Presidência da República Casa Civil Subchefia para Assuntos Jurídicos

LAW No. 11101/05

Regulates the judicial and out-of-court reorganization and the bankruptcy of businessmen and business companies.

THE PRESIDENT OF THE REPUBLIC. I hereby make known that the National Congress has decreed and I sanction the following law:

 

CHAPTER I

PRELIMINARY PROVISIONS

Article 1. - This Law governs the judicial reorganization, bankruptcy and out-of-court reorganization of businessmen and business companies, hereinafter referred to severally as debtor.

Article 2. - This Law does not apply to:

I - government-owned entities and mixed-capital companies;

II. - public or private financial institutions, credit unions, consortia, supplementary pension companies, health care plan companies, insurance companies, special savings companies and other organizations held equivalent by law to those listed above.

Article 3. - The courts of the venue of the principal establishment of the debtor or the branch of a company headquartered outside Brazil have jurisdiction to ratify out-ofcourt reorganization plans, grant judicial reorganization or decree bankruptcy.

Article 4. - [VETOED]

 

CHAPTER II

PROVISIONS COMMON TO JUDICIAL REORGANIZATION AND BANKRUPTCY

Section I

General Provisions

Article 5. - The following are not enforceable against a debtor under judicial reorganization or bankruptcy:

I. - obligations free of charge;

II. - expenses incurred by the creditors in order to participate in judicial reorganization or bankruptcy, except for court costs arising from litigation with the debtor.

Article 6. - A decree of bankruptcy or granting of judicial reorganization processing tolls the course of the statute of limitation and of all actions and executions against the debtor, including those of private creditors of the jointly liable partner.

Paragraph 1. - Actions claiming a nonfixed amount shall continue at the same court where they are proceeding.

Paragraph 2. - It is permitted to petition to the trustee for proof, exclusion or modification of claims ensuing from labor relations. Labor-related actions, however, including the oppositions referred to in Article 8 here of, shall be processed before the specialized courts until the respective claim been ascertained, which shall be enrolled in the general list of creditors in the amount determined by court decision.

Paragraph 3. - The judge having jurisdiction over the actions referred to in paragraphs 1 and 2 of this Article may order that a reserve be formed in the amount he estimates to be owing under the judicial reorganization or bankruptcy, and once the right has been recognized as unquestionable, the claim shall be included in the proper class.

Paragraph 4. - Under judicial reorganization, the suspension provided for in the main Section of this Article shall in no event whatsoever exceed the non-extendable term of one hundred and eighty (180) days as from granting of processing of the reorganization, the creditors’ right to commence or continue their actions and executions being reestablished after the term has elapsed, independently of a judicial pronouncement.

Paragraph 5. - The provisions of Paragraph 2 of this Article apply to judicial reorganization during the suspension period under Paragraph 4 of this Article. After the suspension has ended, however, labor executions may be concluded normally even if the claim is already enrolled in the general list of creditors.

Paragraph 6. - Independently of periodic verification at the court distribution offices, the bankruptcy or judicial reorganization court shall be informed of any actions filed against the debtor:

I. - by the competent judge, upon receipt of the complaint;

II. - by the debtor, immediately after service of process.

Paragraph 7. - Tax-related executions are not suspended by the granting of judicial reorganization, except for the concession of installment payment pursuant to the National Tax Code and specific statutory law.

Paragraph 8. - Distribution of the petition in bankruptcy or for judicial reorganization establishes prevention over any other petition for judicial reorganization or in bankruptcy with respect to the same debtor.

 

Section II

Verification And Proof of Claims

Article 7. - Claims shall be verified by the trustee, based on the debtor’s accounting books and commercial and tax documents, and on the documents submitted to him by the creditors, assistance by professionals or specialized companies being permitted.

Paragraph 1. - Upon publication of the public notice provided for in Article 52, Paragraph 1, or in Article 99, sole Paragraph , of this Law, creditors shall have fifteen (15) days to submit their proofs or their differences regarding the listed claims to the trustee.

Paragraph 2. - The trustee, based on the information and documents compiled pursuant to the main Section and Paragraph 1 of this Article, shall publish a notice setting forth the list of creditors within forty-five (45) days as from the end of the term under Paragraph 1 of this Article, and stating the place, time and common term for the persons mentioned in Article 8 hereof to have access to the documents on which the preparation of said list was based.

Article 8. - Within ten (10) days after publication of the list referred to in Article 7, Paragraph 2, hereof, the Committee, any creditor, the debtor or his partners, or the Public Attorney’s Office may file an opposition against the list of creditors to the judge, alleging the lack of any claim or challenging the lawfulness, amount or rating of a listed claim.

Sole Paragraph . - The opposition, under a separate case record, shall be processed pursuant to Articles 13 to 15 hereof.

Article 9. - The proof of claim filed by the creditor pursuant to Article 7, Paragraph 1, hereof shall contain:

I. - the creditor’s name and address and the address where he shall be informed of any act of the proceeding;

II. - the amount of the claim, updated to the date of the decree of bankruptcy or petition for judicial reorganization, its origin and rating;

III. - the documents evidencing the claims and mention of all other evidence to be produced;

IV. - indication of the guarantee provided by the debtor, if any, and the respective instrument;

V. - specification of the object of the guarantee in the creditor’s possession.

Sole Paragraph . - The financial instruments and documents that legitimize the claims shall be submitted in the original or by certified copies if attached to other proceedings.

Article 10. - If the term established in Article 7, Paragraph 1, hereof is not observed, the proofs of claim shall be considered late.

Paragraph 1. - Under judicial reorganization, the holders of late claims, with the exception of the holders of labor-related claims, shall not be entitled to vote on resolutions of the general meeting of creditors.

Paragraph 2. - The provisions of Paragraph 1 of this Article apply to bankruptcy proceedings unless the general list of creditors containing the late claims has already been ratified on the date of the general meeting.

Paragraph 3. - Under bankruptcy, late claims shall forfeit the right to any apportionment made and shall be subject to the payment of court costs, ancillary charges included between the end of the term and the date of the petition for proof of claim not being computed.

Paragraph 4. - In the event under Paragraph 3 of this Article, the creditor may file for an amount to be set aside to satisfy his claim.

Paragraph 5. - Late proving of claims, if filed prior to ratification of the general list of creditors, shall be received as an opposition and processed pursuant to Articles 13 to 15 hereof.

Paragraph 6. - After ratification of the general list of creditors, those who have not proven their claim may, with due regard, as applicable, for the ordinary procedure established in the Code of Civil Procedure, petition the bankruptcy or the judicial reorganization court for rectification of the general list in order to include the respective claim.

Article 11. - Creditors whose claims are opposed shall be notified to answer the opposition within five (5) days, attaching any documents they have and indicating other evidence they consider necessary.

Article 12. - The term under Article 11 hereof having elapsed, the judge shall notify the debtor and the Committee, if any, to comment on the opposition, in the common term of five (5) days.

Sole Paragraph . - At the end of the term referred to in the main Section of this Article, the judge shall notify the trustee to issue an opinion within five (5) days, attaching to his statement the report prepared by the professional or specialized company, if applicable, and all information existing in the debtor’s tax books and other documents regarding the claim underlying the opposition, whether or not included in the list of creditors.

Article 13. - The opposition shall be addressed to the judge by petition, supported by any documents held by the opposing creditor, who shall indicate the evidence considered necessary.

Sole Paragraph . - A separate case record shall be made for each opposition, with the documents relating thereto, but the various oppositions concerning the same claim shall have a single case record.

Article 14. - If no opposition is filed, the judge shall ratify, as the general list of creditors, the list of creditors stated in the public notice referred to in Article 7, Paragraph 2, hereof, the publication referred to in Article 18 hereof being waived.

Article 15. - The terms provided for in Articles 11 and 12 hereof having run, the opposition case records shall be concluded and sent to the judge, who shall:

I. - order that unopposed proofs of claims be included in the general list of creditors, in the amount stated in the list referred to in Article 7, Paragraph 2, hereof;

II. - judge the oppositions he considers sufficiently clarified by the allegations and evidence filed by the parties, stating the amount and rating per claim;

III. - establish, in each of the remaining oppositions, the disputed aspects and decide on pending procedural matters;

IV. - determine the evidence to be produced, scheduling an evidentiary and judgment hearing, if necessary.

Article 16. - The judge shall require, for apportionment purposes, an amount to be set aside to satisfy the opposed claim.

Sole Paragraph . - When partial, the opposition shall not prevent payment of the undisputed part.

Article 17. - A plea may be filed against the court decision on the opposition.

Sole Paragraph . - The plea having been received, the reporting judge may grant stay of the decision that recognizes the claim or may order enrollment or modification of the amount or rating in the general list of creditors, for purposes of exercise of voting rights at general meetings.

Article 18. - The trustee shall be responsible for consolidation of the general list of creditors to be ratified by the judge, based on the list of creditors referred to in Article 7, Paragraph 2, hereof and on the decisions rendered on the oppositions.

Sole Paragraph . - The general list, signed by the judge and the trustee, shall mention the amount and rating of each claim on the date of the petition for judicial reorganization or decree of bankruptcy, shall be attached to the case record and shall be published in the official press within five (5) days as from the date of the judgment on the oppositions.

Article 19 - The trustee, the Committee, any creditor or the Public Attorney’s Office representative may, up to conclusion of the judicial reorganization or bankruptcy, with due regard, as applicable, for the ordinary procedure provided for in the Code of Civil Procedure, request the exclusion, another rating or the rectification of any claim in the event of discovery of falsity, malice, simulation, fraud, essential error or, further, documents unknown at the time of judgment of the claim or of inclusion in the general list of creditors.

Paragraph 1. - The action provided for in this Article shall be brought solely before the judicial reorganization or bankruptcy court, or, in the events under Article 6, paragraphs 1 and 2, hereof, before the court that originally recognized the claim.

Paragraph 2. - The action referred to in this Article having been filed, payment to the holder of the claim affected thereby may only be made by posting bond in the amount of the disputed claim.

Article 20. - Proofs of claim of the private creditor of a partner with unlimited liability shall be processed in accordance with the provisions of this Section.

 

Section III

Trustee and Committee of Creditors

Article 21. - The trustee shall be a reputable professional, preferably a lawyer, economist, business manager or accountant, or a specialized legal entity.

Sole Paragraph . - If the appointed trustee is a legal entity, the instrument provided for in Article 33 hereof shall state the name of the professional who is to be in charge of conducting the bankruptcy or judicial reorganization procedure, and who shall not be replaced without the judge’s authorization.

