[BANKRUPTCY, INSOLVENCY & REHABILITATION PROCEEDINGS IN BRAZIL] 10
KEY FACTS OF BANKRUPTCY, INSOLVENCY & REHABILITATION PROCEEDINGS UNDER BRAZILIAN LAW 1. A brief presentation of the bankruptcy/ insolvency/ rehabilitation proceedings of the country and their main differences. supervise the right of creditors etc., without management powers.
An extrajudicial reorganization is an out-of- court process, similar to a pre-pack, that restructures a viable company's debt to avoid formal insolvency or judicial reorganization. It involves a contractual agreement between the debtor and creditors (or some of them) to reschedule or modify obligations. Once the agreement is signed, the debtor can request court ratification to extend the terms to all creditors in the same class, provided certain requirements are met. Liquidation/Bankruptcy is a court process that involves (i) declaring the debtor insolvent and (ii) dissolving the debtor by selling its assets and distributing the proceeds among creditors according to the payment hierarchy established by law. 2. (Depending on the type of the proceedings) The protection granted to the debtor against its creditors . The following questions should be addressed for each proceeding, provided by the law of the country: i) What kind of protection is granted? (e.g. the creditors may not enforce any court decision against the debtor’s assets etc.) Judicial Reorganization: After the petition for judicial reorganization is granted, a 180-day stay period begins. During this time, creditor actions against the debtor, such as executions and asset seizures, are suspended. This period is intended to provide the debtor with the necessary time to negotiate the Judicial Reorganization Plan.
The Brazilian Bankruptcy and Reorganization Law (Law No. 11,101/2005) provides companies with financial difficulties the necessary tools to restructure their obligations and operations, allowing the companies in crise to continue as going concerns. This is achieved through rehabilitation and reorganization procedures, which include (a) in-court judicial reorganization ( recuperação judicial ) or (b) out-of-court/prepackaged reorganization ( recuperação extrajudicial ) and liquidation/bankruptcy process ( falência ). Judicial reorganization is a court-supervised procedure analogous to Chapter 11 of the U.S. Bankruptcy Code. Judicial Reorganization is designed to facilitate the effective restructuring of viable companies in financial distress. During the stay period of 180 days (extensible once for the same period), the debtor is protected from enforcement actions and may submit, negotiate, and seek creditors approval for a Judicial Reorganization Plan. The Judicial Reorganization Plan shall be voted and approved by the majority of creditors (qualified quorum applies) and once approved and ratified by the Court, pre-petition claims subject to the proceeding shall be paid according to the conditions proposed in the Judicial Reorganization Plan. Typically, the debtor and its management continue to operate the business during the judicial reorganization, while a court- appointed trustee oversees the process, verify the fulfillment of the law, audit the numbers and balance sheets of the company,
ILN Restructuring & Insolvency Group – Bankruptcy, Insolvency & Rehabilitation Series
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