Among other provisions Complementary Law No. 147, of August 7, 2014 (LC 147/2014), amended the rules laid down in Law No. 11101, of February 9, 2005 (Law 11101/2005), which regulates the judicial and out-of-court recovery and the bankruptcy of businessmen and business companies, known as the Brazilian Company Recovery and Bankruptcy Law, bringing a number of advantages to micro and small companies.

Judicial recovery is a court-approved rehabilitation procedure, whose main purpose is to preserve the company.

The relevant changes that have been introduced by LC 147/2014 regarding micro and small companies are outlined below. All the provisions mentioned herein without specifying the applicable legislation refer to Law 11101/2005.

According to article 24 of Law 11101/2005, the judge shall establish the amount and conditions of payment of the trustee's fees, with due regard for the debtor's payment capacity, the degree of complexity of the work and the market values for similar duties. In any event, in the case of micro and small companies, the total amount paid to the trustee shall not exceed 2% of the amount payable to the creditors submitted to judicial recovery or of the proceeds of the sale of assets in bankruptcy (new paragraph 5 of article 24). For all other companies the applicable limit is 5% (paragraph 1 of article 24).

From now on, the holders of claims framed as micro or small companies will have more power in the approval of the judicial recovery plan and will be more active in the general meetings of creditors.

The class of creditors constituted by micro and small companies is also entitled to appoint one representative and two alternates for the Committee of Creditors (new item IV of article 26).

The general meeting shall be composed of the following classes of creditors: (i) holders of labor-related claims or occupational accident claims; (ii) holders of claims with in rem guarantees; (iii) holders of unsecured claims, with special privilege, with general privilege, or subordinated; and (iv) holders of claims framed as micro or small companies (new item IV of article 41). This means that creditors are also classified according to their size. Traditionally, creditors were only classified by the nature of their respective claims (labor or not) and their guarantee (with or without collateral).

In resolutions on the judicial recovery plan, all classes of creditors referred to above shall approve the proposal. In the classes under items (i) and (iv) above, the proposal shall be approved by simple majority of the creditors present, independently of the amount of the claim (new wording of paragraph 2 of article 45).

Judicial reorganization may be petitioned for by any debtor who, at the time of the petition, has been doing business regularly for over two years and meets the following requirements, cumulatively: (i) he shall not be bankrupt, and if he has been, the resulting liabilities have been declared extinguished by final and conclusive decision; (ii) he shall not have obtained a concession of judicial recovery within the last five years; (iii) he shall not have obtained, within the last five years, a concession of judicial recovery based on the special plan provided for micro and small companies (the term was reduced from eight to five years by the new wording of item III of article 48); and (iv) he shall not have been convicted or does not have, as an officer or controlling partner, a person convicted of any of the crimes provided for herein.

The Public Treasuries and the National Social Security Institute (Instituto Nacional do Seguro Social – INSS) may grant, pursuant to specific law, installment payment of their claims, in the sphere of judicial recovery, in accordance with the guidelines established in Law No. 5172, of October 25, 1966 (the Brazilian Tax Code). The micro and small companies will be entitled to deadlines 20% higher than those regularly granted to other companies (new sole paragraph of article 68).

The special judicial recovery plan shall be submitted within the term of 60 days after publication of the decision granting processing of the judicial recovery, on pain of conversion into bankruptcy, and shall be limited to the following conditions: (i) it shall extend to all existing claims on the date of the petition, including non-matured claims, except for those resulting from on-lending of official funds, tax claims and those provided for in paragraphs 3 and 4 of article 49 (new wording of item I of article 68); (ii) it shall provide for installment payment in up to 36 monthly, equal and successive amounts, with interest equivalent to the Special System of Settlement and Custody Rate (taxa Sistema Especial de Liquidação e de Custódia – SELIC), which may even contain a proposal to reduce the value of the debts (new wording of item II of article 68); (iii) it shall provide for payment of the first installment in a maximum term of 180 days as from distribution of the judicial recovery petition; and (iv) it shall establish the need for authorization by the judge, after hearing the trustee and the Committee of Creditors, for the debtor to increase expenses or hire employees.

Pursuant to article 49, all claims existing on the date of the petition are subject to judicial recovery, even if not yet due. Creditors of a debtor under judicial recovery preserve their rights and privileges against the co-obligors, sureties and other obligors by recourse action (paragraph 1 of article 49). Obligations preceding the judicial recovery shall comply with the terms contracted originally or defined by law, including with respect to charges, unless otherwise established in the judicial reorganization plan (paragraph 2 of article 49).

In the case of a claim guaranteed by pledge over credit instruments, credit rights, financial investments or securities, guarantees liquidated or fallen due during the judicial recovery may be replaced or renewed, and until they are renewed or replaced any amount received in payment of the guarantees shall be kept in a blocked account during the period of suspension (paragraph 5 of article 49). Under judicial recovery, the creditors' right to commence or continue their actions and executions against the company under recovery proceedings is suspended and the suspension shall in no event whatsoever exceed the non-extendable term of 180 days as from granting of processing of the recovery (paragraph 4 of article 6).

The two exceptions provided for in article 49 which are mentioned above are the following:

(i) in the case of a creditor holding the position of fiduciary owner of real or personal property, financial lessor, owner or committed seller of real estate whose respective agreements include an irrevocability or irreversibility clause, including under real estate developments, or an owner under a sale agreement with title retention, his claim shall not be subject to the effects of the judicial recovery, and the ownership rights over the item and the agreement terms shall prevail, with due regard for the respective law; during the suspension term, however, it shall not be permitted to sell or remove from the debtor's establishment any capital goods essential to his business (paragraph 3 of article 49); and

(ii) item II of article 86 establishes that restitution of the amount delivered to the debtor shall be made in cash, in domestic currency, resulting from an advance on an export exchange contract, pursuant to article 75, paragraphs 3 and 4, of Law 4728, of July 14, 1965 (Law 4728/1965), provided the full term of the transaction, including any extensions, does not exceed the term established in the specific rules of the proper authority. The proper authority in this case is the Central Bank of Brazil (Banco Central do Brasil - Bacen). This amount is not subject to the effects of the judicial recovery (paragraph 4 of article 49).