Article 22. - The following are the duties of the trustee, under supervision of the judge and the Committee, in addition to others imposed on him hereunder:

I. - under judicial reorganization and bankruptcy:

(a) to issue a letter to the creditors in the list provided for in Article 51, main Section , III, Article 99, main Section , III, or Article 105, main Section , II, hereof, stating the date of the petition for judicial reorganization or decree of bankruptcy and the kind, amount and rating established for the claim;

(b) to provide promptly all information requested by interested creditors;

(c) to provide summaries of the debtor’s books, which shall be vested with official credit in order to serve as grounds for the proofs of claim and oppositions;

(d) to require any information whatsoever of creditors or of the debtor or his officers;

(e) to draw up the list of creditors referred to in Article 7, Paragraph 2, hereof;

(f) to consolidate the general list of creditors pursuant to Article 18 hereof;

(g) to request the judge to call a general meeting of creditors in the events provided for herein or whenever he deems it should be heard for decision-making purposes;

(h) to retain professionals or specialized companies, by court authorization, to assist him whenever necessary in the performance of his duties;

(i) to make a statement in the events provided for herein;

II. - under judicial reorganization:

(a) to monitor the debtor’s activities and judicial reorganization plan performance;

(b) to file for bankruptcy in the event of nonperformance of any obligation assumed under the reorganization plan;

(c) to submit a monthly report on the debtor’s activities to the judge, for attachment to the record;

(d) to submit the report on the performance of the reorganization plan provided for in Article 63, main Section , III, hereof;

III. - under bankruptcy:

(a) to inform, through the official press, the place and time for creditors to have daily access to the bankrupt party’s books and documents;

(b) to examine the debtor’s bookkeeping;

(c) to list the proceedings and assume the judicial representation of the bankrupt estate;

(d) to receive and open mail addressed to the debtor, delivering any matter to him that is not of interest to the estate;

(e) to submit, within forty (40) days as from signing of the instrument of commitment, extendable for a like period, a report on the causes and circumstances that led to the state of bankruptcy, in which he shall indicate the civil and criminal liability of the parties involved, with due regard for the provisions of Article 186 hereof;

(f) to schedule the debtor’s assets and documents and prepare the schedule notice, pursuant to Articles 108 and 110 hereof;

(g) to appraise the scheduled assets;

(h) to retain appraisal experts, preferably official, by court authorization, in order to appraise the assets in the event he does not consider himself technically qualified to do so;

(i) to perform the acts required for realization of assets and payment to creditors;

(j) to petition the judge for advance sale of assets that are perishable or liable to deterioration, to considerable devaluation or to hazardous or costly conservation, pursuant to Article 113 hereof;

(l) to perform all acts to preserve rights and actions, exert efforts to collect debts and give the respective release;

(m) to redeem attached, pledged or legally withheld assets in behalf of the estate and by court authorization;

(n) to represent the bankrupt estate in court, if necessary retaining an attorney, whose fees shall first be established and approved by the Committee of Creditors;

(o) to request all measures and procedures required for the performance of this Law, protection of the estate or efficient administration;

(p) to submit to the judge for attachment to the case record, by the tenth (10^th) day of the month following the due month, a statement of account of the trust, clearly specifying income and expenditure;

(q) to hand over to his replacement all estate assets and documents in his possession, on pain of liability;

(r) to render accounts at the end of the proceeding, when replaced, dismissed or resigning from the position.

Paragraph 1. - The fees of the trustee’s assistants shall be fixed by the judge, who shall consider the complexity of the work to be performed and the market values for similar duties.

Paragraph 2. - In the event under the main Section , I (d), of this Article, in the case of refusal the judge, at the trustee’s request, shall notify said persons to appear at the court headquarters on pain of disobedience, when he shall then question them in the presence of the trustee, taking their depositions in writing.

Paragraph 3. - Under bankruptcy, the trustee may not, without court authorization, after hearing the Committee and the debtor in a common term of two (2) days, compromise as to obligations and rights of the bankrupt estate or grant deductions on debts, even if considered unlikely to be paid.

Paragraph 4. - If the report under III (e) of the main Section of this Article indicates the criminal liability of any of the parties involved, the Public Attorney’s Office shall be notified to take cognizance of its contents.

Article 23. - The trustee who fails to submit his accounts or any of the reports provided for herein in the established term shall be notified personally to do so within five (5) days, on pain of disobedience.

Sole Paragraph . - The term under the main Section of this Article having elapsed, the judge shall dismiss the trustee and appoint a replacement to prepare reports or organize the accounts, stating explicitly his predecessor’s responsibilities.

Article 24. - 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.

Paragraph 1. - In any event, the total amount paid to the trustee shall not exceed five percent (5%) of the amount payable to the creditors submitted to judicial reorganization or of the proceeds of the sale of assets in bankruptcy.

Paragraph 2. - Forty percent (40%) of the amount payable to the trustee shall be reserved for payment after the provisions of Articles 154 and 155 hereof have been performed.

Paragraph 3. - The replaced trustee shall be remunerated in proportion to the work performed, unless he resigns for no relevant cause or is dismissed for negligence, fault, malice or nonperformance of the obligations established herein, in which events he shall not be entitled to any remuneration.

Paragraph 4. - The trustee whose accounts are not approved shall likewise not be entitled to remuneration.

Article 25. - The debtor or the bankrupt estate shall bear the expenses of the fees of the trustee and of any persons engaged to assist him.

Article 26. - The Committee of Creditors shall be formed by resolution of any of the classes of creditors at the general meeting and shall be composed as follows:

I. - one (1) representative appointed by the class of labor creditors, with two (2) alternates;

II. - one (1) representative appointed by the class of creditors with in rem guarantees or special privileges, with two (2) alternates;

III. - one (1) representative appointed by the class of creditors that are unsecured and have special privileges, with two (2) alternates.

Paragraph 1. - Failure by any of the classes to appoint a representative shall not prevent the formation of the Committee, which may function with less members than provided for in the main Section of this Article.

Paragraph 2. - Upon request signed by creditors representing the majority of the claims of a single class, independently of a general meeting, the judge shall order:

I. - the appointment of the representative and alternates of the respective class not yet represented on the Committee; or

II. - the replacement of the representative or alternates of the respective class.

Paragraph 3. - The Committee members shall appoint one of themselves to be the chairman.

Article 27. - The Committee of Creditors shall have the following duties, apart from others established herein:

I. - under judicial reorganization and bankruptcy:

(a) to supervise the activities and examine the accounts of the trustee;

(b) to monitor the smooth course of the proceedings and performance of the law;

(c) to inform the judge if it detects any violation of the rights or injury to the interests of the creditors;

(d) to verify and issue an opinion on any complaints by interested parties;

(e) to request the judge to call general meetings of creditors;

(f) to pronounce in the events established herein;

II. - under judicial reorganization:

(a) to supervise the management of the debtor’s activities, submitting a report on his situation every thirty (30) days;

(b) to supervise performance of the judicial reorganization plan;

(c) to submit for authorization by the judge, when the debtor is excluded in the events provided for herein, the disposal of fixed assets, the establishment of in rem and other guarantees, as well as acts of indebtedness required for the continuation of corporate activities during the period preceding approval of the judicial reorganization plan.

Paragraph 1. - The Committee’s decisions, passed by majority vote, shall be recorded in a book of minutes, initialed by the judge, which shall be made accessible to the trustee, the creditors and the debtor.

Paragraph 2. - If a majority vote on a Committee resolution is not possible, the deadlock shall be settled by the trustee or, in the event of his incompatibility, by the judge.

Article 28. - If there is no Committee of Creditors, the trustee, or the judge in the event of his incompatibility, shall carry out its duties.

Article 29. - The Committee members’ fees shall not be defrayed by the debtor or the bankrupt estate, but the expenses incurred to perform any act provided for herein, if duly evidenced and authorized by the judge, shall be reimbursed in accordance with available cash funds.

Article 30. - No one may be a member of the Committee or hold the position of trustee who in the last five (5) years, while holding the position of trustee or Committee member under a previous bankruptcy or judicial reorganization, was dismissed, failed to render accounts within the legal time frames or whose accounts were not approved.

Paragraph 1. - Anyone having blood or affinity ties within the third (3^rd) degree with the debtor, his officers, controllers or legal representatives or who is their friend, enemy or dependent shall likewise be barred from joining the Committee or holding the position of trustee.

Paragraph 2. - The debtor, any creditor or the Public Attorney’s Office may request the judge to replace the trustee or Committee members appointed in breach of the provisions of this Law.

Paragraph 3. - The judge shall decide within twenty-four (24) hours regarding the request under Paragraph 2 of this Article.

Article 31. - The judge, on his own initiative or at the substantiated request of any interested party, may order the dismissal of the trustee or of any of the members of the Committee of Creditors when he ascertains a breach of the provisions of this Law, nonperformance of duties, omission, negligence or performance of any act that may jeopardize the business of the debtor or of third parties.

Paragraph 1. - Upon the act of dismissal, the judge shall appoint a new trustee or call the alternates to recompose the Committee.

Paragraph 2. - Under bankruptcy, the replaced trustee shall render accounts within ten (10) days, pursuant to Article 154, paragraphs 1 to 6, hereof.

Article 32. - The trustee and the Committee members shall be liable for losses caused to the bankrupt estate, the debtor or the creditors by malice or negligence, those disagreeing to a Committee resolution to state their disagreement in minutes in order to hold themselves harmless against liability.

Article 33. - The trustee and the members of the Committee of Creditors shall be notified in person immediately upon their appointment to sign, within forty-eight (48) hours at the court headquarters, the instrument of commitment to perform the office well and truly and to assume all responsibilities inherent thereto.

Article 34. - If the instrument of commitment is not signed within the term established in Article 33 hereof, the judge shall appoint another trustee.

 

Section IV

General Meeting of Creditors

Article 35. - The duties of the general meeting of creditors shall be to resolve on:

I. - under judicial reorganization:

(a) approval, rejection or modification of the judicial reorganization plan submitted by the debtor;

(b) formation of the Committee of Creditors, selection of its members and their replacement;

(c) [VETOED]

(d) petitions for withdrawal of the debtor, pursuant to Article 52, Paragraph 4, hereof;

(e) appointment of the administrator upon exclusion of the debtor;

(f) any other matter that may affect the creditors’ interests;

II. - under bankruptcy:

(a) [VETOED]

(b) formation of the Committee of Creditors, selection of its members and their replacement;

(c) adoption of other forms of asset realization, pursuant to Article 145 hereof;

(d) any other matter that may affect the creditors’ interests.

Article 36. - The general meeting of creditors shall be called by the judge at least fifteen (15) days beforehand, by notice published in the official press and in widely circulated newspapers in the localities of the headquarters and branches, and which shall state:

I. - the place, date and time of the meeting at first (1^st) and second (2^nd) calls, the second (2^nd) not to be held less than five (5) days after the first (1st);

II. - the agenda;

III. - the place where the creditors may, if applicable, obtain a copy of the judicial reorganization plan to be submitted for resolution by the general meeting.

Paragraph 1. - A copy of the general meeting call notice shall be posted in an easily visible form at the debtor’s headquarters and branches.

Paragraph 2. - Apart from the cases expressly provided for herein, creditors representing at least twenty-five percent (25%) of the total amount of the claims of a specific class may request the judge to call a general meeting.

Paragraph 3. - Call and general meeting expenses are borne by the debtor or the bankrupt estate, unless the meeting is called at the request of the Committee of Creditors or in the event under Paragraph 2 of this Article.

Article 37. - The general meeting shall be chaired by the trustee, who shall appoint one (1) secretary from among the creditors present.

Paragraph 1. - In resolutions on the dismissal of the trustee or in others with which he is incompatible, the general meeting shall be chaired by the creditor present holding the largest claim.

Paragraph 2. - The general meeting shall be convened at first (1^st) call with the attendance of creditors holding over half of the claims of each class, computed at their value, and at second (2^nd) call, with any number.

Paragraph 3. - In order to attend a general meeting, creditors shall each sign the attendance list, which shall be closed when the meeting is convened.

Paragraph 4. - A creditor may be represented at general meetings by proxy or by a legal representative, provided he delivers to the trustee, at least twenty-four (24) hours before the date stated in the call notice, a legally competent document evidencing the powers or stating the page of the case record where the document is to be found.

Paragraph 5. - Labor unions may represent members holding labor-related claims or occupational accident claims who do not attend the general meeting either in person or by proxy.

Paragraph 6. - In order to exercise the right established in Paragraph 5 of this Article, the union shall:

I. - provide the trustee at least ten (10) days before the general meeting with a list of the members it intends to represent, and workers included in the list of more than one union shall inform, at least twenty-four (24) hours before the general meeting, which union represents them, on pain of not being represented at the general meeting by any of them; and

II. - [VETOED]

Paragraph 7. - Minutes shall be drawn up of the general meeting, setting forth the names of those present and the signatures of the chairman, the debtor and two (2) members of each of the voting classes, and shall be delivered to the judge with the attendance list within forty-eight (48) hours.

Article 38. - Creditors’ votes shall be proportional to the value of their claims, with due regard, in resolutions on the judicial reorganization plan, for the provisions of Article 45, Paragraph 2, hereof.

Sole Paragraph . - Under judicial reorganization, for exclusive purposes of voting at general meetings, foreign currency claims shall be converted into domestic currency at the exchange rate prevailing on the day before the general meeting.

