The House approves changes to bankruptcy law and gives more power to creditors

BRASILIA AND SAO PAULO – A Room approved on the night of this Tuesday 26th a bill amending the Bankruptcy law and reorganization speed up processes by increasing the power of creditors. The votes in favor were 378 and against 25. The text, one of the measures of the so-called “microeconomic reform” defended by the Minister of Finance, Fernando HaddadLet’s now proceed to analyze the Senate.

Negotiated in Congress by the Secretary for Economic Reforms, Marcos Pinto, the proposal, anticipated by Estadao in October it allows the creation of a bankruptcy plan and opens the possibility for creditors to choose a trustee for the management of the bankruptcy assets, as an alternative to the judicial administrator, defined by the judge.

The manager will be chosen by majority vote during the general meeting of creditors. In the final opinion, the duration of the professional’s appointment is increased from two to three years. He should preferably be an economist, a lawyer, a business administrator or an accountant.

As anticipated by Coluna do Estadão, the rapporteur Dani Cunha (União-RJ) also established a mandate of up to three years for judicial administrators, who will participate in trials only if the general meeting of creditors does not choose a trustee.

Furthermore, the judicial administrator has a salary cap equivalent to that of the ministers of the Federal Court (STF). “We have administrators who have received enormous salaries. Today, Brazil, through this bill, works to moralize the bankruptcy process,” said the speaker, after the approval of the proposal.

Some experts, while recognizing the need to make asset liquidations and judicial recoveries more agile, criticize the project.

“An urgent approval, on the grounds that processes are slow and expensive, does not correspond to the reality of the 60 thousand existing judicial recoveries. We all know that the current law protects assets, prevents abuse and guarantees legitimacy to creditors. Insertion of a liquidator in this process we tend to create greater slowness and higher costs”, said economist Luis Alberto de Paiva, specialist in corporate recovery and CEO of Corporate Consulting.

The original project was created by the government, but Dani Cunha made several changes. As demonstrated by Station/Broadcast, some of the rapporteur’s amendments have displeased the banks. One of the disputed points – which was supported – concerns what includes “intangible or intangible” assets in the prohibition on the sale, by creditors, of assets essential to the activity of the company subjected to judicial recovery during the period of debt suspension execution, which lasts up to a year. According to financial institutions, this item may include credit operations.

The banks’ fear is that the change will open the door to the courts to prevent, for example, the institutions’ access to the loans given as collateral. Today, institutions can execute them even during the suspension period, given the Superior Court of Justice’s (STJ) understanding that credit and money do not fall within the definition of essential investment goods.

In a technical note to which the report had access, the Brazilian Federation of Banks (Febraban) states that the change would generate the opposite effect to that desired by the government, i.e. making credit cheaper. “In summary: the risk and cost of credit will increase, especially for micro and small businesses, going against the objective of this project,” the text reads.

In the document, Febraban specifies that the lines most affected would be those aimed at micro and small businesses, which have more limited guarantee possibilities. Credit-backed lines for this public rose from 33 billion reais in 2007 to 260 billion reais last year, according to banks, and reached 8% of the credit portfolio of the country’s legal entities.

Another point rejected by the institutions, and also supported by Dani Cunha, is the provision that, in the event of judicial recovery, the creditors will have to resort to the bankruptcy court to enforce the guarantees given to the shareholders on behalf of the companies. Currently, such enforcement can be carried out extrajudicially, i.e. without undergoing the same procedures as judicial recovery.

According to banking industry officials, this change makes collateral enforcement slower and more expensive, raising costs for the entire market.

In a note sent to the report, Febraban said he supports and defends initiatives that structurally reduce the cost of credit, including improving bankruptcy law. “However, some points contained in the latest replacement, such as the new conditions for the revocation of legal personality and the suspension, for up to 360 days, of creditors’ access to pledged credits, go against this agenda,” he says lens.