Court-supervised reorganization, coexistence of principles, and the demanding need to benefit a contractual good faith to preserve legal and economic security in Brazil
April 23, 2021. José Luiz Ragazzi and Marcus Vinicius Moura de Oliveira
The pandemic, the economic crisis, and political instability in Brazil are facts that should make requests for court-supervised reorganizations to be examined based on legal certainty.
Brazil is among the largest countries fostering the world economy, mainly due to its natural wealth, with countless legal deals being carried out daily.
Court-supervised reorganizations increased from January to February in Brazil, an increase of 83.7%, according to data released by Serasa Experian, and the number of applications for February is also 11% higher compared to the same month last year¹.
Obviously, court-supervised reorganization should be the instrument for stimulating the economy. However, it is well known that only a few Brazilian companies are capable of being restructured by means of court-supervised reorganization set out in Law 11,101/05.
In theory, the recent amendments to Law 11,101/2005 – which regulates the court-supervised reorganization, the extrajudicial and the bankruptcy of the entrepreneur and the company – through Law 14,112/2020, came to modernize the Bankruptcy and Court-Supervised Reorganization System and to facilitate the revival of companies, consolidating the principles of preserving the company and protecting workers, even though the substantial majority do not recover.
It is crucial to clarify, despite the amendment to the Law, that among the principles that govern the bankruptcy and court-supervised reorganization, Article 47 of Law 11,101/05 provides that the interests of creditors must also be preserved.
However, the new legislation failed to expressly state the impossibility of suppressing the security interest constituted between debtors and creditors, which is likely to give ground for misinterpretations and the possibility of imposing the debtor’s unilateral will in the reorganization plan, as well as the decision made in a general meeting on the rights of third parties, without their express consent.
In such uncertain times, we have noticed that judicial decisions disregarding any pacification in the relations are not rare. Mainly, they intervene in the relations between private individuals, omitting the possible reflex to the promotion of commercial and economic activities.
Therefore, inappropriately, the propensity to accept that court-supervised reorganization companies have reorganization plans with the provision for the suppression of guarantees (secured interest, fiduciary, and personal guarantee) provided by debtors in favor of the creditors participating in the reorganization process gains strength in the Judiciary Branch.
The current court precedent that defends the possibility of suppressing guarantees in the corporate revival process supports that the will imposed in the debtor’s reorganization plan and most of the creditors in the vote of the Creditors’ Meeting must prevail, even though there is a dissenting vote by the holder of the guarantee. These understandings gave rise to the trials in the REsp. 1.532.943/MT, 1.700.487/MT, 1.863.842/RS, 1.850.287/SP, in which all the Third Panel of the Superior Court of Justice and which use the final part of § 2 of Article 49 of the Law as a ground: “The obligations prior to the court-supervised reorganization will subject the conditions originally set out by law, including in relation to charges, unless otherwise provided in the court-supervised reorganization plan.”
Despite the understandings that gives room to the suppression of guarantees regularly constituted in favor of creditors, the Judiciary Branch has not reviewed so far that the core of the matter is the need for coexistence with the principles in force in our legal system.
Even given the significance attributed to Article 47 of Law 11,101/05, there is no hierarchical order in such provision, and the interests of all creditors must be fulfilled in harmony with other principles that govern legal relations.
At the Superior Court of Justice, we already understand that the nature of the court-supervised reorganization plan is contractual (REsp 1631762/SP, Justice Rapporteur Nancy Andrighi). Therefore, considered as a contract, the principle of contractual good faith is a duty imposed on the parties and all creditors when submitting the reorganization plan and when voting at the Creditors’ Meeting, which must coexist with other principles of the process of court-supervised reorganization since, if the creditor and debtor are renegotiating new contractual conditions, even under the Reorganization Law, they must behave with loyalty and correction during all stages of a contract – negotiations, performance and conclusion of the contract, without the interference of other creditors in legal guarantees.
Although there is a provision in § 2 of article 49 of the Law, the rules to be observed for cases of negotiation of business contracts are those of the Civil Code. Therefore, the freedom to contract and reformulate the contractual bond, whether the company is under reorganization or not, is subject to the compliance with the contractual principles, such as objective good faith and the corporate role of the contract, with only exceptional limitations on the exercise of autonomy and judicial intervention in the guarantees regularly constituted in the event of injury or excessive burden.
Precedent No. 581/STJ is specifically incisive and does not provide scope to any clause in the reorganization plan that prevents the creditor from seeking their credit from the guarantors, co-obligors, and recourse obligors, even if their debtor is under court-supervised reorganization.
Moreover, the Court-Supervised Reorganization Law itself does not allow the suppression of guarantee that benefits the creditor personally, as is the case for the creditor with security interest (§1 of Article 50).