In accordance with article 75 of Law 4728/1965, an exchange contract, provided it is protested by an official with authority to protest bills, is a sufficient instrument to file execution action. By this procedure the creditor is entitled to the difference between the exchange rate in the contract and that prevailing on the date when the payment is made, according to the quotation furnished by Bacen, plus default interest (paragraph 1 of article 75 of Law 4728/1965). The same procedure applies for actions to collect advances made by financial institutions to exporters on account of the value of the exchange contract, provided the corresponding amounts have been annotated in the contract, with the seller´s consent (paragraph 2 of article 75 of Law 4728/1965). In the event of bankruptcy or judicial recovery, the creditor may apply for a refund of the sum advanced, as mentioned in the previous paragraph (paragraph 3 of article 75 of Law 4728/1965). The amounts advanced pursuant to paragraph 2 of article 75 of Law 4728/1965 shall be used in the event of bankruptcy, extrajudicial liquidation or intervention in any financial institution for payment of commercial credit lines they have given rise, on the terms and conditions established by Bacen (paragraph 4 of article 75 of Law 4728/1965).

Pursuant to article 72, if the debtor is a micro or small company and opts for a judicial recovery petition based on the special plan provided for micro and small companies, the general meeting of creditors shall not be called to resolve on the plan, and the judge will grant the judicial recovery if all other requirements hereunder have been met. The judge will also dismiss the judicial recovery petition and decree the bankruptcy of the debtor in the event of objections of creditors holding over half of the claims of any of the classes of creditors listed in the schedule set forth in article 83 (new wording of sole paragraph of article 72).

The schedule set forth in article 83 of Law 11101/2005 will apply, to wit:

  1. labor credits up to 150 current minimum wages per creditor and those deriving from occupational accidents, which are also subject to the same limit per creditor1;
  2. credits guaranteed by rights in rem up to the value of the encumbered property;
  3. tax credits, independent of their nature, except for tax-related fines;
  4. credits with special rights2;
  5. credits with general rights3;
  6. ordinary credits, which are: (a) those not provided in the other items of this article; (b) balance of credits not benefiting from the sale of the assets linked to their payment; and (c) balance of credits deriving from labor laws and regulations exceeding the limitation set forth in item (i) above;
  7. credits regarding penalties for noncompliance of contracts; tax penalties and pecuniary penalties for violation of criminal and administrative laws; and
  8. subordinated credits, which are: (a) those regarded as such under any law or agreement; and (b) credits of partners and officers without an employment relationship.

The changes to Law 11101/2005 introduced by LC 147/2014 should stimulate the use of the judicial recovery for micro and small companies, raising further their participation in the volume of applications analyzed by the Brazilian justice. According to Serasa Experian, in 2013 half of the 690 judicial recoveries were granted in favor of small businesses.


The current value of the minimum wage is R$ 724.00. The limit (cap) established in the law is 150 times the value of the minimum wage, i.e. up to R$ 108,600.00 per creditor. Labor credits or credits deriving from occupational accidents (accidents at work) are privileged in relation to any other type of credit up to the cap of R$ 108,600.00 per creditor. The creditor must be an employee of the company. Any amount which exceeds this cap is considered ordinary credit and will have to be included in item (vi) of the schedule set forth in article 83 of Law 11101/2005. For example, if the creditor (employee) is entitled to receive the total amount of R$ 208,600.00, the balance of R$ 100,000.00 will be deemed ordinary credit.

2 Under Brazilian law, credits with special rights are those: (i) deriving from court fees or expenses incurred in the collection or settlement of a claim; (ii) deriving from a claim for salvage expenses; (iii) deriving from a claim for necessary or useful improvement; (iv) deriving from a claim for materials, monies or services for the erection, reconstruction or betterment of any construction; (v) deriving from a claim for seeds, instruments and services to the growing or harvesting of agricultural produce; (vi) deriving from a claim for rent,; (vii) deriving from publishing agreements; (viii) deriving from harvest produce, with the involvement of rural labor, (ix) those regarded as such under other civil and commercial laws, except as provided otherwise in Law 11101/2005; (x) to whose holders law grants the right of retention with respect to an asset given as guarantee; and (xi) those in favor of individual micro entrepreneurs and micro and small companies pursuant to Complementary Law No. 123, of December 14, 2006 [new wording of letter d) of item IV of article 83 of Law 11101/2005].

3 Under Brazilian Law, credits with general rights are those: (i) deriving from expenses incurred in funerals, undertaken as specified by the deceased and the customs of the place; (ii) deriving from court fees, or expenses incurred in the collection and liquidation of an estate; (iii) deriving from expenses incurred in the mourning of the surviving spouse and children of the deceased debtor, provided that they are reasonable; (iv) deriving from expenses incurred in connection with a disease from which the debtor suffered and died from, arising during the six months preceding his/her death; (v) expenditures necessary to support deceased debtor and his/her family, in the quarter preceding the death; (vi) taxes owing to the Public Treasury, in current and preceding years; (vii) salaries of debtor's household help, in his/her last six months of life; (viii) other credits of general privilege; (ix) credits deriving from obligations assumed by debtor during the judicial recovery, including supplies of goods or services and loan agreements; and (x) credits regarded as such under other civil and commercial laws, except as otherwise provided in Law 11101/2005.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.