ILO / Lexology: Setting legal date of voluntary bankruptcy

This article was originally published in the Litigation-Brazil Newsletter of the International Law Office – www.lexology.com/commentary.

 

Introduction

In late February 2022, Brazil’s Superior Court of Justice (STJ) gave a ruling about the legal bankruptcy date in relation to voluntary bankruptcy. It is the first time that the legal bankruptcy date has been considered to be the date when the motion was filed by the company.(1)

The ruling in question sets a new reference point regarding the legal bankruptcy date. It is particularly relevant to the distressed assets market as the matter has never been clarified by the courts before.

 

Background

Bankruptcy in Brazil is regulated by Law No. 11.101/05. In section 99, the Law states that the bankruptcy decree will establish the legal date of the bankruptcy and that it cannot be set more than 90 days before the bankruptcy filing, reorganisation filing or the legal notice of the debt that resulted in the bankruptcy.

Section 129 of the Law provides that the following shall be rendered as ineffective against creditors, with or without the intent to defraud creditors:

  • the payment of undue debts made by the company within the legal date;
  • the payment of due debts made differently from what was set in the appropriate agreement;
  • the real estate guarantee rights set within the legal date related to previous debts;
  • gratuitous acts made two years prior to the legal date;
  • the legal renouncement of heritage or bequests made by the bankrupt party two years prior to the legal date;
  • the transfer or sale of the company’s factory, plant or business establishment without the formal consent or payment of the company’s creditors in the event that there are no other assets that can be used to pay the creditors;(2) and
  • the enrolment of real estate rights and real estate transfers made after the legal date, and that are not related to matters that existed prior to this date.

This is relevant because ineffectiveness can be declared by the bankruptcy court, or as a claim or defence by the bankrupt estate.

Specifically in the matter reviewed by the STJ, the parties discussed whether the legal term should be set under the eviction or ejectment lawsuit filed against the bankrupt company, or its later voluntary bankruptcy claim.

 

Mato Grosso do Sul State Court

The Mato Grosso do Sul State Court ruled that the legal date should be set as the date of the eviction or ejectment lawsuit, considering that this lawsuit was the proof of insolvency by the company. Therefore, the legal date of the bankruptcy, under section 99 of Law No. 11.101/2005, should be the 90th day prior to the eviction or ejectment filing.

The bankrupt estate appealed to STJ, claiming that the legal date had been improperly set by the state court. The reasoning presented to the STJ was that the absence of a legal notice of debts could not alter the date of its voluntary bankruptcy. Law No. 11.101/2005 could not encompass the situation referred to in the lawsuit.

 

STJ

At the end of February 2022, the bankrupt estate was reviewed by STJ Justice Ricardo Villas Boas Cueva, who granted the appeal on the understanding that, under Law No. 11.101/2005, the legal date could not be altered by the state court if there were no legal notices against the company.

The justice ruled that, regarding a voluntary bankruptcy filing, the legal date must be set as the date of the filing in the event of an absence of notices, or as the 90th day prior to the first notice of debt.

 

Comment

Although the setting of the legal date may be regarded as relevant solely to the bankrupt estate at first, its importance is wider than that. Companies routinely enter into agreements without considering whether the asset object of the agreement may or may not be in an ineffectiveness situation under Law No. 11.101/2005. In Brazil, it is important to check the status of a legal notice, so that the parties can avoid being surprised by a claim under section 129 of Law No. 11.101/2005 and ending up involved in troublesome litigation.

The STJ ruling is a welcome parameter regarding voluntary bankruptcy claims relating to companies that do not possess notices of debts. It will protect interested parties that acted in good faith with the bankrupt company, especially within the distressed assets market, which has grown remarkably in Brazil over the past 10 years.

 

For further information on this topic please contact Paulo Guilherme de Mendonça Lopes or Alexandre Paranhos Tacla Abbruzzini at Leite Tosto E Barros Advogados Associados by telephone (+55 11 3847 3939) or email (paulogml@tostoadv.com or alexandrepta@tostoadv.com). The Leite Tosto E Barros Advogados Associados website can be accessed at www.tostoadv.com.

 

Endnotes

(1) STJ – Third Chamber, Resp 1890290/RS, Rel Min Ricardo Villas Boas Cueva, j 22 February 2022.

(2) Section 129 exempts this situation if the creditors do not file their opposition against the transfer or sale within 30 days of the legal notice.

 

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