Thereby, honoring the contractual good faith, the agreement with the suppression of guarantees must appear in the records expressly, i.e., directly signed by the holder or by the affirmative vote of the corresponding holder of the guarantee at the general meeting of creditors.
Within this context, any reorganization plan submitted by debtors and which provides for the suppression of guarantees is not based on the principle of contractual good faith and, moreover, it shows an actual malicious imposition of the debtor during the legal relationship, especially in relation to guarantees regularly constituted prior to filing the court-supervised reorganization.
We cannot forget that the company’s conservation principle is the guiding principle for court-supervised reorganization. However, decisions contrary to the law and to the contractor, especially when they provide scope to the suppression of guarantees without the creditor’s consent, create disproportions to the contracting parties, even more when there is no company conservation in Brazil, since most of the orders are converted into bankruptcy.
Specifically in relation to personal guarantees, there is no logical premise for the suppression of such guarantees and related to the principle of conservation of the company in the process of court-supervised reorganization. Third parties, co-obligor partners, accommodation parties, and guarantors, as a rule, have different legal personality from the company under reorganization, and the continuation of the collection against guarantors not subject to the effects of court-supervised reorganization does not interfere in the economic revival of the company, since the personal property of guarantors and accommodation parties is not to be confused with that of the company.
Also, the head provision of article 59 of the Reorganization Law, which has not undergone any amendment by Law 14,112/2020, expressly provides that the reorganization plan implies a renewal of credits, but without prejudice to guarantees, in accordance with §1 of Article 50, which requires the express approval of the creditor for the purposes of suppressing, disposition and replacement of the guarantees.
On the other hand, it does not seem right to us that the majority vote in the Creditors’ Meetings may provide for the rights of others, especially guarantees of third parties. In addition to a clear violation of the contractual good faith, we can remember the popular saying: “your rights end where another’s begin.”
The rights and obligations resulting from adjustments to the will are binding only on the contracting parties. The third party interfering in a contractual relationship is subject to civil liability under the terms of articles 186, 187, 927, and 942 of the Civil Code.
Therefore, the performance of other creditors, favoring the exclusion of guarantees from another creditor and which may result in losses in the recovery of credit, represents an act that can be characterized as an illegal act.
It must not be forgotten that, in addition to the importance of contractual good faith in the preparation and voting of a reorganization plan, we have the recent enactment of the Economic Freedom Law (Law 13,874/2019), in particular, the provision of the “principle of minimum State intervention,” which included the sole paragraph of Article 421-A of the Civil Code: “In private contractual relations, the principle of minimum intervention and the exceptionality of contractual review shall prevail.”
The intervention in contractual guarantees in the reorganization process creates uncertainties in business relationships, imposing commercial conditions not agreed upon by the parties and which, as a rule, are not practical for the revival of companies.
Without realizing it, decisions that matter in the intervention of guarantees regularly constituted in commercial relations will generate an endless cycle of requests for Court-Supervised Reorganization, not only for large-sized companies but also for that small entrepreneur who believed that their contractual relationship was complied with and fulfilled.
It is important to note that democracy must be applied in society, but its application in contractual relations needs to be extremely cautious, under penalty of violating article 170 of the Federal Constitution.
Here is a question that we must ask before any review and decision making: how to interfere in a guarantee granted by a company to a creditor who exercises their free exercise of the economic activity that is their responsibility? In addition, a group of creditors which do not participate in the original legal relationship between the creditor and the debtor is responsible for interfering in the suppression of guarantee.”
The company under court-supervised reorganization must be protected, but creditors, usually banks and suppliers, also deserve the same treatment, especially by combining principles of contractual good faith in the formulation of the Reorganization Plan.
Undoubtedly, the Judiciary Branch cannot neglect fundamental aspects of business contracts, especially when the Court-Supervised Reorganization Plan is a true contract and must be based on good faith. Considering only the supposed conservation of the company, without considering that it is necessary to preserve the market and a safe environment for the performance of contracts, is a contradiction to the necessary negotiation environment within the scope of the Court-Supervised Reorganization.
The principle of preserving the company must be carefully considered, always complying with other principles that govern business relations, i.e., reviewing not only the damage to the company under reorganization but other direct aspects that can influence the economy and legal certainty.
Therefore, decisions that interfere or allow most of the Creditors’ Meeting to interfere in contractual guarantees, without authorization from the right holder, imply a serious weakening of the credit granting and contractual relations, since they allow the reorganization plans submitted in most processes are not based on objective good faith.
Not only for financial institutions but also for all companies and individuals that supply products and services, the possibility of interference with contractual guarantees in the debtor’s court-supervised reorganization process will imply uncertainty in future contractual relations.
In short, there is no legal provision for allowing the suppression of guarantees without the consent of the creditors, even with a favorable vote in the general meeting, and, above all, it violates the principle of objective good faith, which must coexist with the principles that govern the court-supervised reorganization process.