An essential part of the judicial reorganization mechanism is the presentation of the restructuring plan. This plan embodies the measures that will be adopted by the debtor company in the search for the company's recovery, that is, the overcoming of its economic crisis.

Until the reform brought about by Law 14.112/2020the proposal of the reorganization plan was an exclusive attribution of the debtor, and it was up to the creditors only to approve it, reject it or, eventually, suggest modifications, but in this last case always with the necessary agreement of the recovering company (art. 56, §3 of Law 11.101/05).

Now, after the mentioned reform, the creditors now have legal standing to submit the so-called "alternative plan" in two hypotheses: (i) if no decision has been made on the plan proposed by the debtor within the period established in article 6, paragraph 4 (article 6, paragraph 4-A) and (ii) if the plan proposed by the debtor is rejected at a general meeting of creditors (article 56, paragraph 4).  

This procedure is similar to the one in US law. Under the US Bankruptcy Code [1], as a rule, the debtor has priority to submit a plan of reorganization within 120 days. If it fails to do so within this period, or if the plan has not been approved within 180 days after the granting of the order of reliefthe creditors acquire legitimacy to present the alternative plan [2].

In summary, the two aforementioned provisions (art. 6, §4-A and art. 56, §4) authorize the creditors themselves to present a payment schedule and establish tools for the debtor's economic-financial reorganization, which, in theory, would be a last alternative before the conversion into bankruptcy and the consequent liquidation of the business company (or entrepreneur). Such innovations, on one hand, are praiseworthy for attributing greater power of participation to creditors in the management of their common interests; the way these provisions were handled, however, brings with it other problems not yet solved by the LRF.     

Corporate measures, for example, such as capital increases, spin-offs, sale of IPUs, etc. affect the rights of the partners, which in a thin capital company (or simply one with a large number of quotaholders/shareholders) can be highly problematic, since they would assume, at least in theory, that resolutions interna corporis fosse tomadas antes da proposição e deliberação sobre o plano em si. 

Note, by the way, that the provisions of paragraph 7 of article 56 of the LRF, which deals with the capitalization of credits - including with a change in control - provides for the right of withdrawal for "dissenting" shareholders. The hypotheses of withdrawal, however, at least in theory (and according to Law 6.404/76) are not limited to this. Credit capitalization, it should be said, is a mechanism often used in plans presented by the debtor itself, but it is necessary that, in any case, the rights of the other partners are observed, especially the minority shareholders, who, despite not exercising controlling power, do not have voting rights on the plan.

Likewise, Law 11.101/05 does not establish how the reorganization instruments brought in the alternative plan should interact with the shareholders' agreements. How will this plan deal with the shareholder's preemptive right in the capital increase? How to guarantee that the controlling shareholder will waive his preemptive right? How will the amount of the capital increase be established, will the rules of the partners' agreement be respected? After establishing the capital increase, what would be the situation of the creditors that do not accept the conversion of the debt into equity? Poderiam os acionistas alegar diluição injustificada de ações, uma vez apresentado plano sem tal previsão? 

Finally, it is necessary that, during the rehabilitation process, the rules that structure the debtor's governance are observed. The existence of an economic crisis should not cause neglect of corporate rules that protect the social interest [3], and thus the reorganization plan presented by creditors should also somehow contemplate such provisions.

From another perspective, the possibility of the plan presented by the creditor proposing, as a means of judicial reorganization, that provided for in item XVIII, of article 50 of the LRF, that is, the full sale of the debtor, creates a discussion about the right of ownership, which is also a delicate issue for which Law 11.101/05 does not suggest a solution.

It is always good to remember that the main vector of the judicial rehabilitation institute is preservation of viable business activityas legitimate as the creditors' interests are - and they definitely are - it cannot be denied that their focus is always on the recovery of their claims and not on the company itself. There is an asymmetry there that must be taken into account to prevent abuses.

At the same time, the Law uses the expression "judicial rehabilitation plan proposed by the creditors", which initially suggests that the creditor community is treated as a block of interests and that a single plan would be presented together. However, in a recent case of an alternative plan presented in the judicial recovery proceedings of Samarco Mineração S/A, two concurrent alternative plans were presented - one by class I (labor creditors) and another presented by the financial creditors. Since the law does not contain specific provisions that provide a solution for similar cases, the issue was, in this specific case, dealt with through the mediation procedure. This is a situation that will possibly be repeated in other cases and it will be up to the jurisprudence to try to identify the least tumultuous way to solve such impasses.

For the effective balancing of interests when interpreting Law 11.101/05, a tool that should always be considered is the so-called Best Interest of Creditors’ Test [4], in an analysis similar to that proposed for the formation of the principle of preservation of company and creditors' rights. Thus, the plan proposed by creditors with the required majorities should not be approved if the payment stipulated for an interested creditor, or even a creditor shareholder, is lower than what he would receive in case of bankruptcy and/or if discriminatory treatment is applied to other holders of the same nature.

In any case, and with the difficulties that the lack of a better legal discipline will bring, paragraph 4 of art. 56 presents a new economic logic in which bankruptcy is no longer the only solution in case of rejection of the debtor's plan in assembly. This new logic brings, at least in theory, a perspective of greater effort by the debtor for the lowest burden to the creditor when the reorganization plan is presented, preserving the company and protecting the creditors' interests, essential for the reorganization process. 

The worst-case scenario that would arise in a liquidation process - forced sale of assets, loss of value, discontinuation of the business operation, and especially in the eyes of the creditor, the imminence of not receiving his claim - will make the creditor decide to improve his position, even if with little advantage over the scenario he would face in bankruptcy.

The creditors' proposal must, as required of the debtor's plan, contain the requirements listed in article 53 of the LRF, such as the presentation of the means of recovery, economic feasibility, economic and financial report and evaluation of assets. The plan proposed by creditors, to be submitted to the appreciation of the others, must have the written support of the holders of claims representing over 25% of the total claims subject to judicial reorganization, or over 35% of the claims of the creditors present at the general meeting at which the debtor's plan was rejected (article 56, paragraph 6, of the LRF).

In essence, the presentation of an alternative plan by creditors sounds beneficial because it is an alternative to bankruptcy, but the gaps, the absence of a complete framework of the procedure and the possibility of undesirable developments may have a damaging effect until certain points are pacified. It will be up to the judiciary to use the existing mechanisms - as in the case of the recovery of the mining company with the establishment of mediation - or create new mechanisms to modulate the interests of debtors and creditors without harming the institution of the recovery process.

Be that as it may, the law is evolving and the institution of the rules (even if to some extent insufficient) on the submission of plans by creditors should be celebrated.

By: Yasmim Rosa da Silva

Corporate Recovery | CPDMA Team

[1] Chapter 11; Section 1121 “Who may file a plan”. Bankruptcy Code. EUA.

[2] PUGLIESI, Adriana Valéria. Comentários à Lei de Recuperação de Empresas. Coordenação TOLEDO, Paulo Fernando de Campos Sales, 2022 pág. 338.

[3] CEREZETTI, Sheila Christina Neder. A Recuperação Judicial de Sociedade por Ações. 2012.

[4] CEREZETTI, Sheila Christina Neder. A Recuperação Judicial de Sociedades Anônimas.