Article 39. - The persons included in the general list of creditors or in the absence thereof in the list of creditors submitted by the trustee pursuant to Article 7, Paragraph 2, hereof, or, further, in the absence of the latter in the list submitted by the debtor himself pursuant to Articles 51, main Section , III and IV, 99, main Section , III, or main Section , 105, II, of this Law, shall be entitled to vote at general meetings, including in any event those with proven claims on the date of the general meeting or those whose claim is admitted or altered by court decision, including those who have obtained a reserve of amounts, with due regard for the provisions of Article 10, paragraphs 1 and 2, hereof.

Paragraph 1. - The holders of claims excepted under Article 49, paragraphs 3 and 4, hereof shall not be entitled to vote and shall not be considered for purposes of verifying the quorum for convening and resolution.

Paragraph 2. - General meeting resolutions shall not be invalidated by virtue of a subsequent court decision on the existence, quantification or rating of claims.

Paragraph 3. - In the event of subsequent invalidation of a general meeting resolution, the rights of bona fide third parties shall be held harmless, the creditors who approved the resolution to be liable for proven losses caused by malice or negligence.

Article 40. - No preliminary approval shall be granted, of either a provisional or advance nature as to the effects of the relief, in order to suspend or postpone a general meeting of creditors due to a pending dispute on the existence, quantification or rating of claims.

Article 41. - 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.

Paragraph 1. - Holders of labor-related claims vote with the class provided for in the main Section , I, of this Article with their total claim, independently of the amount.

Paragraph 2. - Holders of claims with in rem guarantees vote with the class provided for in the main Section , II, of this Article to the limit of the value of the encumbered asset, and with the class provided for in the main Section , III, of this Article for the balance of the amount of their claim.

Article 42. - A proposal shall be considered approved when it obtains the assenting votes of creditors representing over half the total amount of the claims represented at the general meeting, except in resolutions on the judicial reorganization plan pursuant to Article 35, main Section , I (a), hereof, on the composition of the Committee of Creditors or on an alternative form of realizing the assets pursuant to Article 145 hereof.

Article 43 - The debtor’s partners, as well as associated, controlling and controlled companies or those having a partner or shareholder with an interest of more than ten percent (10%) of the debtor’s capital stock or in which the debtor or any of his partners have an interest of more than ten percent (10%) of the capital stock, may attend the general meeting of creditors, without voting rights, however, and they shall not be considered for purposes of verifying the quorum for convening and resolution.

Sole Paragraph . - The provisions of this Article also apply to the spouse or relative by blood or affinity or collateral kin within the second (2^nd) degree, ascendant or descendant, of the debtor, trustee, controlling partner, members of the advisory councils, audit committees or similar bodies of the debtor company, and to any company in which any such persons hold said positions.

Article 44. - When choosing the representatives of each class on the Committee of Creditors, only the respective members may vote.

Article 45. - In resolutions on the judicial reorganization plan, all classes of creditors referred to in Article 41 hereof shall approve the proposal.

Paragraph 1. - In each of the classes referred to in Article 41, II and III, hereof, the proposal shall be approved by creditors representing over half of the total amount of the claims represented at the general meeting and, cumulatively, by simple majority of creditors present.

Paragraph 2. - In the class under Article 41, I, hereof, the proposal shall be approved by simple majority of the creditors present, independently of the amount of the claim.

Paragraph 3. - Creditors shall not be entitled to vote and shall not be considered for purposes of verification of the resolution quorum if the judicial reorganization plan does not alter the amount or the original conditions of payment of their claim.

Article 46. - Approval of an alternative form of asset realization under bankruptcy, pursuant to Article 145 hereof, shall require the favorable vote of creditors representing two-thirds (2/3) of the claims present at the general meeting.

 

CHAPTER III

JUDICIAL REORGANIZATION

Section I

General Provisions

Article 47. - The object of judicial reorganization is to make it possible for the debtor to overcome his economic and financial crisis in order to be able to maintain the production source, employment of workers and interests of the creditors, thus contributing to preserve the company and its social function and to foster economic activity.

Article 48. - Judicial reorganization may be petitioned for by any debtor who, at the time of the petition, has been doing business regularly for over two (2) 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 reorganization within the last five (5) years;

III. - he shall not have obtained, within the last eight (8) years, a concession of judicial reorganization based on the special plan provided for in Section V of this CHAPTER;

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.

Sole Paragraph . - Judicial reorganization may also be petitioned for by the surviving spouse, the debtor’s heirs, the executor or the remaining partner.

Article 49. - All claims existing on the date of the petition are subject to judicial reorganization, even if not yet due.

Paragraph 1. - Creditors of a debtor under judicial reorganization preserve their rights and privileges against the co-obligors, sureties and other obligors by recourse action.

Paragraph 2. - Obligations preceding the judicial reorganization 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 3. - 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 reorganization, and the ownership rights over the item and the agreement terms shall prevail, with due regard for the respective law; during the suspension term under Article 6, Paragraph 4, hereof, however, it shall not be permitted to sell or remove from the debtor’s establishment any capital goods essential to his business.

Paragraph 4. - The amount referred to in Article 86, II, hereof shall not be subject to the effects of the judicial reorganization.

Paragraph 5. - 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 reorganization 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 referred to in Article 6, Paragraph 4, hereof.

Article 50. - The following are means of judicial reorganization, with due regard for the law applicable to each case, inter alia:

I. - granting of special terms and conditions for the payment of obligations fallen or falling due;

II. - spin-off, merger, consolidation or transformation of a company, opening of a wholly-owned subsidiary, or quota or share assignment, with due regard for the partners’ rights, pursuant to applicable law;

III. - change in corporate control;

IV. - full or partial replacement of the debtor’s officers or change in his management bodies;

V. - granting creditors the right to separate election of officers and to veto powers on matters specified in the plan;

VI. - capital increase;

VII. - succession or lease of an establishment, including to a company formed by the employees themselves;

VIII. - reduction in salaries, offsetting of working hours and workday reduction, by collective agreement or convention;

IX. - payment in kind or novation of outstanding debts, with or without constitution of own or a third party guarantee;

X. - formation of a company of creditors;

XI. - partial sale of the assets;

XII. - equalization of financial charges relating to debts of any kind, the initial term being the date of distribution of the petition for judicial reorganization, applying also to rural credit contracts, without prejudice to the provisions of specific law;

XIII. - right of enjoyment of the company;

XIV. - shared management;

XV. - securities issuance;

XVI. - formation of a specific purpose company to adjudicate, in payment of the claims, the debtor’s assets.

Paragraph 1. - Upon the disposal of an asset under in rem guarantee, suppression or replacement of the guarantee shall only be permitted with the express approval of the creditor holding the respective guarantee.

Paragraph 2. - In foreign currency claims, the exchange variation shall be maintained as a parameter for indexing the corresponding obligation, and it may only be excluded if the creditor holding the respective claim expressly approves a different provision in the judicial reorganization plan.

 

Section II

Petition for and Processing of Judicial Reorganization

Article 51. - The petition for judicial reorganization shall be supported by:

I. - a statement of the material causes of the debtor’s equity condition and the reasons for the economic and financial crisis;

II. - accounting statements for the last three (3) financial years and those drawn up especially to support the petition, prepared in strict compliance with applicable corporation law and consisting necessarily of:

(a) the balance sheet;

(b) accrued income statement;

(c) income statement as from the last financial year;

(d) management report on cash flow and projection thereof;

III. - full nominal list of creditors, including those under an affirmative covenant or covenant to give, stating the address, kind, rating and updated amount of the claim, and specifying its origin, the system for the respective maturity dates and the accounting records on each pending transaction;

IV. - full list of employees, stating the respective functions, salaries, indemnities and other amounts to which they are entitled, with the corresponding accrual months, and specifying amounts pending payment;

V. - certificate of regular standing of the debtor at the Company Public Registry, updated Articles of incorporation and minutes of appointment of current officers;

VI. - list of private assets of the debtor’s controlling partners and officers;

VII. - updated statements of debtor’s bank accounts and of any financial investments of any kind, including those in investment funds or on stock exchanges, issued by the respective financial institutions;

VIII. - certificates of the protest offices in the judicial district of the debtor’s domicile or headquarters and branches;

IX. - list, signed by the debtor, of all legal actions to which he is a party, including labor-related suits, with an estimate of the respective amounts claimed.

Paragraph 1. - The accounting documents and other ancillary reports, in the form and supported as provided for by law, shall be kept at the disposal of the court, the trustee and, by court authorization, any interested party.

Paragraph 2. - With respect to the requirement under the main Section , II, of this Article, microenterprises and small companies may submit simplified books and accounting records as established by specific law.

Paragraph 3. - The judge may order that the documents referred to in paragraphs 1 and 2 of this Article, or a copy thereof, be deposited at the court office.

Article 52. - The documentation required under Article 51 hereof being in order, the judge shall grant processing of the judicial reorganization and, by the same act, shall:

I. - appoint the trustee, with due regard for the provisions of Article 21 hereof;

II. - waive the requirement for clearance certificates for the debtor to engage in business, except for contracting with the Public Authorities or for the receipt of tax or claim benefits or incentives, with due regard for the provisions of Article 69 hereof;

III. - order the suspension of all actions or executions against the debtor pursuant to Article 6 hereof, the respective case records to remain at the court where they are proceeding, except for the actions under Article 6, paragraphs 1, 2 and 7, hereof and those relating to claims excepted under Article 49, paragraphs 3 and 4, hereof;

IV. - order the debtor to submit monthly statements of account throughout the judicial reorganization term, on pain of dismissal of his officers;

V. - order notice to be served on the Public Attorney’s Office and communication by letter to the Federal Public Treasuries and those of all States and Municipalities where the debtor has an establishment.

Paragraph 1. - The judge shall order that a public notice be issued for publication in the official press, containing:

I. - a summary of the debtor’s petition and the decision granting processing of the judicial reorganization;

II. - a nominal list of creditors, specifying the updated amount and rating of each claim;

III. - a warning regarding the deadlines for proving claims, pursuant to Article 7, Paragraph 1, hereof, and for creditors to file objections to the judicial reorganization plan submitted by the debtor pursuant to Article 55 hereof.

Paragraph 2. - Processing of the judicial reorganization being granted, the creditors may at any time request that a general meeting be called to form the Committee of Creditors or to replace its members, with due regard for the provisions of Article 36, Paragraph 2, hereof.

Paragraph 3. - In the event under the main Section , III, of this Article, the debtor shall inform the competent courts of the suspension.

Paragraph 4. - The debtor cannot withdraw the petition for judicial reorganization after processing thereof has been granted, unless he obtains approval of the withdrawal at the general meeting of creditors.

 

Section III

JUDICIAL REORGANIZATION PLAN

Article 53. - The reorganization plan shall be submitted by the debtor to the court in the non-extendable term of sixty (60) days after publication of the decision granting processing of the judicial reorganization, on pain of conversion into bankruptcy, and it shall contain:

I. - a detailed description of the means of reorganization to be used, pursuant to Article 50 hereof, and a summary thereof;

II. - statement of its economic feasibility; and

III. - economic-financial and appraisal report on the debtor’s assets, signed by a legally qualified professional or specialized company.

Sole Paragraph . - The judge shall order a notice to be published advising the creditors regarding receipt of the reorganization plan and establishing the term for stating objections, with due regard for Article 55 hereof.

Article 54. - The judicial reorganization plan shall not provide for a term of more than one (1) year for payment of labor-related claims or occupational accident claims fallen due by the date of the judicial reorganization petition.

Sole Paragraph . - The plan shall not, further, provide for a term of more than thirty

(30) days for the payment, to a limit of five (5) minimum wages per worker, of strictly salary-related claims fallen due during the three (3) months prior to the judicial reorganization petition.

 

Section IV

Procedure for Judicial Reorganization

Article 55. - Any creditor may state his objection to the judicial reorganization plan to the judge within thirty (30) days as from publication of the list of creditors provided for in Article 7, Paragraph 2, hereof.

