Last March 26, the Chamber of Deputies approved, by a wide majority of 378 in favor and 25 against, a bill (PL No. 3/2024) that makes significant amendments to the Bankruptcy Law (Law No. 11.101 of February 5, 2005).

These changes include the introduction of the formulation of bankruptcy plans, the removal of the judge’s power to appoint the judicial administrator that will conduct the bankruptcy proceedings, and the creation of the position of ‘fiduciary manager’, which will be selected by the creditors, among other amendments. The text will be sent to the Senate for analysis and voting.

Fiduciary Manager

One of the main innovations of the bill is the role of fiduciary managers. When a company is adjudicated bankrupt, the judge appoints a provisional judicial administrator, which is responsible for the first measures, such as preparation of the list of creditors. Subsequently, a meeting is called for the creditors to resolve if they wish to maintain or remove the provisional judicial administrator from office. Alternatively, creditors may choose to appoint a fiduciary manager. The judicial administrator of the bankruptcy will act only if the meeting of creditors does not elect a manager.

Upon acceptance of their duties, managers have a term of 60 days to prepare the bankruptcy plan. According to the bill, the plan may be prepared by the debtor itself in cases of voluntary bankruptcy or conversion from judicial reorganization into bankruptcy. If there are no objections to the plan, it is deemed approved and sent for ratification by the judge, who will analyze its legality. If there are objections, a new meeting is called.

Sale of assets

The sale of assets shall occur within 180 days as from appointment of the manager or judicial administrator or within a term established in the bankruptcy plan ratified by the judge. Previously, this 180-day term commenced as from the date of delivery of the collection instrument, which lists the assets of the bankruptcy company in the case records.

Bankruptcy plan

Like judicial reorganization plans, bankruptcy plans shall contain a complete description of the assets and liabilities of the bankrupt company, distribution of the proceeds among the different classes of creditors (labor, with security interest, tax, unsecured cred), management of the funds of the bankruptcy estate, measures to be taken in relation to lawsuits and administrative proceedings in progress, and the possible retainment of specialized professionals or appraisers.

The bill further allows the granting of discounts for payment to the classes of creditors and waiver of the appraisal of certain assets before the sale. The purpose of such waiver of appraisal is to expedite the process of sale of assets, which currently requires specific judicial authorizations.

Order to pay creditors

The order to pay creditors remains unchanged. Pursuant to the current Bankruptcy Law, post-petition creditors are paid first, followed by the reorganization creditors, in order of priority: labor claims of up to 150 times the minimum wage, claims with security interest, tax claims, and unsecured claims.

Criticism

The amendments proposed in the bill, including creation of the position of fiduciary manager, were initially prepared by the team of the Ministry of Treasury of the Federal Government. The government’s initial intention with the bill is to expedite bankruptcy proceedings, as well as the sale of assets, and increase the recoverability of assets. This is one of the legislative priorities of the Executive Branch for this year.

However, since it was sent by the federal government to the Senate earlier this year, the bill has faced strong criticism from Brazilian insolvency experts, including law firms, the public prosecutor’s office, and judges. Among other problems, they state that the fiduciary manager, created to replace the judicial administrator, which is already responsible for the collection, appraisal, and disposal of assets, may ultimately prove detrimental rather than beneficial in the proceedings.

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For more information on the above or other matters, please contact Maristela SA Rossetti (mar@rraa.com.br) or Gilberto Rossetti (gmr@rraa.com.br).
This article is based on publicly available information and given for informational purposes only. It is not intended as legal advice foreign subsidiary as a comprehensive analysis of the matters referred to herein.