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Date: September 8, 2020
Posted by: CPDMA Team

Sale of assets in the Judicial Reorganization

The crisis created by the new corona virus has made restructuring mechanisms increasingly prominent. In this context, Judicial Recovery tops the list of options as it is the most effective tool to circumvent the crisis, renegotiate debts and avoid bankruptcy of entrepreneurs for whom the challenge of surviving during the pandemic will be arduous. 

Unlike bankruptcy, in judicial recovery there is no unavailability of the company's assets, which remains in the exercise of its activity under the supervision of a judicial administrator appointed by the judge. In this case, current assets can still be traded [1]. For the sale of the remaining assets, authorization from the judge or creditors will be required through the recovery plan, as we will see below. 

Given this scenario, there is a growing interest in acquiring the so-called distressed assets which are assets that belong to companies in special situations, as is the case of companies undergoing judicial reorganization. 

This is a business that proves to be interesting both for buyers, who have the opportunity to acquire goods at more attractive prices and commercial conditions, and for companies under reorganization, since the partial sale of goods is one of the means to be used for their restructuring and consequent payment of subject creditors, according to the exemplary list provided by article 50 of the LRF.

According to data from the first Insolvency Observatory [2], of the judicial recoveries with a plan approved in the region of São Paulo – SP, 35.5% have the sale or rent of an Isolated Production Unit (UPI) and, 53.2% have the sale or rent of other assets that non-UPI, which indicates that the partial sale of assets can be one of the main means of uplifting companies in the process of judicial recovery, especially due to the absence of specific credit lines for indebted companies (DIP Financing).

When dealing with the sale of permanent assets, the restrictive rule imposed by article 66 of the LRF allows only two exceptions: (I) when provided for in the approved plan, (II) in cases in which alienation is demonstrated by means of judicial authorization, once its effective use for the recovery process has been recognized.

It is noted that the expression "effective utility" must be interpreted in accordance with the public interest that governs the recovery process and is suitable for cases in which it is shown that the sale of a certain asset will represent more advantage for the reorganization of the company than its preservation so that it integrates the business of the company under reorganization in the event of approval of the plan or, even, to integrate the bankrupt estate in the event of its rejection.

Regarding the sale of assets through judicial authorization, the STJ has been consolidating an understanding in the sense that, once the usefulness and urgency in the disposal of assets that are part of the permanent assets of a company undergoing judicial reorganization is recognized, there is no need to comply with the system provided for in article 142 (Auction, closed proposal or trading session), of the LRF [3], the judge being responsible for authorizing the disposal of assets, without any specific formality, whenever the practice of this act contributes to the reorganization of the company and to the satisfaction of the rights of the creditors.

However, a different situation is observed when the asset to be sold is branches or isolated production units (UPI), whose sale must be detailed in the approved plan and be carried out through auction, by closed proposals or by auction.

Although there is no consolidated case law on the subject, especially in the lower courts, in a recent judgment [4], the STJ understood that the rule of article 142, of the LRF, which provides for the need to sell by public auction for disposal of UPI, may be relaxed when it is demonstrated that the sale in a manner different from that provided for in said article is the only way to make the operation viable. In this case, in addition to the authorization for direct sale, the protection of the purchaser was guaranteed, since it was established that he would not be responsible for tax and labor succession, in the same way as in sales made under article 60 of the LRF.

The aforementioned precedent represents an important advance for the judicial reorganization process, insofar as, as long as the transparency of the procedure is maintained, the direct sale and without tax and labor succession of isolated production units may make the reorganization process faster, as it would allow , by way of example, the closing of several lawsuits that are only waiting for the judicial sale of assets to be finalized, a notably lengthy procedure.

It is true that Law 11.0101/2005 has several mechanisms for inspection and control of the business carried out by the debtor company, so that the interests of creditors are not frustrated and its main objective is achieved, making it possible to overcome the situation of economic crisis. debtor's financial position and all benefits arising.

In practice, the disposal of assets is one of the most effective ways of raising funds to be used both for reducing liabilities and for leveraging working capital and, in this context, it can be a fundamental mechanism to make compliance effectively viable. of the reorganization plan, and sometimes the success of the judicial reorganization is much more linked to the efficient use and destination of assets, than to the renegotiation of liabilities.


[1] The Insolvency Observatory is an initiative of the Nucleus of Insolvency Proceedings Studies - NEPI of PUCSP and the Brazilian Association of Jurimetry - ABJ and aims to collect and analyze data about companies in crisis that go to the Government Judiciary to enable means of recovery or, as a last resort, to be liquidated. Source: https://abj.org.br

[2] In this sense, the judgment of Special Appeal No. 1,783,068/SP, judged on 02/05/2019.

[3] Special Appeal No. 1,819,057/RJ, judged on 03/10/2020.

[4] Special Appeal No. 1,689,187/RJ, judged on 05/05/2020.

Source: Camila Cartagena Espelocin, attorney at Cesar Peres Dulac Müller.

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