Globalization increasingly demands regulation on cross-border insolvency, and Brazil is no exception. Considering this reality and driven by the Covid-19 crisis, which required rapid responses to the deterioration of the country's economy, Law No. 14,112/20 introduced in Law No. 11,101/05 (Reorganizations and Bankruptcies Law – LRF) an entire chapter dedicated to cross-border insolvency. The amendments were largely inspired by the Model Law on cross-border Insolvency of the United Nations Commission on International Trade Law (Uncitral).
According to article 167a of the LRF, the purpose of cross-border insolvency rules is to provide effective mechanisms for:
- promote cooperation between Brazilian and foreign judges and authorities;
- increase legal certainty for economic activity and investments;
- ensure the fair and efficient administration of cross-border processes, thereby protecting the interests of all those involved (creditors and debtors, as well as other stakeholders);
- protect and maximize the value of the debtor's assets;
- promote recovery of debtors in crisis, protecting investments and preserving jobs; and
- promote the liquidation of the debtor's assets, preserving and optimizing the productive use of the company's assets, property, and productive resources.
In line with the amendments introduced in the LRF, on June 4, 2021, the National Council of Justice (CNJ) published Resolution No. 394/21, establishing rules for cooperation and direct communication with foreign insolvency courts for processing and adjudicating cross-border insolvencies.
Resolution No. 394/21, based on the guide for cooperation and direct communication between insolvency courts issued by the Judicial Insolvency Network (JIN), takes into account especially articles 167-P and 167-S of the LRF. They establish, respectively, that:
- the judge shall cooperate directly or through the judicial administrator with the foreign authority/foreign representatives, and may communicate directly with foreign authorities/foreign representatives, without the need to send letters rogatory, direct assistance proceedings, or other similar formalities; and
- where foreign proceedings and a process of judicial reorganization, extrajudicial reorganization, or bankruptcy relating to the same debtor are ongoing simultaneously, the judge shall seek cooperation and coordination between them.
According to the resolution, direct communication between Brazilian and foreign courts needs to be regulated by rules established in insolvency protocols to be signed by the courts, as allowed in Article 167-Q, subsection IV, of the LRF. These protocols should comply with the guidelines provided for by the JIN, which are even included as an annex to the resolution. However, it is worth mentioning that the JIN guidelines expressly establish that its precepts must be applied by the jurisdictions at the discretion of each court, thus considering the particularities of the specific case.
JIN’s resolution and guidelines are similar to the provisions in the LRF and aim to promote:
- the efficient and timely coordination and administration of cross-border insolvency proceedings (called competing proceedings);
- the management of competing proceedings with the purpose of ensuring respect for the interests of the relevant parties;
- the identification, preservation, and maximization of the value of the debtor's assets, including its business;
- the management of the debtor's assets in proportion to the amount involved, the nature of the case, the complexity of the issues, the number of creditors, and the number of jurisdictions responsible for competing proceedings;
- the sharing of information to reduce costs; and
- prevention or reduction of litigation, costs, and disorder for the parties to competing proceedings.
The direct reporting mechanisms provided for in the resolution need to be regulated by insolvency protocols, which they should also have information on the coordination of certain acts, the holding of joint hearings, and communication with creditors and other stakeholders in competing proceedings.
Insolvency protocols only regulate procedural issues. They cannot change or dispose of substantive issues. According to the JIN, judgments should direct the parties to request implementation of insolvency protocols or decisions derived from JIN guidelines.
These protocols may be modified as needed to reflect any changes in competing proceedings. In such cases, the foreign court should be notified of the change as soon as possible.
An important rule deserves to be highlighted: unless provided for otherwise, the parties may be present as listeners when direct communication between courts is carried out. To ensure their participation, the parties must be summoned at least five days before the communication takes place.
Another important rule that contributes to the transparency and publicity of the acts is the obligation to record and transcribe communications. Copies of the recording and/or a transcript may be joined to the record of the proceedings and made available to interested parties (subject, however, to confidentiality, as determined by the respective court).
In relation to joint hearings, courts may communicate directly, without the presence of the parties, to define procedural rules regarding the insolvency protocol. They may, for example, establish the sequence of acts to be implemented, how foreign courts and/or representatives will participate, the order in which the arguments are made, how decisions will be reached, and what the procedure for coordinating and resolving procedural, administrative, or preliminary issues relating to the joint hearing will be.
After the joint hearing, courts may also communicate directly without the parties present to resolve outstanding issues. However, the insolvency protocol should establish expeditious procedures in order to avoid unnecessary and costly hearings as far as possible.
Attentive to the sovereignty and authority of each of the courts involved, the resolution expressly disclaims that the respective jurisdictions of the courts remain preserved in order to conduct hearings in accordance with the applicable procedural rules.
For all issues presented, the resolution created to regulate the issue of cross-border insolvency is timely and welcome, and especially because it includes important issues such as broad stakeholder participation and procedural efficiency combined with cost reduction.