Sole Paragraph . - If on the date of publication of the list referred to in the main Section of this Article the notice under Article 53, sole Paragraph , hereof has not been published, the term for objection shall start on the notice publication date.

Article 56 - If any creditor objects to the judicial reorganization plan, the judge shall call a general meeting of creditors to resolve on the reorganization plan.

Paragraph 1. - The date scheduled for the general meeting shall not be later than one hundred and fifty (150) days after judicial reorganization processing is granted.

Paragraph 2. - The general meeting that approves the judicial reorganization plan may appoint the members of the Committee of Creditors, pursuant to Article 26 hereof, if it has not yet been formed.

Paragraph 3. - The judicial reorganization plan may be altered by the general meeting, provided the debtor agrees expressly and in such a way that does not entail a decrease in the rights exclusively of the absent creditors.

Paragraph 4. - The general meeting of creditors having rejected the reorganization plan, the judge shall decree the debtor bankrupt.

Article 57. - After the plan approved by the general meeting of creditors has been attached to the record or the term under Article 55 hereof has elapsed without objection by creditors, the debtor shall submit tax indebtedness clearance certificates pursuant to Articles 151, 205 and 206 of Law 5172 of October 25, 1966 (National Tax Code).

Article 58. - The requirements of this Law having been met, the judge shall grant the judicial reorganization of the debtor whose plan has not been objected to by any creditor pursuant to Article 55 hereof or has been approved by the general meeting of creditors pursuant to Article 45 hereof.

Paragraph 1. - The judge may grant judicial reorganization based on a plan that has not been approved pursuant to Article 45 hereof, provided it has obtained, cumulatively, at the same general meeting:

I. - the favorable vote of creditors representing over half the amount of all claims represented at the general meeting, independently of classes;

II. - the approval of two (2) of the classes of creditors pursuant to Article 45 hereof, or if there are only two (2) classes with voting creditors, the approval of at least one (1) of them;

III. - in the class that rejected it, the favorable vote of over one-third (1/3) of the creditors, computed pursuant to Article 45, paragraphs 1 and 2, hereof.

Paragraph 2. - Judicial reorganization may only be granted pursuant to Paragraph 1 of this Article if the plan does not entail different treatment among the creditors of the class that rejected it.

Article 59. - The judicial reorganization plan entails novation of pre-petition claims, and binds the debtor and all the creditors subject to him, without prejudice to the guarantees, with due regard for the provisions of Article 50, Paragraph 1, hereof.

Paragraph 1. - The court decision that grants judicial reorganization shall constitute a judicial enforcement instrument, pursuant to Article 584, main Section , III, of Law 5869 of January 11, 1973 (Code of Civil Procedure).

Paragraph 2. - A plea may be filed against decisions granting judicial reorganization by any creditor and by the Public Attorney’s Office.

Article 60. - If the approved judicial reorganization plan involves the judicial disposal of branches or separate production units of the debtor, the judge shall order that this be performed, with due regard for the provisions of Article 142 hereof.

Sole Paragraph . - The object of the disposal shall be free of any encumbrance and the winning bidder shall not succeed to the debtor’s obligations, including tax-related obligations, with due regard for the provisions of Article 141, Paragraph 1, hereof.

Article 61. - The decision under Article 58 hereof having been rendered, the debtor shall continue under judicial reorganization until all obligations established in the plan and falling due up to two (2) years after concession of the judicial reorganization have been performed.

Paragraph 1. - During the period established in the main Section of this Article, the nonperformance of any obligation established in the plan shall entail conversion of the reorganization into bankruptcy, pursuant to Article 73 hereof.

Paragraph 2. - Bankruptcy having been decreed, the creditors shall have their rights and guarantees reconstituted on the terms contracted originally, any amounts paid being deducted and acts performed validly within the sphere of the judicial reorganization being held harmless.

Article 62. - After the period established in Article 61 hereof, in the event of nonperformance of any obligation established in the judicial reorganization plan any creditor may petition for specific performance or bankruptcy based on Article 94 hereof.

Article 63. - Obligations fallen due in the term established in Article 61, main Section , hereof having been performed, the judge shall by decision decree termination of the judicial reorganization and order:

I. - payment of the balance of the trustee’s fees, said obligations only to be considered discharged against account rendering, within thirty (30) days, and approval of the report provided for in the main Section , III, of this Article;

II. - ascertainment of the balance of the court costs to be paid;

III. - submission of a detailed report by the trustee, in a maximum period of fifteen (15) days, regarding performance of the reorganization plan by the debtor;

IV. - dissolution of the Committee of Creditors and exoneration of the trustee;

V. - communication to the Company Public Registry for the applicable steps.

Article 64. - During the judicial reorganization procedure, the debtor or his officers shall continue to conduct the corporate activities, under the supervision of the Committee, if any, and the trustee, unless any of them:

I. - has been sentenced finally and conclusively for a crime committed under previous judicial reorganization or bankruptcy or for a crime against property, public welfare or economic policy provided for by applicable law;

II. - shows strong signs of having committed a crime provided for herein;

III. - has acted with malice, simulation or fraud against the interests of its creditors;

IV. - has engaged in any of the following acts:

(a) incurring personal expenditures that are manifestly excessive in relation to his equity condition;

(b) incurring expenses whose nature and extent cannot be justified in view of the capital or type of business, movement of transactions and other similar circumstances;

(c) unjustifiably decapitalizing the company or carrying out transactions that impair its regular functioning;

(d) simulating or omitting claims on submitting the list referred to in Article 51, main Section , III, hereof, without any relevant reason under the law or being supported by a court decision;

V. - has refused to provide information requested by the trustee or the other Committee members;

VI. - has his dismissal provided for in the judicial reorganization plan.

Sole Paragraph . - In any of the events under the main Section of this Article, the judge shall dismiss the trustee, who shall be replaced pursuant to the Articles of incorporation of the debtor or to the judicial reorganization plan.

Article 65. - Upon removal of the debtor in the events under Article 64 hereof, the judge shall call a general meeting of creditors to resolve as to the administrator who is to assume the management of the debtor’s business, all rules regarding duties, impediments and remuneration of the trustee to apply to him, as applicable.

Paragraph 1. - The trustee shall perform the duties of administrator until the general meeting has resolved on the choice of the latter.

Paragraph 2. - In the event the administrator appointed by the general meeting of creditors refuses or is unable to accept the duty of managing the debtor’s business, the judge shall call a new general meeting within seventy-two (72) hours as from the refusal or statement of impediment in the case record, the provisions of Paragraph 1 of this Article to apply.

Article 66. - Once the petition for judicial reorganization has been distributed, the debtor cannot dispose of or encumber any items or rights of his permanent assets, unless they are of evident utility recognized by the judge after hearing the Committee, with the exception of those previously listed in the judicial reorganization plan.

Article 67. - The claims resulting from obligations contracted by the debtor during judicial reorganization, including those relating to expenses with goods or service suppliers and loan agreements, shall be considered post-petition claims in the event of decree of bankruptcy, with due regard, as applicable, for the order established in Article 83 hereof.

Sole Paragraph . - Unsecured claims subject to judicial reorganization held by goods or service suppliers who continue to provide them normally after the petition for judicial reorganization shall have general privilege of receipt in the event of decree of bankruptcy, to the limit of the amount of the goods or services supplied during the reorganization period.

Article 68. - The Public Treasuries and the National Social Security Institute (INSS) may grant, pursuant to specific law, installment payment of their claims, in the sphere of judicial reorganization, in accordance with the guidelines established in Law 5172 of October 25, 1966 (National Tax Code).

Article 69. - In all acts, contracts and documents signed by a debtor subject to the judicial reorganization procedure, the words "under Judicial Reorganization" shall be added after the company’s name.

Sole Paragraph . - The judge shall order the Company Public Registry to enter the judicial reorganization in the corresponding register.

 

Section V

Judicial Reorganization Plan for Microenterprises and Small Companies

Article 70. - The persons referred to in Article 1 hereof and who are included under the concepts of microenterprise or small company, pursuant to applicable law, are subject to the rules of this CHAPTER.

Paragraph 1. - Microenterprises and small companies, as defined by law, may submit a special judicial reorganization plan provided they state their intention to do so in the complaint referred to in Article 51 hereof.

Paragraph 2. - Creditors not embraced by the special plan shall not have their claims proven in the judicial reorganization.

Article 71. - The special judicial reorganization plan shall be submitted within the term established in Article 53 hereof and shall be limited to the following conditions:

I. - it shall extend solely to unsecured claims, except for those resulting from on-lending of official funds and those provided for in Article 49, paragraphs 3 and 4, hereof;

II. - it shall provide for installment payment in up to thirty-six (36) monthly, equal and successive amounts, with monetary restatement and interest of twelve percent (12%) per annum;

III. - it shall provide for payment of the first (1^st) installment in a maximum term of one hundred and eighty (180) days as from distribution of the judicial reorganization petition;

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.

Sole Paragraph . - The petition for judicial reorganization based on a special plan does not entail stay of the statute of limitation or actions and executions for claims not covered by the plan.

Article 72. - If the debtor referred to in Article 70 hereof opts for a judicial reorganization petition based on the special plan provided for in this Section , the general meeting of creditors shall not be called to resolve on the plan, and the judge shall grant the judicial reorganization if all other requirements hereunder have been met.

Sole Paragraph . - The judge shall also dismiss the judicial reorganization petition and decree the bankruptcy of the debtor in the event of objections, pursuant to Article 55 hereof, of creditors holding over half of the claims described in Article 71, main Section , I, hereof.

 

CHAPTER IV

CONVERSION OF JUDICIAL REORGANIZATION INTO BANKRUPTCY

Article 73. - The judge shall decree bankruptcy during the judicial reorganization procedure:

I. - by resolution of the general meeting of creditors, pursuant to Article 42 hereof;

II. - due to failure by the debtor to submit the reorganization plan in the time frame under Article 53 hereof;

III. - when the reorganization plan has been denied, pursuant to Article 56, Paragraph 4, hereof;

IV. - due to nonperformance of any obligation assumed under the reorganization plan, pursuant to Article 61, Paragraph 1, hereof.

Sole Paragraph . - The provisions of this Article do not prevent a decree of bankruptcy due to default on an obligation not subject to judicial reorganization, pursuant to Article 94, main Section , I or II, hereof, or to any act provided for in Article 94, main Section , III, hereof.

Article 74. - In the conversion of reorganization into bankruptcy, acts of management, indebtedness, encumbrance or disposal performed during the judicial reorganization are considered valid, provided they comply with the provisions of this Law.

 

CHAPTER V. - BANKRUPTCY

Section I

General Provisions

Article 75. - Bankruptcy, on removing the debtor from his activities, seeks to preserve and optimize the productive use of the company’s goods, assets and productive resources, including intangible assets.

Sole Paragraph . - Bankruptcy proceedings shall comply with the principles of procedural time and cost saving.

Article 76. - The bankruptcy court is indivisible and competent to hear all actions involving the bankrupt party’s assets, interests and business, with the exception of labor and tax suits and those not regulated hereunder in which the bankrupt figures as plaintiff or co-plaintiff.

Sole Paragraph . - All actions, including those excepted under the main Section of this Article, shall proceed under the trustee, who shall be notified to represent the bankrupt estate, on pain of annulment of the proceedings.

Article 77. - The decree of bankruptcy determines the early maturity of the indebtedness of the debtor and partners with unlimited and joint liability, with ratable deduction of interest, and converts all foreign currency claims into domestic currency, at the exchange rate prevailing on the date of the court decision, for all effects and purposes of this Law.

Article 78. - Petitions in bankruptcy are subject to mandatory distribution, in order of submission.

Sole Paragraph . - Actions required to be brought to the bankruptcy court are subject to distribution bound to a specific court.

Article 79. - Bankruptcy proceedings and their ancillary proceedings prevail over all others in the order of the proceedings, at any instance.

