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Date: March 11, 2021
Posted by: CPDMA team

The extension of the "stay period" in the judicial recovery after Law 14.112/20

Law 14,122 of December 24, 2020 produced a series of amendments to Law 11,101/05, including the possibility of extending the so-called “stay period” (deadline for suspension of claims against the debtor undergoing judicial reorganization).

The rule is contained in art. 6, §4 and reads as follows: "§ 4 In judicial reorganization, the suspensions and prohibition mentioned in items I, II and III of the caput of this article shall last for a period of 180 (one hundred and eighty) days, counted from the granting of the recovery processing, extendable for an equal period, only once, on an exceptional basis, provided that the debtor has not competed with the overcoming of the time lapse”. 

That is, by the new text, the suspension period can only be extended once and provided that the debtor has not contributed to “overcoming the time lapse” (it is assumed that the legislator meant “without the debtor having contributed for non-deliberation on the recovery plan within 180 days").

The change in question is that, until then, the rule of art. 6, §4 treated such term as unextendable, regardless of any reason that could justify the delay in deliberations on the plan.

Such prohibition (to the extension), as was to be expected, has always been ruled out by the jurisprudence, which identified that the period of 180 days was based on the concatenation of procedural acts and legal deadlines that would culminate in the deliberation on the recovery plan, after what about stay period it lost its reason for being - if the plan was approved, the obligations covered by it were considered novated and started to be fulfilled in the terms provided for in the plan; if, on the other hand, the plan is rejected, the judicial reorganization is converted into bankruptcy, and then the suspension takes place as a result of this and for the purposes of the universal contest.

That is, in theory, the extension of the stay period shouldn't even be needed.

But practice has since shown - and the courts have always understood this - that, more often than not, the process is not ripe for deliberation on the judicial reorganization plan in 180 days, without there being "competition by the debtor The reasons are the most varied, and range from the simple difficulty of the notary process (there are still few specialized courts) to obstacles created by creditors or possibly by the debtor itself; given the natural complexity of the recovery process, none of this is surprising nor should it be seen as an exception.

Events such as these are commonly completely beyond the control of the company under reorganization, the court or the judicial administration; and will occur whether the legislator wants it or not.

What is meant here is that making the non-extendable term extendable, but establishing that this extension only takes place for a single predetermined period, is nothing more than making the term that, after all, continues to be longer, non-extendable - and which, in practice, has always been extended (even when “non-extendable”).

the time of stay period should be as extensive as necessary for deliberation on the plan, avoiding the asset grabbing which, on the one hand, makes the debtor's activity and compliance with the recovery plan unfeasible and, on the other hand, empties the assets that would serve to satisfy the community of creditors in the bankruptcy process .

The concern with the reasonable duration of the process is to be commended, but as experience has consistently shown, it is not the setting of deadlines that makes the process go as planned. For this, it is necessary to provide the process with structure and tools that allow printing the appropriate procedure; it is to deliver to the notaries and courts the work structure sufficient for the volume of demands; is to prevent procedural chicanery and streamline procedures.

Without this, trying to interpret that the period that was non-extendable - but that was extended - is no longer (extendable) because if it made it longer, is to defend that the period, whatever it may be, is sufficient. It is known that it is not - at least not always, and not necessarily. Until it is, the ever so talked about stay period must be extended for as long as is necessary for the reorganization plan to be deliberated, provided, of course, that the debtor has not contributed to delaying the process (as has always been understood by the jurisprudence).

Source: Daniel Burchardt Piccoli, lawyer and partner at Cesar Peres Dulac Müller.

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