Renata Oliveira and Maria Fabiana Sant′Ana The main innovation of the Bankruptcy and Reorganization Law was the introduction of court reorganization, which, under the law, is applicable to a businessperson or business company. The law does not provide for bankruptcy proceedings for the cases involving business companies that belong to a particular corporate group, which generates a legal discussion about the possibility of filing an application for court reorganization proceedings jointly (consolidated proceedings) and the manner in which the list of creditors will be formed, the reorganization plan will be submitted and how it will be voted (material or substantial group consolidation).

Renata Oliveira and Maria Fabiana Sant′Ana

The main innovation of the Bankruptcy and Reorganization Law was the introduction of court reorganization, which, under the law, is applicable to a businessperson or business company.

The law does not provide for bankruptcy proceedings for the cases involving business companies that belong to a particular corporate group, which generates a legal discussion about the possibility of filing an application for court reorganization proceedings jointly (consolidated proceedings) and the manner in which the list of creditors will be formed, the reorganization plan will be submitted and how it will be voted (material or substantial group consolidation).

For the most part, the so-called economic groups are de facto, that is, they are legally autonomous and independent companies, but interconnected because of relevant equity interest held among them.

Obviously, when it comes to a de jure group, there are no questions about the possibility of jointly processing court reorganization proceedings because the connection between the business companies was established at the time of their formation. The problem arises when we have de facto groups, in which there is no formal document setting out the relationship among the companies.

In such cases, the legal doctrine has been accepting consolidated proceedings for the purpose of filing an application for court reorganization, which results in the joint processing of the case to facilitate the structuring of the application and avoid unnecessary costs.

In respect of substantial consolidation, the answer is not so simple, given that the debts or assets of the companies may be grouped, which will be jointly liable, under a single reorganization plan, before all creditors and all companies involved. Therefore, the autonomy of each debtor and its independent liabilities are disregarded and all its assets and liabilities are consolidated.

The legal practice shows that the substantial consolidation has been adopted in some reorganization cases adjudicated in Brazil, in general, by request of the debtors themselves, without the creditors having a chance to pre-approve such a consolidation.

There is, however, a strong doctrinal discussion, aiming, among other things, to determine that the practice of substantial consolidation must be an exception, occurring only when factual and legal elements are present, it being essential that the creditors be given a prior opportunity to analyze its convenience and that the judge of the case control the legality.