BRAZIL Trends and Developments Contributed by: Lucas Akel Filgueiras, Pedro Miranda, Giovana Bosso and Caroline Cidri, Akel Advogados
its economic and financial distress so as to maintain the operating business, safeguard employees’ jobs and the interests of creditors, thereby preserving the company, its social function and encouraging eco- nomic activity”. To enable such recovery, Articles 50 and 53 I of the statute set out the appropriate measures for a debtor to restructure liabilities within the scope of a judicial reorganisation via the service of debts owed to dif- ferent creditor groups (eg, suppliers, employees and financial institutions). Naturally, in deference to the principle of separate cor- porate personality (Articles 49, caput and sole para- graph of the Civil Code and Article 789 of the Code of Civil Procedure), the restructuring of the company’s liabilities in a judicial reorganisation are grounded on the premise that the debtor’s assets will be used to satisfy claims subject to the proceeding on the terms negotiated and, as a rule, approved by a majority of creditors representing more than half in amount in each class of creditors (Articles 41 and 45 of the LRF). This can place an unfair burden on creditors in that they are rescuing the debtor merely to recover a claim that has been forcibly renegotiated on terms inevita- bly worse than those originally agreed because of the widespread default stemming from the incompetence or bad faith of the very people who caused the con- tractual breach. With the exception of cases where the financial dis- tress arises from factors external to the business (such as a climate event that destroys an agribusiness’s annual crop), it is reasonable to presume that the shareholders and managers, through a succession of misguided or ill-intentioned business decisions, bear the greatest responsibility for the crisis faced by the company undergoing judicial reorganisation. The distortions in Brazil’s creditor-protection frame- work can be mitigated where the shareholders and managers of a company in judicial reorganisation have engaged in misuse ( desvio de finalidade ) or commin- gling of assets ( confusão patrimonial ) – grounds that allow the court to apply the doctrine of disregarding the separate personality of the company to the debtor
within the debt-restructuring proceeding, under Civil Code Article 50 and Articles 133–137 of the Code of Civil Procedure. The LRF contains no rule specific to disregarding cor- porate personality in judicial reorganisation, since Arti- cle 82-A of that statute applies, by express provision, only to cases of liquidation ( falência ). In the absence of any express or implied derogation by the LRF, applications to disregard the legal per- sonality of a company in judicial reorganisation must follow the general rules in Civil Code Article 50 and Civil Procedure Code Articles 133–137. An interpretation to the contrary – ie, that disregarding corporate personality is unavailable when the com- pany is in judicial reorganisation – would not only lack legal grounds but would also go against the rule that judicial reorganisation is intended to uphold creditors’ interests (Article 47 of the LRF). This is because it is self-evident that creditors have an interest in being paid in full, even if that requires holding natural or legal persons to account who mis- used the debtor’s corporate personality and caused the default. Likewise, there is no merit in the contention that dis- regarding corporate personality would be pointless in a judicial reorganisation on the basis that: (i) if the debtor company is not paying as agreed then the case should be converted to one of liquidation; or (ii) if the reorganisation plan is being duly performed, there is no need to seize the personal assets of shareholders and executives to satisfy the creditors. First, this is because the requirements for disregard- ing corporate personality are entirely different from those for converting a judicial reorganisation to liq- uidation. Whereas the former requires evidence of “abuse of corporate personality, characterised by misuse or commingling of assets” (Civil Code, Article 50), conversion of a judicial reorganisation to liquida- tion depends on creditors determining, by rejecting the reorganisation plan, that the debtor company is no longer a going concern.
116 CHAMBERS.COM
Powered by FlippingBook