The Approval of the Law Project 1.397/2020 by the Congress and the modifications on Judicial Restructuring and Bankruptcy Proceedings

Last week, the Federal Congress voted, and approved, the Law Project 1.397/2020, which main objective is to state emergency, transitory and provisory measures to mitigate the negative economic impacts of the crises caused by the COVID-19 pandemic.

Now, the Law Project 1.397/2020 will be deliberated and voted by the Federal Senate and, if approved, will be send for presidential approval. Only then, it will be effective as a Law.

The measures listed in that Law Project 1.397/2020 will be applied as soon as it is published at the official gazette, and will be effective until December, 31, 2020.

The Law Project 1.397/2020 aims to state measures to prevent the insolvency of economic agents, considered by the Law Project 1.397/2020 as: private companies; the individual entrepreneur, the rural producer and the self-employed worker.

The Project Law 1.397/2020 points several measures to mitigate the insolvency during the COVID-19 crises, including specific actions to modify the current Restructuring and Bankruptcy Proceeding Law. Please find below the most important points of the Project Law 1.397/2020:  

  1. An automatic grace period of 120 days for the debtor to fulfill the obligations listed in a Judicial, or Extrajudicial, Restructuring Plan that have already been ratified by the judge;
  2. The debtor will be able to present a new Judicial, or Extrajudicial, Restructuring Plan, even if the previous, and original, plan has not been already ratified by the judge. The filling of the new plan will renew the stay period for an additional period of 120 days, and will have to be voted in a General Creditors Meeting;
  3. The new plan will be applied even to credits originated after the request of Judicial, or Extrajudicial, Restructuring, except for loan agreements held with the debtor and authorized by the judge of the Judicial Restructuring Proceeding;
  4. The minimum amount that allows a creditor to apply for the bankruptcy of a debtor will be R$ 100.000,00 (one hundred thousand reais);
  5. The debtor will no longer be obliged to prove its economic activity for a minimum period of two years, to be able to file a Judicial Restructuring request, or to wait a five years period to file a new Judicial Restructuring request;
  6. Will not be possible to decree the debtor bankruptcy, in an event of default of the judicial restructuring plan;
  7. During the effectiveness of the law, will be suspended the administrative acts to revoke or prevent the enrollment of the debtor as a regular taxpayer, regardless its current state and considering that it is been discussed in a lawsuit or in the judicial restructuring proceeding;
  8. The quorum to approve an Extrajudicial Restructuring Plan is reduced to the half, plus one, of the credits enrolled in each class. Are subjected to the Extrajudicial Restructuring all the existing credits on the date of the request, except for labor credits, taxes and bankruptcy remote creditors. It is possible to request the ratification of the extrajudicial restructuring plan with one-third of listed credits.


The Project Law 1.397/2020 also establishes a Protection System against the Insolvency, and a Preventive Negotiation Proceeding. This subject is also relevant, and its main highlights are listed below:

  1. Will be suspended for a 30 days period, the enforcement proceedings, that involves the discussions of default of obligations due after March, 20, 2020, as well revisional lawsuits;
  2. During a 30 days period, will be inapplicable fees to charge default interests in contracts and also for tax obligations;
  3. During a 30 days period, will be prohibited: (i) judicial, or extrajudicial, enforcement of guarantees, including mortgages, pledges and fiduciary lien; (ii) unilateral termination of bilateral contracts, including for an early maturity hypothesis, expecting only the rights of creditors to declare an early maturity event, and compensation, for derivatives contracts and compromised operations;
  4. The debtor facing a judicial restructuring proceeding will be able to perform, regardless judicial authorization, loan agreements and receivable discount operations with any lender;
  5. The credit originated from the new loan agreement, as long it was formalized from March, 20, 2020, until the end of effectiveness of the law, will be automatically considered as bankruptcy remote in the case of a Judicial, or Extrajudicial, Restructuring Proceeding;
  6. When the 30 days period is over, the debtor that had a reduction of 30% of its income, will be able to file a new proceeding, named as Preventive Negotiation;
  7. After the Preventive Negotiation is filed, the judge will order the suspension of enforcement proceedings filed against the debtor;
  8. The Preventive Negotiation will have the maximum duration of 90 days. After that, the debtor will have to present to the judge a report about the negotiations in a maximum 60 days period.

Santo Neto is aware of all relevant legislative modifications, and is at your entire disposal to provide further information or any clarification deem necessary.

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