative, and, further, the electronic or in-person judicial auction. In accordance with the procedural regulations in force, in cases where there is no interest on the part of the judgment creditor in the award of the asset, sale by private initiative is now admitted, in preference to an auction.

This instrument is a novelty introduced by the Code of Civil Procedure to speed up the resolution of disputes and rises judgment creditor’s autonomy, since it can convert the pledged asset into cash, seeking buyers to satisfy his claim. However, the procedures of the sale by private initiative still raises doubts (including practical), due to the existence of legislative gaps, especially in relation to real estate matters. This is due to the fact that the Code of Civil Procedure is silent on important issues for real estate transactions. For instance, the valuation of the property or the nature of the acquisition (original or derived), which may entail the assumption of an encumbrance by the acquirer, among other points highlighted below.

According to the legal rules, the judgment creditor may request award of the asset pledged in the ongoing lawsuit itself. This means that the creditor will replace the obligation to pay in cash with its own pledged asset, appropriating it as a way to satisfy the claim. However, if the judgment creditor has no interest in the award it may request the sale of the property to a third party, which may be done directly or through a real estate broker or an auctioneer accredited by the judicial body (which should not be confused with a purely judicial auction, dealt with starting from article 881 of the Code of Civil Procedure). If there is no interest in sale by private initiative, the sale shall be done through the model of an in-person or electronic auction. Thus, the traditional auction continues to be an option, but applicable secondarily if there is no interest on the part of the judgment creditor in the award of the asset or in a sale by private initiative.

Article 880 of the Code of Civil Procedure establishes that the procedure for disposal by private initiative shall be governed by the judge of the case. This means that the procedure and the practical application of the sale of the asset may vary according to each judge, who shall order: (i) a term for disposal; (ii) the form to give publicity to the sale; (iii) the minimum price; (iv) the terms of payment (v) request for guarantees; and (iv) the brokerage commission, if applicable. The judge will also sign, together with the purchaser and the judgment debtor (if it is present), the letter of sale and the reinstatement of possession order, which will represent the transfer titles of the property, to be recorded with the relevant Real Estate Registry Office, together with the proof of payment of the Real Estate Transfer Tax (ITBI).

Although divestiture by private initiative has preference over judicial auction, the rules governing this process are limited to the provisions of article 880, while auctions, a traditional form of divestiture in lawsuits, has much more robust regulations. There is no clear provision regarding the possibility of secondary application of the provisions dealing with auctions (ee.g., whether the person prevented from participating in a judicial auction, listed in article 890 of the Code of Civil Procedure, cannot carry out the acquisition on their own initiative either) in divestitures on their own initiative, which gives rise to doubts, in addition to making the aforementioned sale almost entirely governed by the judge.

By way of illustration, some of the main shortcomings of private initiative disposal are highlighted:

Need/requirement for the judge to make the divestiture offer public (e.g. via public notice) to confirm the existence of interested third parties;

Express possibility for the judgment debtor, debtor or interested third party to request disposal, regardless judgment creditor's agreement; and

Objective criteria for the judge to establish a minimum sale value (e.g. requirement for appraisal or use of the municipal value plan, in the case of urban real estate).

In general, despite of the existence of various scholarly currents, the Judiciary standing has been bold in this sense, i.e. waiving the public notice as a requirement to the sale (which, in fact, would make the process lengthy and bring it closer to a traditional auction). In addition, requests for disposal by the judgment debtor or third parties, provided that it is with the consent of the judgment creditor, have been allowed. Undoubtedly, the most controversial point, however, is the valuation of the asset attached, for which case law has not yet been settled.

In addition to the points highlighted, from a real estate perspective, one of the main issues concerns the nature of a sale by private initiative. This is because, although it is a judicial sale, it is requested (most of the time) by the plaintiff in the action, and the terms and conditions are settled for by the judge, who directs the entire sale procedure. Given that, one debates whether or not existing propter rem encumbrances and/or debts would be enforceable against the purchaser/bidder of the asset, even if the procedure takes place entirely in a judicial sphere.

In relation to this issue, on February 14 of this year, when the Superior Court of Appeals (STJ) ruled on Special Appeal 929.244-SP (which deals with the enforceability of Real Estate and Urban Territorial Tax (IPTU) debts against the purchaser), it held that such a disposal is comparable to a public auction, given that it is "a joint sale of the asset seized, under judicial supervision, although with simpler procedures.” Thus, according to this decision, the sale by private initiative means an original acquisition of a real estate (i.e. a new property, not related to any issue or debt related to the prior owner), which is why the acquirer receives the property free of encumbrances and debts.

Another point that deserves to be highlighted is the possibility of applying the sale by private initiative in labor actions. In these lawsuits, the Code of Civil Procedure is applied in a secondary manner, but Decree-law No. 5,452/43, the Consolidated Labor Laws (CLT), in article 888, also regulates the matter, only in a different manner. The article stipulates that private disposal is only possible if there are no bidders at the auction.

In this sense, the prevalence of the principle of the specialty of labor law over subsequent supplementary legislation is discussed. The Judiciary has taken the position to allow application of the Code of Civil Procedure, that is, private sale before the auction, focusing on procedural economy and speed in the process, although there is also a current (minority) position that argues for application of the CLT.

Overall, the sale by private initiative aims to give dynamism to legal proceedings, to make the sale of pledged assets more efficient and less bureaucratic. However, the coercive disposal of assets may soon come up against legislative loopholes and divergent views on the application of the suitable legislation. There is a risk of this procedure to be challenged in its validity and, consequently, give rise to undesirable legal uncertainty, especially for the purchaser of property sold under such conditions.

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