Article 80. - Claims outstanding from the judicial reorganization shall be considered proven when definitively included in the general list of creditors, ongoing proving of claims to continue.

Article 81. - The decision to decree the bankruptcy of a company whose partners have unlimited liability also entails the bankruptcy of the latter, who become subject to the same legal effects produced in relation to the bankrupt company, and they shall consequently be served with process to file their answer if they so wish.

Paragraph 1. - The main Section of this Article applies to the partner who has withdrawn voluntarily or been removed from the company within the last two (2) years, as regards debts existing on the date of filing of the amendment to the Articles of association if they have not been settled by the date of the decree of bankruptcy.

Paragraph 2. - Bankrupt companies shall be represented in the bankruptcy by their officers or liquidators, who shall have the same rights and, under the same penalties, shall be subject to the obligations of the bankrupt.

Article 82. - The personal liability of partners having limited liability, controllers and officers of the bankrupt company, as established in the respective laws, shall be ascertained in the actual bankruptcy court, independently of realization of the assets and of evidence of their insufficiency to cover the liabilities, with due regard for the ordinary procedure established in the Code of Civil Procedure.

Paragraph 1. - The liability action under the main Section of this Article shall be time-barred in two (2) years as from res judicata of the court decision to terminate the bankruptcy.

Paragraph 2. -The judge may, on his own initiative or at the request of the interested parties, order that the defendants’ private assets be frozen, in an amount in keeping with the damage caused, until the liability action has been judged.

 

Section II

Rating of Claims

Article 83. - Claims in bankruptcy shall be rated in the following order:

I. - labor-related claims, limited to one hundred and fifty (150) minimum wages per creditor, and occupational accident claims;

II. - claims with in rem guarantees to the limit of the value of the encumbered asset;

III. - tax claims, independently of their nature and length of constitution, except for tax fines;

IV. - special privileged claims, as follows:

(a) those under Article 964 of Law 10,406 of January 10, 2002;

(b) those so defined in other civil and commercial laws, except as otherwise established herein;

(c) those whose holders are vested by law with lien on the item given in guarantee;

V. - general privileged claims, as follows:

(a) those under Article 965 of Law 10,406 of January 10, 2002;

(b) those under the sole Paragraph of Article 67 hereof;

(c) those so defined in other civil and commercial laws, except as otherwise established herein;

VI. - unsecured claims, as follows:

(a) those not provided for in the other items of this Article;

(b) the balances of claims not covered by the proceeds of disposal of the assets bound to their payment;

(c) the balances of labor-related claims that exceed the limit established in the main Section , I, of this Article;

VII. - contractual penalties and fines for breach of criminal or administrative law, including tax-related fines;

VIII. - subordinate claims, as follows:

(a) those so provided for by law or contract;

(b) the claims of partners and officers without an employment bond.

Paragraph 1. - For purposes of the main Section , II, of this Article, the value of the asset under in rem guarantee shall be the amount actually received for its sale or, in the case of a block sale, the appraisal value of the asset considered individually.

Paragraph 2. - Amounts resulting from a partner’s right to receive his portion of the capital stock upon liquidation of the company cannot be enforced against the estate.

Paragraph 3. - The penal clauses of unilateral contracts shall not be performed if the obligations established therein fall due by virtue of bankruptcy.

Paragraph 4. - Labor-related claims assigned to third parties shall be considered unsecured.

Article 84. -Claims relating to the following shall be considered post-petition claims and shall be paid with precedence over those mentioned in Article 83 hereof, in the order set forth below:

I. - fees payable to the trustee and his assistants, and labor-related claims or occupational accident claims referring to services rendered after the decree of bankruptcy;

II. - sums provided to the bankrupt estate by the creditors;

III. - expenses with schedules, management, asset realization and distribution of the proceeds, as well as court costs of the bankruptcy proceedings;

IV. - court costs with respect to actions and executions in which the bankrupt estate is defeated;

V. - obligations resulting from valid juristic acts performed during the judicial reorganization, pursuant to Article 67 hereof, or after the decree of bankruptcy, and taxes relating to generating facts occurring after the decree of bankruptcy, with due regard for the order established in Article 83 hereof.

 

Section III

Petition for Restitution

Article 85. - The owner of an asset scheduled in the bankruptcy proceeding or that is in the debtor’s possession on the date of decree of bankruptcy may petition for its restitution.

Sole Paragraph . - The return of an item sold on credit and delivered to the debtor during the fifteen (15) days prior to the petition for his bankruptcy may also be requested, if not yet disposed of.

Article 86. - Restitution in cash shall be made:

I. - if the item no longer exists at the time of the petition for restitution, in which event the petitioner shall receive the appraised amount of the asset or, if it has been sold, the respective price, in both cases in the updated amount;

II. - of the amount delivered to the debtor, 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, provided the full term of the transaction, including any extensions, does not exceed the term established in the specific rules of the proper authority;

III. - of the amounts delivered to the debtor by the bona fide contracting party in the event the contract is revoked or ineffective, pursuant to Article 136 hereof.

Sole Paragraph . - Restitution pursuant to this Article shall only be made after the payment under Article 151 hereof has been made.

Article 87. -The petition for restitution shall be substantiated and shall describe the item claimed.

Paragraph 1. - The judge shall order a separate case record for the petition with its supporting documents and order notice to be given to the bankrupt, the Committee, the creditors and the trustee to make a statement, in the successive term of five (5) days, any statement contrary to restitution being valid as a challenge.

Paragraph 2. - The petition having been challenged and any evidence requested having been granted, the judge shall schedule an evidentiary and judgment hearing, if necessary.

Paragraph 3. - If there is no evidence to produce, the case records shall be concluded for judgment.

Article 88. - The court decision that recognizes the petitioner’s right shall order that the item be delivered within forty-eight (48) hours.

Sole Paragraph . - If there is no opposition, the bankrupt estate shall not be sentenced to pay attorney’s fees.

Article 89. - A judgment that denies restitution, when applicable, shall include the petitioner in the general list of creditors, in the rating applicable to said petitioner, as provided for herein.

Article 90. - The judgment on the petition for restitution may be appealed, without stay of proceedings.

Sole Paragraph . - The plaintiff of the petition for restitution who intends to receive the asset or the amount claimed prior to res judicata shall post bond.

Article 91. - Petitions for restitution suspend access to the item until res judicata.

Sole Paragraph . - When several petitioners have to be satisfied in cash and the balance is not sufficient to make full payment, the amount shall be distributed ratably among them.

Article 92. - Petitioners whose petitions are successful shall indemnify the bankrupt estate or whoever bore the expenses of safeguarding the claimed item.

Article 93. - When a petition for restitution is not applicable, the creditors’ right to file third-party opposition is safeguarded, with due regard for civil procedural law.

 

Section IV

Procedure for Decree of Bankruptcy

Article 94. - Bankruptcy shall be decreed of the debtor who:

I. - without a relevant reason under the law does not pay on the due date a liquid obligation materialized under a protested execution instrument or instruments, the sum of which exceeds the equivalent of forty (40) minimum wages on the date of the petition in bankruptcy;

II. - executed for any liquid amount, does not pay, does not deposit and does not appoint sufficient assets for attachment within the legal term;

III. - performs any of the following acts, unless they are part of a judicial reorganization plan:

(a) liquidating his assets precipitately or resorting to ruinous or fraudulent means to make payments;

(b) carrying out or by unequivocal acts attempting to carry out, with the object of delaying payments or defrauding creditors, a simulated transaction or the disposal of part or all of his assets to a third party, whether or not a creditor;

(c) transferring an establishment to a third party, whether or not a creditor, without the consent of all the creditors and without keeping sufficient assets to settle his liabilities;

(d) simulating the transfer of his principal establishment with the object of circumventing the law or inspection or to harm a creditor;

(e) giving or increasing a guarantee to a creditor for a debt contracted previously without keeping sufficient assets free and clear to settle his liabilities;

(f) absenting himself without leaving a qualified representative with sufficient funds to pay creditors, abandoning an establishment or attempting to hide from his place of domicile, the locality of his headquarters or of his principal establishment;

(g) failing to perform, within the established term, an obligation assumed under the judicial reorganization plan.

Paragraph 1. - Creditors may join as co-parties in order to complete the minimum limit for the petition in bankruptcy based on the main Section , I, of this Article.

Paragraph 2. - The petition in bankruptcy is not legitimized by claims that cannot be claimed therein, even if liquid.

Paragraph 3. - In the event under the main Section , I, of this Article, the petition in bankruptcy shall be supported by enforcement instruments pursuant to Article 9, sole Paragraph , hereof, accompanied in any event by the respective protest instruments for bankruptcy purposes in accordance with specific law.

Paragraph 4. - In the event under the main Section , II, of this Article, the petition in bankruptcy shall be supported by a certificate issued by the court where the execution is proceeding.

Paragraph 5. - In the event under the main Section , III, of this Article, the petition in bankruptcy shall describe the facts that characterize it, any evidence available to be attached and that to be produced to be specified.

Article 95. - The debtor may petition for his judicial reorganization during the term for answer.

Article 96. - Bankruptcy filed for pursuant to Article 94, main Section , I, hereof, shall not be decreed if the respondent evidences:

I. -falsity of an instrument;

II. - time-barring;

III. - nullity of an obligation or instrument;

IV. - payment of the debt;

V. - any other fact that extinguishes or suspends an obligation or does not legitimize the collection of an instrument;

VI. - defect in protest or in its instrument;

VII. - filing of a petition for judicial reorganization during the term for answer, with due regard for the requirements of Article 51 hereof;

VIII. - cessation of corporate activities for more than two (2) years prior to the petition in bankruptcy, evidenced by a qualified document of the Company Public Registry, which shall not prevail against evidence of exercise after the registered act.

Paragraph 1. - The bankruptcy of a joint-stock company shall not be decreed after liquidation and apportionment of its assets or those of the estate one (1) year after the debtor’s death.

Paragraph 2. - The defense provided for in the main Section , I to VI, of this Article shall not prevent a decree of bankruptcy if at the end there are any outstanding obligations not affected by the defense in an amount exceeding the limit established in said provision.

Article 97. - The following may petition for a debtor’s bankruptcy: I. - the debtor himself, pursuant to Articles 105 to 107 hereof;

II. - the surviving spouse, any heir of the debtor or the executor;

III. - a partner or shareholder of the debtor pursuant to the law or the company’s Articles of incorporation;

IV. - any creditor.

Paragraph 1. - Corporate creditors shall submit a certificate of the Company Public Registry evidencing the regular standing of their business.

Paragraph 2. - Creditors not domiciled in Brazil shall post bond with respect to court costs and payment of the indemnity under Article 101 hereof.

Article 98. - Served with notice, the debtor may file an answer within ten (10) days.

Sole Paragraph . - In petitions based on Article 94, main Section , I and II, hereof, the debtor may, within the term for answer, post the amount corresponding to the total claim, plus monetary restatement, interest and attorney’s fees, in which event bankruptcy shall not be decreed, and if the petition in bankruptcy is considered valid the judge shall order that the amount be released to the plaintiff.

