Heloisa Nogueira Engel and Thamara Maria de Godoi Belinatti
At the end of last month, the popular company Casas Bahia announced that it had reached an Extrajudicial Reorganization agreement with its main creditors, Banco do Brasil and Banco Bradesco. The advantage gained in the agreement is noteworthy, given that—according to an article in *Valor*—[1]the debt, which had reached an exorbitant R$ 4.1 billion in adjusted figures, was extended for repayment over 72 months, in addition to a 24-month grace period before interest payments begin.
The announcement of the company's Extrajudicial Reorganization sparked a wave of comments and discussions regarding this type of restructuring and how it can serve as an option for companies that do not wish to file for Judicial Reorganization.
Simply put, Extrajudicial Reorganization is a swift, less costly, and reliable means of resolving crises and restoring profitability; through this mechanism, the parties can reach agreements that prioritize the interests of the company undergoing reorganization, tailoring its debts to align with its revenue.
In the words of Nadime Meinberg Geraige __994__ , who holds a Master’s degree in Civil Law from the University of São Paulo (USP), Extrajudicial Reorganization is:[2], who holds a Master’s degree in Civil Law from the University of São Paulo (USP), Out-of-Court Reorganization is:
“(…) a tool introduced by Law 11.101/2005, of lower complexity and designed to resolve less severe economic-financial crises on a preventive basis. Chapter VI (Articles 161 and 167) of the Bankruptcy and Corporate Reorganization Law contains the provisions regarding Out-of-Court Reorganization.”
A company’s decision to opt for Out-of-Court Reorganization is only feasible when planning has been carried out by the company's executives. This is because “timing” is essential when it comes to restructuring, and a legal requirement for the filing is the adherence of more than 50% of creditors to the payment plan (Article 163 of the LFRE).[3].
Furthermore, the matter of timeframes addressed in Law 11.101/05 clarifies that, should a company seek Out-of-Court Reorganization again, a period of only two years must have elapsed since the previous filing, as set forth in Article 161, §3 of Law 11.101/05[4]—unlike the timeframe for Court-Supervised Reorganization, which is five years, as provided for in Article 30 of Law 11.101/05.[5].
Therefore, in times of crisis, it is important for the company to carefully analyze which procedure to follow—Court-Supervised Reorganization or Out-of-Court Reorganization—as will be explored below.
The first point of divergence between the two procedures concerns the acceleration of debt payments, since, according to Article 49 of Law 11.101/05[6], the debts included in Judicial Reorganization are all those existing as of the date of the reorganization filing, even if they have not yet matured. In other words, if there are further debt installments due after the filing for judicial reorganization, these are accelerated so they can be negotiated within the Judicial Reorganization Plan.
Conversely, Extrajudicial Reorganization contains no such provision; under Article 161, § 2 of the LREF[7], only debts that have already matured are taken into account, while unmatured debts are not negotiated; only the matured installments are addressed in the extrajudicial reorganization, with no acceleration of maturity. Thus, as explained by former judge Marcelo Barbosa Sacramone[8], this phenomenon represents a limitation of extrajudicial reorganization, as follows:
“Extrajudicial Reorganization is a method by which a business owner addresses their economic-financial crisis. Since it may involve only a portion of the debtor's creditors, it cannot be used to benefit a select few creditors to the detriment of all others; therefore, the primary limitation on the extrajudicial reorganization plan is that it cannot provide for the acceleration of debt payments or grant creditors subject to the plan more beneficial or favorable treatment than that afforded to other creditors.”
In short, would the best path for a company in crisis—facing multiple overdue installments and future payments owed to various creditors—be to opt for out-of-court reorganization (which does not trigger debt acceleration), or would it be better to plan for court-supervised reorganization (which includes such a mechanism)? This question can only be answered through a thorough, case-by-case analysis.
The second phenomenon to be analyzed concerns the court-ordered sale of the debtor's branches or isolated business units following the filing for corporate restructuring, specifically regarding the provisions of Article 60 of the Judicial Reorganization Law[9]; such a sale within court-supervised reorganization must be ordered by the judge, always in compliance with Article 142[10] of the same law; conversely, the law allows for such a sale to take place without judicial authorization in out-of-court reorganization, as set forth in Article 166[11]; the transfer of the business unit in out-of-court reorganization is also carried out in accordance with Article 142.
The key issue to explore here is the matter of successor liability for the winning bidders in a court-ordered sale. In cases of court-supervised reorganization, the law is clear in the sole paragraph of Article 60[12], when it states that “the object of the alienation shall be free of any encumbrance and there shall be no succession by the successful bidder to the debtor's obligations of any nature—including, but not limited to, those of an environmental, regulatory, administrative, criminal, anti-corruption, tax, or labor nature—subject to the provisions of Article 141, § 1, of this Law.”
