Initial impacts of COVID-19 in judicial reorganization proceedings

As it happens throughout the world, Brazil faces an unprecedented crisis. The COVID-19 pandemic is the most pressing topic in the entire world, as it profoundly affects the global economy, reverberating in almost all industries.

The impact of the COVID-19 crisis in the companies undergoing judicial reorganization is undeniable. For no other reason, it has been taken into consideration by the Judiciary, which ponders upon what will happen to such companies, some of which are currently performing the obligations undertook in the reorganization plan approved by the creditors.

Judges in Sao Paulo, for instance, have answered these questions by issuing decisions relaxing deadlines for the companies undergoing judicial reorganization, postponing events connected to their proceeding, and allowing for new payment methods by such companies.

Even the general meetings of creditors have been affected by the COVID-19, as is proved by the Odebrecht judicial reorganization proceeding. In this case, the Judge ordered that the general meeting of creditors take place as an online virtual meeting – a first in judicial reorganization proceedings. Not only that, Odebrecht was given an extension of ninety days for the stay period provided on its behalf.

Judge Paulo Furtado, from the 2nd Lower Court for Bankruptcy and Judicial Reorganization proceedings of Sao Paulo, has decided, in a number of cases, that the inspections to be performed by the trustee in the companies undergoing reorganization be conducted remotely, besides incentivizing the adoption of alternative solutions in the proceedings, such as online virtual meetings.

Recently, both the Rio de Janeiro State and the Sao Paulo State courts have granted requests for postponements of general meetings of creditors, due to the COVID-19 pandemic. This is the case of Grupo Renuka, EISA – Estaleiro Ilha, and Grupo Enseada.

In another unprecedented decision, rendered by the 1st Lower Court of Itaquaquecetuba, the judge granted a request by the company undergoing reorganization to pay only 10% of the credits due to the labor creditors for the months of April and May 2020.

One may expect from the Judiciary a dedicated approach in order to allow the judicial reorganization proceedings to march ahead smoothly. In this regard, the state courts deal with the need to suspend hearing sessions, as occurred with appeals before the Mato Grosso State Appellate Court filed by creditors that dispute the request of judicial reorganization by farmers.
An alternative, already adopted by the Supreme Court of late, is to hold online virtual hearing sessions, providing counsel with the opportunity to present oral arguments virtually. The approach, however, has yet to be followed by the state courts.

One thing is certain: given the unparalleled situation brought forth by the COVID-19, which also affected the judicial reorganization proceedings, the Judiciary is forced to adapt rapidly and efficiently, lest creditors and companies under reorganization suffer more harm. In this regard, the flexibility already adopted by the courts, as exemplified above, indicates a positive response to the challenges they now face.

O Costa Tavares Paes Advogados nasceu em 2010 e conta com escritórios em São Paulo, Rio de Janeiro e Brasília. Saiba mais sobre a banca e nossos serviços.