In times of economic crisis, the difficulties experienced by Brazilian businesses, especially national players in oil and natural gas sector, have brought about a significant increase in the number of business restructuring proceedings in the country.
Since Law 11.101/2005 (BBRL – Bankruptcy and Business Restructuring Law) came into force almost 10 years ago, court-supervised restructuring proceedings have been putting to the test the legal tools that business owners and their lawyers can use to restore distressed businesses to financial health.
More and more, companies have turned to court-supervised business restructuring before their cash position is hopelessly compromised, a move that is not only prudent but even essential in some cases. Most often, however, when restructuring applications are made there is an urgent need for capital to allow the business to survive during the months after the application is granted, while the recovery plan is drawn up, voted on by the business's creditors and then submitted for approval by the court.
Another frequent phenomenon is joint applications for court-supervised restructuring made by several (and sometimes all) of the companies within a corporate group, resulting in a considerable increase in the size of the obligations and claims that have to be reconciled in the recovery plan.
In these cases, an intricate network of interconnected transactions, sometimes involving dozens of companies, must be dealt with in a single document – the recovery plan – which must detail how the business will be recovered and contain a clear and specific proposal for paying creditors.
When it comes to court-supervised restructuring of large businesses or corporate groups, experience has shown that the 60-day time period (which cannot be extended) for submitting the recovery plan is very short. In fact, debtors often opt to submit a preliminary version of the plan by the deadline in order to avoid conversion of the restructuring proceeding into a bankruptcy.
The preliminary plan is then fleshed out and a new, fully-detailed version is presented, reflecting the results of negotiations with the recovering company's (or group of companies') main creditors.
Bringing together recovering companies' need for a quick influx of capital with creditors' and even third parties' interest in investing in distressed assets, court-supervised restructuring proceedings have served as a catalyst for business deals and opportunities.
Restructuring proceedings have also seen the consolidation of what has come to be called "friendly" creditors, which are generally strategic creditors whose vote can be decisive in obtaining approval for the recovery plan at the creditors' meeting.
Although they are all now quite common in judicial recovery proceedings, it's fair to say that the "friendly creditor", along with the submission of a preliminary version of the recovery plan, followed by a more detailed version, are mechanisms that businesses and lawyers have found to adapt the BBRL to the demands and the realities of the market, especially in times of crisis.
The BBRL has to be functional, and the market requires that the legal community come up with ways and means to avoid frustration of debtors' and creditors' expectations and – the worst case scenario for both sides – bankruptcy.
One of those means was introduced by Complementary Law 147/2014, which amended the BBRL to insert a new class of creditors in court-supervised recovery proceedings: creditors that fall within the definition of small or very small businesses vote on the recovery plan per capita, not according to the value of their claims.
This amendment explains why it is now quite common for recovery plans to provide for payment in cash and by a certain date of part or all of the debts owed to small and very small businesses, in amounts designed to satisfy the interests of a number of creditors sufficient to approve the plan within that class.
Last, the courts' willingness – proven over the first 10 years of the BBRL – to accommodate the different means and mechanisms that contribute to preserving businesses is essential, because without it legal practitioners would not be able to continue to overcome the stumbling blocks that the law can still throw up on the road to successful restructuring of distressed businesses.
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