In other words, all debts existing against the asset do not affect the new owner; however, regarding Extrajudicial Reorganization, the law is implicit on this matter; thus, due to the lack of specific statutory guidance, Article 1,146 of the Civil Code is applied[13] and Article 133 of the National Tax Code[14]—meaning it is understood that succession by the new owner occurs. On this subject, let us also look at what Professor Marcelo Sacramone highlights:
“In the absence of any exception established by Law, Article 1,146 of the Civil Code applies—imposing liability on the acquirer for debts recorded against the alienor—as does Article 133 of the National Tax Code, which determines that an acquirer who continues the operation of the business establishment shall be liable for taxes related thereto.”
In this context, the alienation of assets from the entrepreneur's estate—which could be a means of company recovery—ends up becoming complex, given that if the asset to be alienated entails significant economic costs and debts, acquiring ownership of it becomes unattractive to anyone.
In conclusion, the choice between out-of-court reorganization and judicial reorganization must be made in a specialized and detailed manner, in accordance with Law 11.101/05 and the legal framework; it is therefore essential to conduct an in-depth analysis of the company as a whole, prioritizing an understanding of the total debt in all its complexity.
Thamara Maria De Godoi Belinatti, intern at the law firm Nogueira Engel Sociedade de Advogados; law student at the Pontifical Catholic University of Campinas (PUC-Campinas). Contact: [email protected]
Heloisa Nogueira Engel, partner at Nogueira Engel Sociedade de Advogados, a firm specializing in corporate restructuring; holds a specialization in Law and Economics from the University of Augsburg, Germany. President of the Judicial Reorganization Committee of the São Paulo State Young Lawyers' Section (OAB Jovem); member of the IAB (Institute of Brazilian Lawyers). Contact: [email protected]
[1] Ana Luiza Tieghi. 2024. Casas Bahia Restructures R$4.1 Billion Debt. Valor B4. May 29, 2024.
[2] Geraige, Nadime. *Bankruptcy and Judicial and Out-of-Court Reorganization: Out-of-Court Reorganization and the Amendments of Law 14.112/2020*. 1st Ed. Bom Retiro – São Paulo. Quartier Latin. 2022.
[3] Art. 163, LRFE: The debtor may also request court ratification of an out-of-court reorganization plan that binds all creditors covered by it, provided it is signed by creditors representing more than half of the claims of each class covered by the out-of-court reorganization plan.
[4] Art. 161, §3. The debtor may not request the judicial ratification of an out-of-court reorganization plan if a petition for judicial reorganization is pending, or if the debtor has obtained judicial reorganization or the ratification of another out-of-court reorganization plan less than 2 (two) years prior.
[5] Art. 30. No person may serve on the Committee or perform the functions of judicial administrator if, within the last 5 (five) years—while serving as a judicial administrator or as a member of a committee in a prior bankruptcy or judicial reorganization proceeding—such person was removed from office, failed to render accounts within the statutory time limits, or had their rendering of accounts rejected.
[6] Art. 49. All claims existing on the date of the petition are subject to judicial reorganization, even if not yet due.
[7] Art. 161, §2. The plan may not provide for the early payment of debts nor for unfavorable treatment of creditors who are not subject to it.
[8] Sacramone, Marcelo. *Comentários à Lei de Recuperação de Empresas e Falência* [Commentary on the Corporate Reorganization and Bankruptcy Law]. 2nd Ed. São Paulo: Saraiva Jur, 2021.
[9] Art. 60. If the approved judicial reorganization plan involves the judicial sale of branches or isolated productive units of the debtor, the judge shall order its execution, observing the provisions of Art. 142 of this Law.
[10] Art. 142. The sale of assets shall take place via one of the following methods.
[11] Art. 166. If the ratified extrajudicial reorganization plan involves the judicial sale of branches or isolated productive units of the debtor, the judge shall order its execution, observing, where applicable, the provisions of Art. 142 of this Law.
[12] Art. 60, sole paragraph. The object of the sale shall be free of any encumbrance, and there shall be no succession by the purchaser regarding the debtor's obligations of any nature—including, but not limited to, those of an environmental, regulatory, administrative, criminal, anti-corruption, tax, or labor nature—observing the provisions of § 1 of Art. 141 of this Law.
[13] Art. 1,146, Civil Code. The acquirer of the business establishment is liable for the payment of debts existing prior to the transfer, provided they are duly recorded in the accounting records; the original debtor remains jointly liable for a period of one year, counting—with respect to matured claims—from the date of publication, and—with respect to other claims—from the due date.
[14] Art. 133, CTN: Any natural or legal person under private law who acquires from another—by any means—a business enterprise or a commercial, industrial, or professional establishment, and continues its operation under the same or a different corporate name, trade name, or individual name, shall be liable for taxes related to the acquired enterprise or establishment that were due up to the date of the transaction.