Article 99. - The decision that decrees a debtor’s bankruptcy shall, among other requirements:

I. - contain a summary of the petition, identification of the bankrupt and the names his officers at the time;

II. - fix the legal term of the bankruptcy, without being permitted to make it retroactive for more than ninety (90) days as from the petition in bankruptcy, the judicial reorganization petition or the first (1^st) protest for lack of payment, excluding for such purpose any cancelled protests;

III. - order the bankrupt to submit, within at most five (5) days, a nominal list of the creditors, stating the address, amount, kind and rating of the respective claims, if such list is not already in the case record, on pain of disobedience;

IV. - specify the term for proving claims, with due regard for the provisions of Article 7, Paragraph 1, hereof;

V. - order the suspension of all actions or executions against the bankrupt, except in the events set forth in Article 6, paragraphs 1 and 2, hereof;

VI. - prohibit the performance of any act of disposition or encumbrance of the bankrupt party’s assets, submitting them preliminarily for court authorization and that of the Committee, if any, with the exception of the assets whose sale is part of the debtor’s regular business if its temporary continuation is authorized pursuant to the main Section , XI, of this Article;

VII. - order the procedures required to safeguard the interests of the parties involved, being permitted to order preventive detention of the bankrupt or his officers when requested on the grounds of evidence of any crime defined herein;

VIII. - order the Company Public Registry to enter the bankruptcy in the debtor’s registration in order to include the word "Bankrupt", the date of the decree of bankruptcy and the disqualification provided for in Article 102 hereof;

IX. - appoint the trustee, who shall perform his duties in accordance with Article 22, main Section , III, hereof, without prejudice to the provisions of Article 35, main Section , II (a), hereof;

X. - order that official letters be sent to government instrumentalities and agencies and other bodies, informing them of the existence of assets and rights of the bankrupt;

XI. - pronounce with respect to the provisional continuation of the bankrupt party’s business without the trustee or to the sealing off of the establishments, with due regard for the provisions of Article 109 hereof;

XII. - order, if deemed advisable, that a general meeting of creditors be called to form the Committee of Creditors, with authority, further, to maintain the Committee if already functioning under the judicial reorganization when bankruptcy is decreed;

XIII. - order notice to the Public Attorney’s Office and communication by letter to the Federal Public Treasuries and those of all States and Municipalities where the debtor has an establishment to take cognizance of the bankruptcy.

Sole Paragraph . - The judge shall order the publication of a notice containing the full decision that decrees the bankruptcy and the list of creditors.

Article 100. - A plea may be filed against the decision that decrees bankruptcy, and the decision that dismisses the petition may be appealed.

Article 101. - Anyone petitioning maliciously for another’s bankruptcy shall be sentenced, under the decision that dismisses the petition, to indemnify the debtor, loss and damage to be ascertained upon calculation of the award.

Paragraph 1. - If more than one (1) plaintiff files the petition in bankruptcy, those who acted in accordance with the main Section of this Article shall be held jointly liable.

Paragraph 2. - By his own action, the injured third party may also claim indemnity from the liable parties.

Section V. - Corporate Disqualification, Rights And Duties of the Bankrupt

Article 102. - The bankrupt shall be disqualified to engage in any corporate activities as from the decree of bankruptcy until the judgment that extinguishes his obligations, with due regard for the provisions of Article 181, Paragraph 1, hereof.

Sole Paragraph . - At the end of the disqualification period, the bankrupt may request the bankruptcy judge to provide for the respective entry in his registration.

Article 103. - As from the decree of bankruptcy or sequestration, the debtor forfeits the right to manage his assets or to dispose of them.

Sole Paragraph . - The bankrupt may, however, monitor the management of the bankruptcy, request the steps required to preserve his rights or the scheduled assets, and intervene in proceedings to which the bankrupt estate is a party or in which it has an interest, petitioning for whatever may be rightful and filing the applicable appeals.

Article 104. - The decree of bankruptcy imposes the following duties on the bankrupt:

I. - to sign in the case record, provided he has been notified of the decision, an instrument of appearance, stating his name, nationality, marital status, full address of domicile, further stating in said instrument:

(a) the causes that determined his bankruptcy, when filed for by creditors;

(b) in the case of a company, the names and addresses of all partners, controlling shareholders, executive directors or officers, submitting the Articles of association or bylaws and evidence of respective registration, as well as amendments thereto;

(c) name of the accountant in charge of keeping the mandatory books;

(d) any powers of attorney he has granted, stating the object and the name and address of the attorney in fact;

(e) his real and personal property that is not at the establishment;

(f) whether he participates in other companies, showing the respective Articles of association or bylaws;

(g) his bank accounts, investments, financial instruments under collection and ongoing proceedings in which he is a plaintiff or defendant;

II. - to deposit his mandatory books at the court office upon signing the instrument of appearance, for delivery to the trustee, after being closed by instruments signed by the judge;

III. - not to leave the venue where the bankruptcy is proceeding without cause and express communication to the judge and without leaving an attorney in fact, under penalties of the law;

IV. - to appear in all bankruptcy acts, representation by an attorney in fact being permitted when his presence is not essential;

V. - to deliver promptly all assets, books, papers and documents to the trustee, informing him, for schedule, of any assets in the possession of third parties;

VI. - to provide all information required by the judge, trustee, creditor or Public Attorney’s Office regarding circumstances and facts of interest to the bankruptcy;

VII. - to assist the trustee diligently and promptly;

VIII. - to examine the proofs of claim filed;

IX. - to assist in the preparation and verification of the balance sheet and examination of the books;

X. - to pronounce whenever required by the judge;

XI. - to submit the list of his creditors in the time frame established by the judge;

XII. - to examine and give an opinion on the trustee’s accounts.

Sole Paragraph . - Upon failing to perform any of the duties imposed on him hereunder after notified by the judge to do so, the bankrupt shall be liable for the crime of disobedience.

Section VI. - Bankruptcy Filed for by the Actual Debtor

Article 105. - A debtor undergoing an economic and financial crisis who considers that he does not meet the requirements to petition for judicial reorganization shall petition to the court for bankruptcy, stating the reasons for the impossibility of continuing his business activities, accompanied by the following documents:

I. - accounting statements for the last three (3) financial years and those drawn up especially to support the petition, prepared in strict accordance with applicable corporation law and consisting necessarily of:

(a) the balance sheet;

(b) accrued income statement;

(c) income statement as from the last financial year;

(d) cash flow report;

II. - a nominal list of creditors, stating their address and the amount, kind and rating of the respective claims;

III. - a list of properties and rights constituting the assets, with the respective estimate of the amount and documents evidencing ownership;

IV. - evidence of his status as businessman, Articles of association or bylaws in effect, or if there are none a list of all partners, their addresses and their personal assets;

V. - the mandatory books and accounting documents required by law;

VI. - list of officers during the last five (5) years, with their respective addresses, offices and corporate holdings.

Article 106. - If the petition is not regularly supported, the judge shall require its amendment.

Article 107. - The court decision that decrees the debtor’s bankruptcy shall comply with Article 99 hereof.

Sole Paragraph . - Bankruptcy having been decreed, the provisions regarding the bankruptcy filed for by the persons referred to in Article 97, main Section , II to IV, hereof apply in their entirety.

 

Section VII

Schedule and Custody of Assets

Article 108. - Once the instrument of commitment has been signed, the trustee shall forthwith provide for the schedule of assets and documents and the appraisal of assets, separately or in block, at the place where they are situated, the judge to order the steps required for such purpose.

Paragraph 1. - The scheduled assets shall remain in the safekeeping of the trustee or whomever he may appoint and on the former’s responsibility, the bankrupt or any of his representatives being permitted to be appointed depositary of the assets.

Paragraph 2. - The bankrupt may accompany the schedule and appraisal procedures.

Paragraph 3. - The proceeds of the goods attached or seized in any other way shall be included in the bankrupt estate, the judge to petition to the proper authorities, at the trustee’s request, ordering their delivery.

Paragraph 4. - No assets that are absolutely unattachable shall be scheduled.

Paragraph 5. - Even in the event of a block appraisal, any asset under in rem guarantee shall also be appraised separately, for purposes of Article 83, Paragraph 1, hereof.

Article 109. - The establishment shall be sealed off whenever there is a risk to performance of the schedule stage or to preservation of the assets of the bankrupt estate or of the creditors’ interests.

Article - 110. - The certificate of schedule, consisting of the inventory and respective appraisal report on the assets, shall be signed by the trustee, by the bankrupt or his representatives and by other persons assisting in or witnessing the act.

Paragraph 1. - If it is not possible to appraise the assets at the time of the schedule, the trustee shall request the judge to grant a term for submission of the appraisal report, which shall not exceed thirty (30) days as from submission of the certificate of schedule.

Paragraph 2. - The inventory shall refer to:

I. - the debtor’s mandatory and ancillary or optional books, mentioning their existing condition, number and name of each, pages with entries, dates of first and latest entry, and whether the mandatory books are vested with the legal formalities;

II. - cash, papers, credit instruments, documents and other assets of the bankrupt estate;

III. - assets of the bankrupt estate in the possession of third parties for safekeeping, deposit, pledge or withholding;

IV. - assets stated as owned or claimed by third parties, such circumstance to be mentioned.

Paragraph 3. - When possible, the assets referred to in Paragraph 2 of this Article shall be stated individually.

Paragraph 4. - As regards real property, the trustee, within fifteen (15) days after schedule thereof, shall display the registration certificates obtained after the decree of bankruptcy, with all statements set forth therein.

Article 111. - The judge may authorize creditors, individually or jointly, by reason of the costs and in the interests of the bankrupt estate, to purchase or adjudicate the scheduled assets immediately, for the amount appraised, with due regard for the rule of rating and preference among them, after hearing the Committee.

Article 112. - The scheduled assets may be removed if it is necessary to improve their safekeeping and conservation, in which event they shall be kept on deposit under the trustee’s responsibility, against commitment.

Article 113. - Assets that are perishable or liable to deterioration or considerable devaluation or to hazardous or costly conservation may be sold in advance, after schedule and appraisal, by court authorization, the Committee and the bankrupt having been heard within forty-eight (48) hours.

Article 114. - The trustee may rent or enter into another agreement referring to the assets of the bankrupt estate with a view to producing income for the bankrupt estate, by authorization of the Committee.

Paragraph 1. - The agreement under the main Section of this Article does not generate the right of first refusal to purchase and cannot entail full or partial disposal of the assets.

Paragraph 2. - The asset underlying the agreement may be sold at any time, independently of the contracted term, the agreement entered into being terminated without the right to a fine, unless the purchaser consents.

 

Section VIII

Effects of Decree of Bankruptcy on the Debtor’s Obligations

Article 115. - Decree of bankruptcy subjects all creditors, who may exercise their rights only over the assets of the bankrupt and of the partner with unlimited liability in the form established herein.

Article 116. - Decree of bankruptcy suspends:

I. - exercise of lien over assets subject to schedule, which shall be delivered to the trustee;

II. - exercise of the right of withdrawal or receipt of the amount of their quotas or shares by the partners in the bankrupt company.

Article 117. - Bilateral contracts are not terminated by bankruptcy and may be performed by the trustee, by Committee authorization, if performance reduces or prevents an increase in the liabilities of the bankrupt estate or is necessary to maintain and preserve its assets.

Paragraph 1. - The contracting party may question the trustee, within ninety (90) days as from signing of the instrument of his appointment, to declare, within ten (10) days, whether or not the contract is to be performed.

Paragraph 2. - A negative answer or silence by the trustee grants the contracting party the right to indemnity, the amount of which, ascertained in ordinary proceedings, shall constitute an unsecured claim.

Article 118. - The trustee, by Committee authorization, may provide for performance of a unilateral contract if such fact reduces or prevents an increase in the liabilities of the bankrupt estate or is necessary to maintain and preserve its assets, making payment of the consideration to which it is bound.

