The impacts of the covid-19 pandemic are undeniable and the three branches of government have been adopting measures to mitigate public health risks while dealing with the effects of the economic and financial crisis.
In this scenario, the National Council of Justice (CNJ) issued Recommendation No. 63, on March 31, 2020, to guide judges throughout Brazil in conducting the insolvency proceedings already underway, suggesting that acts for them to proceed normally can help reduce the difficulties and limitations imposed by measures to combat the pandemic.
The CNJ was also concerned with recommending immediate solutions to the crisis as a way to preserve companies, including mitigating, when justifiable, the consequences provided for in the Reorganization and Bankruptcy Law (LRF), for example, noncompliance with obligations provided for in the judicial reorganization plan, which, under the terms of article 73, would be decree of bankruptcy.
Among the main provisions of CNJ Recommendation No. 63, the following should be highlighted:
- Suspension of in-person general meetings of creditors (AGC). It is recommended that they be authorized to be held virtually. The judicial trustee shall, if possible, arrange for the necessary measures.
- In cases where it is necessary to postpone the holding of the AGC, it advises extending the stay period (period in which the running of the statute of limitations and all actions and executions in relation to the debtor are suspended) pending the resolution at the AGC.
- For judicial reorganizations with plans already approved, it suggests authorization to submit an amendment to the plan, provided that (i) the debtor proves that, due to the pandemic, its capacity to comply with obligations has been reduced; and (ii) the obligations contained in the current plan were being fulfilled. Modification of the plan must be resolved on in the AGC, to be held within a reasonable time.
- The judicial trustee shall continue to perform his duties, especially supervision of the business activities of the debtors in possession, in a virtual or remote manner, as well as present the monthly activity reports on its website.
- The general guideline is for judges to assess with special caution the granting of emergency measures relating to obligations in default during the state of public emergency declared in Legislative Decree No. 6/20.
The CNJ’s recommendation has no binding effect on the Judiciary. However, we noted that some of these guidelines were already being adopted and discussed by judges, such as relaxation or deferment of obligations under reorganization plans and the possibility of virtual AGCs.
However, it is crucial that the Judiciary adopt the exceptional measures with parsimony and with respect for legal security, lest, in the long run, problems occur that are even more serious than the crisis generated by covid-19.