Análises e Perspectivas sobre Questões Globais e Comércio Internacional
It is widely agreed that Brazil needs to implement a range of major structural reforms in order to put its economy on a path of sustained growth. Commentators have focused on Brazil´s convoluted tax code, expensive pensions system and inhibitive labor laws as impediments to investment and economic expansion. Less attention has been paid to the need for Brazil to modernize its bankruptcy law - and in particular the need to adopt the UNCITRAL Model Law on Cross-Border Insolvency (the “Model Law”).
To be sure, the Temer Government has signaled that an overhaul of Law No. 11.101/2005 (the “Brazilian Bankruptcy Law”) will be part of its push to improve the business climate. At the end of 2016, the Ministry of Finance created a multidisciplinary working group to propose a comprehensive amendment to the Brazilian Bankruptcy Law. Various other specialist groups are also working to articulate suggestions for reshaping Brazil´s insolvency regime. An amended Brazilian Bankruptcy Law may even be passed this year.
The proposed changes include the facilitation of DIP financing, mechanisms for selling distressed assets without successor liability and subjecting in rem guarantees (alienação fiduciaria) to insolvency proceedings. Significantly, the latest round of proposals also calls for Brazil to adopt the Model Law.
The Model Law, which has already been adopted in various forms in 43 countries (including the United States, Japan, the United Kingdom and Canada), was designed as a framework for dealing with cross-border insolvency proceedings. The Model Law does not aim to unify the substantive insolvency laws in the countries where it has been adopted. Instead it follows the “modified universalist” model of insolvency, which focuses on cooperation and coordination among the different jurisdictions in which a debtor has assets and creditors. One of its goals is to avoid a piecemeal resolution of multi-jurisdictional insolvencies that result in an inefficient rush to assets by creditors in unconnected proceedings. It also aims to achieve timelier resolution of cross-border cases and thereby preserve the value of distressed assets.
Brazilian courts have faced a number of major international insolvencies in recent years, such as Oi, OAS, OGX, and Parmalat. But the Brazilian Bankruptcy Law has no provisions for dealing with cross-border insolvencies or restructurings and simply ignores the possibility of parallel proceedings with respect to the same debtor in different jurisdictions. Instead, Brazil adopts the “territorial” approach, under which its courts have exclusive jurisdiction over the debtor and all of its assets located in Brazil. Decisions of foreign courts regarding the debtor or its assets or creditors have little or no legal authority. The extent to which Brazilian courts have to date been able to fashion ad hoc solutions to cross-border restructuring issues is a testament to the resourcefulness of the Brazilian judiciary. But it does not provide the legal certainty necessary to foster investment in Brazil or for investors to begin to calculate the risk associated with such investments.
The Model Law creates a system under which the insolvency proceeding in the jurisdiction where the debtor has its center of main interests (“COMI”) is designated the “foreign main proceeding” and any representative of that proceeding - a “foreign representative” - is to be given access to the courts of a country that has adopted the Model Law. The foreign main proceeding generally covers all of the assets of the debtor. An insolvency proceeding in any other jurisdiction where the debtor has “non-transitory economic activity” is deemed a “foreign non-main proceeding” and applies only to the assets of the debtor located in the jurisdiction where the foreign non-main proceeding is taking place.
So what would be the effect if Brazil were to adopt the Model Law? Generally speaking, where Brazil is the COMI of the debtor´s activities, a representative of the Brazilian insolvency would be able to apply to the judge presiding over any foreign non-main proceeding for relief to be coordinated in a manner that is consistent with the Brazilian proceeding. Conversely, Brazilian courts would be required to cooperate “to the maximum extent possible” with foreign courts and representatives of both foreign main proceedings and foreign non-main proceedings.
Ultimately, the Model Law would allow for cross-border insolvencies involving Brazil to be resolved in a comprehensive, consistent and timely manner. This would give investors greater legal certainty regarding Brazilian investments and more predictable legal outcomes – obvious pre-requisites for increased investment. Timely resolution of international insolvency cases would preserve asset values. And by eliminating uncoordinated rushes to assets in unconnected proceedings across multiple jurisdictions, the Model Law would also promote the rehabilitation of distressed Brazilian companies. Adoption of the Model Law would be a genuine and long-term benefit to the Brazilian economy.