Article 119. - The following rules shall prevail in the contractual relations set forth below:

I. - the seller cannot block delivery of the items shipped to the debtor and still in transit if prior to the petition in bankruptcy the purchaser had resold them, without fraud, as shown on the invoices and bills of lading delivered or remitted by the seller;

II. - if the debtor sold composite items and the trustee decides not to continue performance of the contract, the purchaser may put the items already received at the disposal of the bankrupt estate, claiming loss and damage;

III. - if the debtor fails to deliver a movable item or to provide a service he sold or contracted on installment, and the trustee decides not to perform the contract, the claim relating to the amount paid shall be proven in the proper class;

IV. - the trustee, after the Committee has been heard, shall restore the movable item purchased by the debtor with title retention by the seller if he decides not to continue performance of the contract, demanding reimbursement, pursuant to the contract, of the amounts paid;

V. - in the event of items sold on the forward market and quoted on the stock exchange or market, and the contract is not performed by actual delivery of said items and payment of the price, the difference between the quotation on the date of the contract and at the time of exchange or market settlement shall prevail;

VI. - in the case of a real estate purchase and sale commitment, the respective law shall apply;

VII. - the lessor’s bankruptcy does not terminate the lease agreement, and in the event of the lessee’s bankruptcy the trustee may terminate the agreement at any time;

VIII. - in the event of an agreement to clear and settle obligations in the sphere of the national financial system, pursuant to applicable law, the nonbankrupt party may consider the agreement terminated in advance, in which event it shall be settled as established in regulations, it being permitted to offset any claim determined in favor of the bankrupt against claims held by the contracting party;

IX. - segregated properties, constituted to meet a specific purpose, shall comply with the provisions of the respective law, the assets, rights and obligations thereof continuing to be separate from those of the bankrupt until the advent of the respective term or until its purpose has been accomplished, when the trustee shall schedule the balance in favor of the bankrupt estate or enroll the claim remaining against it in the proper class.

Article 120. - The power of attorney granted by the debtor prior to bankruptcy for the performance of business shall cease to be effective upon the decree of bankruptcy, the attorney in fact to render account of his tenure.

Paragraph 1. - The power of attorney granted for judicial representation of the debtor continues to be effective until it is expressly revoked by the trustee.

Paragraph 2. - The power of attorney or commission received by the bankrupt prior to bankruptcy ceases as regards himself, except for those providing for matters outside the scope of the corporate activities.

Article 121. - Current accounts with the debtor are considered closed upon the decree of bankruptcy, the respective balance to be ascertained.

Article 122. - Debts of the debtor falling due by the date of the decree of bankruptcy are offset, with preference over all other creditors, whether or not arising from the bankruptcy decision, with due regard for the requirements of civil law.

Sole Paragraph . - The following are not offset:

I. - claims transferred after the decree of bankruptcy, except in the event of succession by consolidation, merger, spin-off or death; or

II. - claims, even if fallen due previously, transferred when the debtor’s condition of economic and financial crisis was already known or whose transfer was effected fraudulently or maliciously.

Article 123. - If the bankrupt participates in a company as a limited partner or partner, only the assets he owns in the company and are ascertained as provided for in the Articles of association or bylaws shall be included in the bankrupt estate.

Paragraph 1. - If the Articles of association or bylaws do not provide in this respect, the ascertainment shall be made judicially unless the company has to be liquidated by requirement of law, Articles of association or bylaws, in which case the assets of the bankrupt, only after the entire liabilities of the company have been paid, shall be brought into the bankrupt estate.

Paragraph 2. - In the event the bankrupt is a member of an indivisible condominium, the asset shall be sold and the amount due to the other members deducted from the proceeds, said other members being permitted to purchase the part quota of the bankrupt in accordance with the best proposal obtained.

Article 124. - Interest provided for by law or by contract and falling due after the decree of bankruptcy cannot be enforced against the bankrupt estate if the assets ascertained are not sufficient to pay the subordinate creditors.

Sole Paragraph . -This provision does not apply to interest on debentures and claims with in rem guarantee, but the proceeds of the assets constituting the guarantee shall be liable solely for them.

Article 125. - In the bankruptcy of an estate, probate proceedings shall be suspended, the trustee to perform pending acts regarding the rights and obligations of the bankrupt estate.

Article 126. - In equity relations not expressly regulated herein, the judge shall decide the case with a view to unity, the universality of the claims and equal treatment of creditors, with due regard for the provisions of Article 75 hereof.

Article 127. - Creditors of joint co-obligors whose bankruptcies are decreed are entitled to claim, in each bankruptcy, their total claim, until received in full, when they shall then inform the court.

Paragraph 1. - The main Section of this Article does not apply to the bankrupt whose obligations have been extinguished by court decision, pursuant to Article 159 hereof.

Paragraph 2. - If the creditor is paid in full by one or several co-obligor bankrupt estates, those that paid shall have the right of recourse against the others, ratably to the part they paid and to the part for which they were each liable.

Paragraph 3. - If the sum of the amounts paid to the creditor in all the co-obliged bankrupt estates exceeds the total claim, the amount shall be returned to the bankrupt estates in the proportion established in Paragraph 2 of this Article.

Paragraph 4. - If the co-obligors were each other’s guarantors, the excess under Paragraph 3 of this Article shall belong, in the order of the obligations, to the bankrupt estates of the co-obligors who were entitled to be guaranteed.

Article 128. - Solvent co-obligors and the guarantors of the debtor or partners with unlimited liability may prove the claim corresponding to the amounts paid or payable, if the creditor does not prove his claim in the legal term.

 

Section IX

Ineffectiveness and Revocation of Acts Performed Prior to Bankruptcy

Article 129. - The following are ineffective with regard to the bankrupt estate, whether or not the contracting party was aware of the debtor’s condition of economic and financial crisis and whether or not the debtor intended to defraud creditors:

I. - payment by the debtor within the legal term of debts not yet fallen due, by any means of extinguishment of the credit right, including by discount of the actual instrument;

II. - payment made within the legal term of debts fallen due and enforceable, in any way not provided for under the contract;

III. - constitution of an in rem guarantee, including lien, within the legal term, in the case of a debt contracted previously; if the assets given in mortgage are the object of other subsequent ones, the bankrupt estate shall receive the part that should apply to the creditor of the revoked mortgage;

IV. - acts performed free of charge during the two (2) years preceding the decree of bankruptcy;

V. - waiver of inheritance or legacy during the two (2) years preceding the decree of bankruptcy;

VI. - sale or transfer of an establishment without the express consent of or payment to all creditors existing at the time, sufficient assets not having remained to the debtor to settle his liabilities, unless, within thirty (30) days, there is no opposition by creditors after being duly notified, either judicially or by a deeds and documents registry officer;

VII. - registration of in rem rights and of property transfer inter vivos, for a consideration or free of charge, or an annotation of real property made after the decree of bankruptcy, unless there is a previous annotation.

Sole Paragraph . - Ineffectiveness may be declared by the judge on his own initiative, alleged in defense or claimed under a specific action or incidentally during the proceedings.

Article 130. - Acts performed with the intent to injure creditors may be revoked, fraudulent collusion between the debtor and the third party contracting with him and the actual loss suffered by the bankrupt estate to be evidenced.

Article 131. - None of the acts referred to in Article 129, I to III and VI, hereof that were provided for and performed as established in the judicial reorganization plan shall be declared ineffective or revoked.

Article 132. - The revocation suit under Article 130 hereof shall be filed by the trustee, by any creditor or by the Public Attorney’s Office within three (3) years as from the decree of bankruptcy.

Article 133. - The revocation suit may be brought against:

I. - all those figuring in the act or who by effect thereof are paid, guaranteed or benefited;

II. - the acquiring third parties if they are aware when the right is created of the debtor’s intention to injure creditors;

III. - the heirs or legatees of the persons listed in the main Section , I and II, of this Article.

Article 134. - The revocation suit shall proceed before the bankruptcy court and follow the ordinary procedure established in Law 5869 of January 11, 1973 (Code of Civil Procedure).

Article 135. - The decision that considers the revocation suit valid shall order that the assets be returned to the bankrupt estate in kind, with all accessories, or the market value, plus loss and damage.

Sole Paragraph . - The decision may be appealed.

Article 136. - Ineffectiveness being recognized or the revocation suit considered valid, the parties shall revert to the previous situation, and the bona fide contracting party shall be entitled to restitution of the assets or amounts delivered to the debtor.

Paragraph 1. -In the event of securitization of claims of the debtor, ineffectiveness shall not be declared or the act of assignment revoked to the detriment of the rights of the holders of securities issued by the insurance broker.

Paragraph 2. - The bona fide third party is guaranteed the right at any time to file an action for loss and damage against the debtor or his guarantors.

Article 137. - The judge may, at the request of the revocation suit plaintiff, order as a preventive measure, pursuant to civil procedural law, sequestration of the items removed from the debtor’s assets and in the possession of third parties.

Article 138. - The act may be declared ineffective or revoked, even when performed on the basis of a court decision, with due regard for the provisions of Article 131 hereof.

Sole Paragraph. - The act being revoked or declared ineffective, the decision on which it was based shall be cancelled.

 

Section X

Realization of Assets

Article 139. - Immediately upon scheduling of the assets, with attachment of the respective case record to the bankruptcy proceedings, asset realization shall commence.

Article 140. - The disposal of assets shall be carried out in one of the following forms, in the order of preference set forth below:

I. - disposal of the company, with the sale of its establishments in block;

II. - disposal of the company, with the sale of its branches or manufacturing plants separately;

III. - disposal in block of the assets constituting each of the debtor’s establishments;

IV. - disposal of the assets considered individually.

Paragraph 1. - If it is advisable to realize the assets or if opportune, more than one form of disposal may be adopted.

Paragraph 2. - Asset realization shall start independently of formation of the general list of creditors.

Paragraph 3. - The object of disposal of the company shall be the set of certain assets required for the profitable operation of the manufacturing plant, which may include the transfer of specific contracts.

Paragraph 4. - In transfers of assets disposed of pursuant to this Article and which require public registration, the respective court order shall serve as sufficient deed of title for said registration.

Article 141. - In the joint or separate disposal of assets, including the company or its branches, carried out in any of the modalities provided for in this Article:

I. - all creditors, in the order of preference established in Article 83 hereof, subrogate to the proceeds of the asset realization;

II. - the object of the disposal shall be free of any encumbrance and the winning bidder shall not succeed in the debtor’s obligations, including tax-and labor-related obligations and occupational accident obligations.

Paragraph 1. - The main section, II, of this article does not apply when the winning bidder is:

I. - a partner in the bankrupt company or company controlled by the bankrupt;

II. - a direct or collateral relative within the fourth (4^th) degree, by blood or affinity, of the bankrupt or of a partner in the bankrupt company; or

III. - identified as an agent of the bankrupt for the purpose of defrauding succession.

Paragraph 2. - Employees of the debtor contracted by the winning bidder shall be engaged under new employment contracts and the winning bidder shall not be liable for obligations arising from the previous contracts.

Article 142. - The judge, after hearing the trustee and following the advice of the Committee, if any, shall order the disposal of the assets in one of the following modalities:

I. - auction, by oral bidding;

II. - sealed bids;

III. - public proclamation.

Paragraph 1. - Disposal under any of the modalities provided for this Article shall be preceded by the publication of a notice in a widely circulated newspaper, fifteen (15) days in advance in the case of personal property, and thirty (30) days in advance in the case of disposal of the company or of real property, announcement being permitted by other means that assist to make the sale widely known.

Paragraph 2. - The disposal shall be made for the highest amount offered, even if less than the amount of the appraisal.

Paragraph 3. - In the auction by oral bidding, the rules of Law 5869 of January 11, 1973 (Code of Civil Procedure) shall apply, as relevant.

Paragraph 4. - Disposal by closed bids shall be made by delivery, in court office and against receipt, of sealed envelopes, to be opened by the judge on the day and at the time and place stated in the public notice, the clerk to draw up the respective term, to be signed by those present, and attaching the bids to the bankruptcy case record.

Paragraph 5. - Sale by public proclamation is a combined form of the others, consisting of two (2) stages:

I. - receipt of bids, pursuant to Paragraph 3 of this Article;

II. - auction by oral bidding, only those who submit proposals of not less than ninety percent (90%) of the highest bid offered, pursuant to Paragraph 2 of this Article, to participate.

Paragraph 6. - Sale by public proclamation shall obey the following rules:

I. - the proposals having been received and opened pursuant to Paragraph 5 of this Article, the judge shall order notice to the bidders whose proposals meet the requirements of II thereof, to attend the auction;

II. - the opening amount of the auction shall be that of the proposal received from the highest bidder present, said amount being considered a bid, to which he becomes bound;

III. - if the bidder with the highest proposal does not attend the auction and an initial bid is not given in at least the amount he offered, he shall be bound to provide the difference ascertained, the respective court certificate constituting an enforcement instrument for collection of the amounts by the trustee.

