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Date: 10 de November de 2023
Posted by: CPDMA Team

The general meeting of creditors and the possibility of easing the closing deadline

Artigo sobre assembleia geral de credores de Camila Cartagena Espelocin

The General Meeting of Creditors, a body [1] of judicial reorganization and bankruptcy with express legal provision in the Law 11.101/2005 [2] (LRF), its main function is to bring together the subject creditors, in order to express their particular interests and decide on issues relevant to the progress of the procedure on which the LRF requires their manifestation.

The duties conferred on the conclave are set out in article 35, items I and II of this rule, and in the judicial reorganization process, its main objective is to vote on whether or not to approve the Judicial Reorganization Plan.

Law 14.112/2020 amended several aspects of Law 11.105/2005, among which is the express provision that, once installed, the general meeting of creditors, called for the purpose of voting on the plan, must be closed within 90 (ninety) days [3].

Notably, by imposing a time limit for the conclusion of the general meeting of creditors, the legislator intended to speed up the procedure [4], avoiding successive and unjustified postponements that could lead to the purposeful procrastination of the competition process without any deliberation on the plan.

The new paragraph 9 of article 56 of the LRF states that "In the event of suspension of the general meeting of creditors convened for the purpose of voting on the judicial reorganization plan, the meeting must be closed within 90 (ninety) days from the date of its installation."

At first glance, there seems to be the possibility of suspending the meeting beyond 90 (days), because although the verb emanates an order ("shall"), the procedure does not indicate what the consequences would be for failing to comply with this deadline. This type of provision, considered to be an imperfect rule, must be interpreted in line with the other principles of the LRF (i.e. preservation of the company and sovereignty of assembly decisions).

It is important to note that there is still no consolidated case law on the subject. Despite this, as has been seen in cases of extension of the shielding period known as stay period - in which case law has held that successive extensions are permissible as long as the reorganized company has not contributed to delaying the proceedings - the tendency is for the rule to be relaxed in order to allow, based on the principle of company preservation and the best interests of creditors, the suspension of the general meeting of creditors to exceed the limit of 90 (ninety) days.

In the doctrine, we find some normative interpretations that seek to make up for the legislative omission by providing for the practical consequences of not closing the meeting within the time limit set by law. To this end, it is worth highlighting those which state that: (i) the deadline would be improper, and therefore devoid of sanction [5], (ii) the need to close the conclave and set a new date subject to a new quorum [6], and finally (iii) the need to file for bankruptcy [7].

In this context, in practice, based on the premise that the reorganized companies present plausible justifications for suspension, as well as in view of the autonomy of the general meeting of creditors, where the interests of the creditors must be respected and protected, some courts have already admitted the possibility of mitigating the provision contained in § 9 of article 56 of the LRF, ratifying the possibility of putting to a vote the suspension of the solemnity for a period of more than 90 (ninety) days, so that it will be up to the creditors to make this decision [8].

By way of example, in a recent decision handed down in the judicial reorganization of Aelbra Educação Superior - Graduação e Pós-Graduação S.A., a relaxation of this deadline was authorized, considering that the recent change in the Law is open to interpretation, as well as that, in this case, an exceptional extension of the deadline would not be detrimental to those involved, quite the opposite, since voting on a plan that is not yet mature would potentially cause harm to the recipients [9].

Although the legislator's concern with the reasonable duration of the process is understandable, in practice the delay in concluding general creditors' meetings is due to the structural difficulties of the procedure itself, which cannot be resolved by setting deadlines. In addition, it is up to the creditor to decide whether to vote on the plan or suspend the meeting so that issues can be resolved and the plan is ready to be submitted to the creditors.

The prohibition of a suspension of the general meeting of creditors for a period of more than 90 (ninety) days could potentially harm those involved, both creditors and debtors. Especially if we consider that the meeting environment is responsible for intensifying negotiations and adjusting complex procedures such as the debtor's financing (DIP financing), disposal of assets (distressed assets), breakdown and sale of the debtor's production units (M&A), adjustments to base/binding proposals (stalking horse) and so many other examples, the extension of this deadline is justified.

In most cases, these procedures are complex and often depend on liaison with a significant number of creditors, analysis in internal committees, circulation of information to investors (generally by confidentiality agreement - NDA), whose deadline for completion does not depend on the debtor; on the contrary, it is the creditor who dictates the pace of the evolution of the proposal, counter-proposals or new suspension.

In other words, if the principles of the preservation of the company and the sovereignty of the creditors' meeting are not to be respected, it is reasonable to disregard the isolated interpretation of article 56, paragraph 9 of Law 11.101/2005, and to authorize as many suspensions as necessary so that an immature plan is not put to the vote and is therefore unable to meet the needs of debtors and creditors, and so that the preservation of the company and its social function are promoted.

It is in this sense that the case law is expected to be consolidated.

[1] The idea of body is linked to that of common or collective interest. Cf.: AZEVEDO, Erasmo Valadão. FRANÇA, Novaes. ADAMEK, Marcelo Vieira Von. General Meeting of Creditors. São Paulo: Quartier Latin, 2022.p. 96.

[2] The General Meeting of Creditors is governed by article 35 et seq. of Law 11.101/2005.

[3] Article 56, Paragraph 9th: In the event of suspension of the general meeting of creditors called for the purpose of voting on the judicial reorganization plan, the meeting must be adjourned within 90 (ninety) days from the date of its installation.

[4] In a study carried out by the Brazilian Association of Jurimetry (ABJ), it was found that the number of assembly sessions until the plan is voted on is the main factor in extending the deadline for voting.

Available at: https://abjur.github.io/obsFase2/relatorio/obs_recuperacoes_abj.pdf

[5] LOLLATO, Felipe, FRANÇA, Guilherme. General meeting of creditors: novelties and controversial points". Article published in the book "Reform of the Reorganization and Bankruptcy Law (Law 14.112/20)". Editora IASP, 2021.p.484-486.

[6] COELHO, Fábio Ulhoa. Comentários à Lei de Falências e de Recuperação de Empresas. 15. ed. São Paulo: Revista dos Tribunais, 2021. p.235.

[7] AZEVEDO, Erasmo Valadão. FRANÇA, Novaes. ADAMEK, Marcelo Vieira Von. General Meeting of Creditors. São Paulo: Quartier Latin, 2022.p. 98.

[8] Sobre o Quórum Geral de Deliberação dispõe o artigo 42, da Lei 11.101/2005 que “Considerar-se-á aprovada a proposta que obtiver votos favoráveis de credores que representem mais da metade do valor total dos créditos presentes à assembléia-geral, exceto nas deliberações sobre o plano de recuperação judicial nos termos da alínea a do inciso I do caput do art. 35 desta Lei, a composição do Comitê de Credores ou forma alternativa de realização do ativo nos termos do art. 145 desta Lei.”

[9] Judicial Recovery Process n. 5000461-37.2019.8.21.0008, being processed before the 1st Court of the 4th Civil Court of the District Court of Canoas - RS.

By: Camila Cartagena Espelocin

Restructuring and Insolvency | CPDMA Team


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