Government measures in key jurisdictions 5th edition - Flipbook - Page 17
Brazil
Some key points that are addressed in the Law in order to improve the reorganization
mechanisms are: (i) a more predictable framework for DIP Finance; (ii) more certainty as
to the requirements to ensure lack of successor liability in Distressed M&A; (iii)
possibility under certain circumstances of the sale of the whole company without
successor liability for acquirer; (iv) possibility of creditors, under certain terms and
conditions to present an alternative judicial reorganization plan; (v) adoption of the
provisions of UNCITRAL Model Law on Cross-Border Insolvency; (vi) more clarity on
requirements for procedural and substantive consolidation; (vii) improvements in the
out-of-court reorganization framework; (viii) encouraging parties to resolve disputes
related to the insolvency through mediation and preventive negotiation; (ix) protection
of early termination events and set-off provisions for derivatives in judicial
reorganization proceedings; (x) possibility of judicial reorganization of individual rural
producers provided that they have been exercising rural activity for at least 2 years;
and (xi) possibility of out-of-court reorganization.
Bankruptcy liquidation proceedings are applicable in case the company’s rehabilitation
is not possible. In this respect, the Law includes provisions to expedite the liquidation
of assets, in order to allow for a faster reintegration of the bankrupt entrepreneur into
the market (the so-called fresh start).
Contractual
Issues
What measures
have been taken
to reinforce
contracts?
Brazilian law addresses the general rules regarding force majeure. According to the
sole paragraph of Article 393 of the Brazilian Civil Code, force majeure or act of God
(provided that such Article treats both concepts equally) is considered to be “the
necessary event, whose effects were impossible to avoid or impair”. The event must
be beyond the [affected] party’s control and diligence and must make it impossible to
comply with certain contractual obligation(s). Under such provision, if the party has
not expressly undertaken liability for force majeure and act of God events, no liability
should arise from such events.
To qualify as force majeure, an event must cumulatively satisfy the following
requirements: (i) be unforeseeable; (ii) be beyond the party’s control; and (iii) prevent
the performance of contractual obligation(s). Accordingly, the Covid-19 pandemic
may be considered as a force majeure event, to the extent that the Covid-19
pandemic and its related consequences directly affect the party’s contractual
obligations. In addition, orders enacted by the Brazilian government (or other relevant
local authority) in response to the Covid-19 pandemic, which prohibits the
agglomeration of individuals at the place of work, for example, may also qualify as
force majeure.
Except for contracts ruled by consumer or labour laws, the parties are free to allocate
liabilities. Therefore, the proper determination of the parties’ liabilities, in case of a
force majeure event, must always be made on a case by case analysis and should
consider contractual provisions as a key factor.
Should the contract be silent in expressly governing force majeure, or if there are
gaps on the contract’s terms in that regard, the Brazilian Civil Code will be applicable
and will serve as guidance for the interpretation and application of the law by the
courts. Considering the Covid-19 pandemic, the parties must pay attention to the
contract’s provisions and whether the pandemic and/or its consequences (such as
lockdown measures; restrictions on travelling and transportation of goods) do in fact
impede the compliance with certain contractual undertaking(s).
Government measures in key jurisdictions
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