Brazilian Superior Court of Justice deemed null judicial reorganization plan
The Brazilian Superior Court of Justice deemed null a judicial reorganization plan with 90% discount
The Brazilian Superior Court of Justice deemed null a judicial reorganization plan with 90% discount and determined that a new proposal be presented
On February 27, 2023, the 4th Panel of the Superior Court of Justice (STJ) deliberated on the judicial reorganization (“RJ”) of a real estate company (“Company”), initially approved in 2019, with a 90% discount regarding one of the creditors.
Such Judicial Reorganization Plan (“Plan”) had been approved by 100% of the creditors from Classes I (labor claims), III (unsecured, special and general retention rights, and subordinated claims) and IV (credits classified as micro or small business). However, the Class II of creditors (secured claims), composed solely of one financial institution (“Creditor”), refused the plan. Even so, the lower court softened the requirements of the RJ, confirming the Plan on the grounds that the Creditor’s vote was abusive. The Creditor then filed an interlocutory appeal before the Court of Justice of the State of São Paulo (TJSP), which also upheld the Plan.
Dissatisfied, the Creditor filed a special appeal (REsp nº 1880358/SP), arguing that the decision disrespectfully disregarded its vote, neglecting articles 39 and 45 of Brazil’s Law n. 11,101 of February 9, 2005 (Judicial and Extrajudicial Reorganization and Bankruptcy Law or “LRF”), which assert that the Plan must be approved by all classes of creditors.
The decision of such REsp considered the following factors: (a) That the Creditor was the only secured claim (Class II); (b) That the Creditor held about 95% of the group’s financial obligations, amounting to a significant value of €178 million; (c) That the Creditor would have 90% of the value discounted according to the approved Plan; and (d) That the Creditor refused the Plan.
For the Reporting Judge, Minister Antonio Carlos Ferreira, the rejection of the Plan by the Creditor, the largest creditor among the companies, meant that the minimum quorum for approval of the Plan was not met, under the terms of articles 41[1] and 45[2] of the LRF. Thus, the Minister questioned the application of the “cram down” by the lower courts, a legal mechanism that allows the approval of a judicial reorganization plan even without the unanimous consensus of all classes of creditors, to avoid the bankruptcy of a company, by allowing the judge to impose the reorganization plan on discordant creditors[3].
In the case under discussion, the lower courts applied such mechanism. However, the Reporting Minister argued that cram down can only occur when all of the requirements set forth in article 58, §1º da LRF are present. In other words, to apply the cram down in a creditor’s meeting when the recovery plan is not unanimously approved, it shall be observed all the following requirements:
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The favorable vote of creditors representing more than half of the amount of all claims present at the meeting, regardless of class;
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The approval of 3 classes of creditors, when there are more than three classes voting, as in the present case;
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In the class that rejected the plan, the favorable vote of more than 1/3 of the creditors.
Therefore, as demonstrated above, the requirements “a” and “c” of article 58, §1º of LRF have not been met, which is why the cram down could not have been granted. The Rapporteur drew attention to the fact that, although there are other decisions of the Court that recognize the application of cram down when not all the requirements listed above are met, this is an exceptional measure and should not be applied as a rule.
Such exceptional measure happened, for instance, in REsp No. 1337989/SP, judged in 2018, in which the cumulative requirements of §1st of article 58 of the LRF were mitigated, to apply the cram down even when all the requirements have not been met, due to the particularities of the case and the clear abuse of the creditor’s voting rights in such case. In such decision, the requirements of items I and II of article 58 were met, as for item III, although the quantitative majority was not reached, there was significant qualitative approval regarding the secured creditors.
In the present case, however, STJ understood that (i) they did not meet two of the three requirements for the application of cram down; (ii) there was no evidence of abuse of rights on the part of the Creditor; (iii) there was an excessive discount of 90%, especially considering that the Creditor held 95% of the Company’s liabilities. Thus, the Court held that the circumstances of the case did not justify the use of cram down without complying with the legal criteria stipulated by the LRF.
Hence, the Rapporteur understood that it would not be reasonable to demand a disproportionate sacrifice from the Creditor, given the 90% reduction in its claim, “for the benefit of the collective of creditors and to the detriment of their own interests”. In its decision, the STJ reiterated the importance of transparency and the active participation of creditors in the judicial reorganization process, stressing the crucial role of the right to vote in the search for fair and viable solutions for all parties involved. Regarding the argument that the Creditor was abusive in its vote, the STJ understood that it lacks grounds, given that the Creditor never requested the bankruptcy of the Company, but rather the objection of the Plan, as well as a new call for a general meeting of creditors to approve a reformulated plan, which demonstrates a non-abusive attitude.
Finally, the STJ decided that the Company should be summoned to present a new judicial reorganization plan, which will be submitted again to the creditors for approval, realigning the expectations of all parties involved and seeking a balanced solution for the Company’s continuity.
The full decision is available clicking here.
[1] Art. 41. The general meeting shall consist of the following classes of creditors: I – holders of claims derived from labor legislation or arising from accidents at work; II – holders of secured claims; III – holders of unsecured credits, with special privilege, with general privilege or subordinated; IV – credit holders classified as micro or small businesses. […] § 2º Holders of secured credits vote with the class provided for in item II of the caput of this article up to the limit of the amount of the encumbered asset and with the class provided for in item III of the caput of this article for the remainder of the amount of their credit.
[2] Art. 45 In the deliberations on the judicial reorganization plan, all classes of creditors referred to in article 41 of this Law must approve the proposal. § 1º In each of the classes referred to in items II and III of article 41 of this Law, the proposal must be approved by creditors representing more than half of the total amount of the credits present at the meeting and, cumulatively, by a simple majority of the creditors present.
[3] NASCIMENTO, Hugo Nunes Nakashoji. Empresa, Comércio e Tempos de Crise: A Aplicação do Cram Down no Direito Brasileiro À Luz da Jurisprudência do Superior Tribunal de Justiça. Revista dos Estudantes de Direito da Universidade de Brasília, v. 16, n. 1, 2020. Available at: <https://periodicos.unb.br/index.php/redunb/article/view/30768/26670>. Acesso em: 19 abr. 2024.
References
BRASIL. Lei nº 10.406, de 10 de janeiro de 2002. Institui o Código Civil. Diário Oficial da União: seção 1, Brasília, DF, ano 139, n. 8, p. 1-74, 11 jan. 2002.
BRASIL. Lei nº 11.101, de 9 de fevereiro de 2005. Regula a recuperação judicial, a extrajudicial e a falência do empresário e da sociedade empresária. Diário Oficial da União: seção 1, Brasília, DF, 9 fev. 2005.
NASCIMENTO, Hugo Nunes Nakashoji. Empresa, Comércio e Tempos de Crise: A Aplicação do Cram Down no Direito Brasileiro À Luz da Jurisprudência do Superior Tribunal de Justiça. Revista dos Estudantes de Direito da Universidade de Brasília, v. 16, n. 1, 2020. Disponível em: <https://periodicos.unb.br/index.php/redunb/article/view/30768/26670>. Acesso em: 19 abr. 2024.