Paragraph 7. - In any modality of disposal, the Public Attorney’s Office shall be notified personally, on pain of annulment.

Article 143. - In any of the modalities of disposal referred to in Article 142 hereof, oppositions may be filed by any creditor, the debtor or the Public Attorney’s Office within forty-eight (48) hours after the auction, in which event the case record shall be concluded and sent to the judge, who shall decide within five (5) days on the oppositions and, if he dismisses them, shall order the assets delivered to the winning bidder, with due regard for the conditions established in the public notice.

Article 144. - When there are justified reasons, the judge may authorize, by substantiated request of the trustee or the Committee, other judicial disposal modalities than those provided for in Article 142 hereof.

Article 145. - The judge shall ratify any other modality of asset realization, provided it is approved by the general meeting of creditors, including the formation of a company of creditors or employees of the actual debtor, with the participation, if necessary, of the current partners or third parties.

Paragraph 1. - The provisions of Article 141 hereof apply to the company referred to in this Article.

Paragraph 2. - In the event of the organization of a company formed by employees of the actual debtor, they may use labor-related claims to acquire or lease the company.

Paragraph 3. - If the alternative proposal for asset realization is not approved by the general meeting, the judge shall decide as to the form to be adopted, taking into account the statement of the trustee and the Committee.

Article 146. - In any modality of asset realization adopted, the bankrupt estate is not required to submit clearance certificates.

Article 147. - Amounts received in any way shall be deposited immediately to an interest-bearing account at a financial institution, with due regard for the requirements of the law or the rules of a judicial body.

Article 148. - The trustee shall include in the report under Article 22, III (p), any amounts received in the due month, specifying the form of distribution of the funds among the creditors, with due regard for the provisions of Article 149 hereof.

 

Section XI

Payment to Creditors

Article 149. - Restitution having been made, the post-petition claims paid, pursuant to Article 84 hereof, and the general list of creditors consolidated, the amounts received by realization of the assets shall be allocated to pay creditors, in accordance with the rating under Article 83 hereof, with due regard for the other provisions of this Law and the court decisions that require a reserve of amounts.

Paragraph 1. - When there is a reserve of amounts, the sums relating thereto shall be kept on deposit until final judgment of the claim, and in the event the latter is not finally recognized, in whole or in part, the funds deposited shall be distributed supplementarily among the remaining creditors.

Paragraph 2. - Creditors who do not withdraw the funds allocated to them by distribution in the term established by the judge shall be notified to do so within sixty (60) days, after which the funds shall be distributed supplementarily among the remaining creditors.

Article 150. Expenses whose advance payment is essential for management of the bankruptcy, including in the event of provisional continuation of business provided for in Article 99, main Section , XI, hereof, shall be paid by the trustee with available cash funds.

Article 151. Labor-related claims of a strictly salary nature falling due during the three (3) months prior to the decree of bankruptcy, to a limit of five (5) minimum wages per worker, shall be paid as soon as cash is available.

Article 152. Creditors shall restitute double the amounts received, plus interest at legal rate, if malice or bad faith is evidenced in the constitution of the claim or guarantee.

Article 153. All creditors having been paid, the balance, if any, shall be delivered to the bankrupt.

 

Section XII

Conclusion of Bankruptcy and Extinguishment of the Bankrupt Party’s Obligations

Article 154. - The entire assets having been realized and the proceeds distributed among the creditors, the trustee shall submit his accounts to the judge within thirty (30) days.

Paragraph 1. - The accounts, accompanied by the evidentiary documents, shall be rendered under a separate case record, which at the end shall be attached to the bankruptcy record.

Paragraph 2. - The judge shall order publication of a notice that the accounts have been delivered and are at the disposal of interested parties, who may challenge them within ten (10) days.

Paragraph 3. - The notice term having elapsed and the procedures required to investigate the facts having been performed, the judge shall notify the Public Attorney’s Office to pronounce within five (5) days, at the end of which the trustee shall be heard if there is any opposition or adverse opinion by the Public Attorney’s Office.

Paragraph 4. - The steps under paragraphs 2 and 3 of this Article having been taken, the judge shall judge the accounts by decision.

Paragraph 5. - The court decision that denies the trustee’s accounts shall establish his liabilities, may order the freezing or sequestration of assets, and shall serve as an enforcement instrument for indemnification of the bankrupt estate.

Paragraph 6. - The decision may be appealed.

Article 155. - The trustee’s accounts having been judged, he shall submit the final report on the bankruptcy within ten (10) days, stating the amount of the assets and of the proceeds of their realization, the amount of the liabilities and the amount of the payments made to creditors, and specify with grounds the liabilities the bankrupt will continue to have.

Article 156. - The final report having been submitted, the judge shall terminate the bankruptcy by decision.

Sole Paragraph . - The decision of termination shall be published by public notice and may be appealed.

Article 157. - The statute of limitation regarding the bankrupt party’s obligations starts to run again as from the date of the final and conclusive decision of termination of the bankruptcy.

Article 158. - The following extinguish the bankrupt party’s obligations:

I. - payment of all claims;

II. - payment, after all assets are realized, of over fifty percent (50%) of the unsecured claims, the bankrupt being permitted to deposit the amount required to complete such percentage if the full liquidation of the assets was not sufficient;

III. - lapse of the five (5)-year term, as from termination of the bankruptcy, if the bankrupt has not been convicted of any crime provided for herein;

IV. - lapse of the ten (10)-year term, as from termination of the bankruptcy, if the bankrupt has been convicted of any crime provided for herein.

Article 159. - Any of the events under Article 158 hereof having been typified, the bankrupt may petition to the bankruptcy court for his obligations to be declared extinguished by decision.

Paragraph 1. - The petition shall be placed in a separate case record with the respective documents and published by notice in the official press and in a widely circulated newspaper.

Paragraph 2. - Any creditor may oppose the bankrupt party’s petition within thirty

(30) days after publication of the notice.

Paragraph 3. - At the end of the term, the judge shall render a decision within five (5) days and if the petition precedes termination of the bankruptcy he shall declare the obligations extinguished in the decision of termination.

Paragraph 4. - The decision that declares the obligations extinguished shall be communicated to all persons and entities informed of the decree of bankruptcy.

Paragraph 5. - The decision may be appealed.

Paragraph 6. - After res judicata, the case record shall be attached to the bankruptcy records.

Article 160. - The obligations having become time-barred or extinguished pursuant to this Law, the partner with unlimited liability may also petition for a declaration by court decision of the extinguishment of his obligations in the bankruptcy.

 

CHAPTER VI

OUT-OF-COURT REORGANIZATION

Article 161. - The debtor who meets the requirements of Article 48 hereof may propose and negotiate with creditors an out-of-court reorganization plan.

Paragraph 1. - The provisions of this CHAPTER do not apply to the holders of tax- or labor-related claims or to occupational accident claims or to those under Articles 49, Paragraph 3, and 86, main Section , II, hereof.

Paragraph 2. - The plan shall not contemplate accelerated payment of debts or unfavorable treatment of the creditors not subject to the plan.

Paragraph 3. - The debtor shall not file for ratification of an out-of-court plan if a petition for judicial reorganization is pending or if he has obtained judicial reorganization or ratification of another out-of-court reorganization plan within the last two (2) years.

Paragraph 4. - The petition for ratification of the out-of-court reorganization plan shall not entail the suspension of rights, actions or executions, or the impossibility of the petition for decree of bankruptcy by creditors not subject to the out-of-court reorganization plan.

Paragraph 5. - After distribution of the petition for ratification, creditors cannot withdraw from being bound to the plan without the express consent of the other signatories.

Paragraph 6. - The decision to ratify the out-of-court reorganization plan shall constitute a judicial enforcement instrument, pursuant to Article 584, main Section , III, of Law 5869 of January 11, 1973 (Code of Civil Procedure).

Article 162. - The debtor may file for court ratification of the out-of-court reorganization plan, attaching his reasons and a document stating his terms and conditions, signed by the creditors adhering thereto.

Article 163. - The debtor may further file for ratification of an out-of-court reorganization plan that binds all creditors encompassed therein, provided it is signed by creditors representing over three-fifths (3/5) of all claims of each kind encompassed therein.

Paragraph 1. - The plan may encompass all of one or more kinds of claims provided for in Article 83, main Section , II, IV, V, VI and VIII, hereof, or a group of creditors of the same kind and subject to similar conditions of payment, and once ratified binds all creditors of the kinds encompassed therein, exclusively with respect to claims constituted up to the date of the petition for ratification.

Paragraph 2. - For purposes of ascertainment of the percentage provided for in the main Section of this Article, claims not included in the out-of-court reorganization plan shall not be considered and their amount and original conditions of payment shall not be altered.

Paragraph 3. - For exclusive purposes of ascertainment of the percentage provided for in the main Section of this Article:

I. - foreign currency claims shall be converted into domestic currency at the exchange rate prevailing on the day before plan is signed; and

II. - claims held by the persons listed in Article 43 hereof shall not be computed.

Paragraph 4. - Upon disposal of an asset under in rem guarantee, suppression or replacement of the guarantee shall only be permitted with the express approval of the creditor holding the respective guarantee.

Paragraph 5. - In foreign currency claims, the exchange variation may only be excluded if the creditor holding the respective claim expressly approves a different provision in the out-of-court reorganization plan.

Paragraph 6. - For ratification of the plan under this Article, in addition to the documents provided for in Article 162, main Section , hereof, the debtor shall attach:

I. - a statement of the debtor’s equity position;

II. - accounting statements for the last financial year and those drawn up especially to support the petition, pursuant to Article 51, main Section , II, hereof; and

III. - documents evidencing the powers of the subscribers to renew or compromise, a full nominal list of creditors, stating their addresses, the kind, rating and updated amount of the claim, and specifying its origin, the system of the respective maturity dates and the accounting records of each pending transaction.

Article 164. - The petition for ratification of the out-of-court reorganization plan under Articles 162 and 163 hereof having been received, the judge shall order the publication of a notice in the official press and in a newspaper circulated nationwide or in the localities of the debtor’s headquarters and branches, calling all creditors of the debtor to file their oppositions to the out-of-court reorganization plan, with due regard for Paragraph 3 of this Article.

Paragraph 1. - In the public notice term, the debtor shall evidence the remittance of a letter to all creditors subject to the plan, domiciled or headquartered in Brazil, informing of the distribution of the petition, the conditions of the plan and the term for opposition.

Paragraph 2. - Creditors shall have thirty (30) days as from publication of the notice to challenge the plan, attaching the proof of their claims.

Paragraph 3. - To oppose ratification of the plan in their statement, creditors may only allege:

I. - failure to complete the minimum percentage established in Article 163, main Section , hereof;

II. - the performance of any of the acts under Article 94, III, or Article 130 hereof, or noncompliance with any requirement hereunder;

III. - noncompliance with any other requirement of law.

Paragraph 4. - Opposition being filed, a term of five (5) days shall start for the debtor to answer.

Paragraph 5. - The term under Paragraph 4 of this Article having run, the case record shall be concluded immediately and sent to the judge for examination of any oppositions and decision within five (5) days on the out-of-court reorganization plan, ratifying it by decision if he considers it does not involve the performance of acts under Article 130 hereof and that there are no other irregularities to make its dismissal advisable.

Paragraph 6. - In the event of evidence of simulation of claims or a defect in representation of the creditors who signed the plan, ratification thereof shall be denied.

Paragraph 7. - The decision may be appealed without stay of proceedings.

Paragraph 8. If the plan is not ratified, the debtor may, after the formalities have been performed, file a new petition for ratification of an out-of-court reorganization plan.

Article 165. - The out-of-court reorganization plan is effective after its judicial ratification.

Paragraph 1. - A plan is lawful, however, if it establishes effects prior to ratification, provided they are solely in relation to the change in the amount or conditions of payment of the signatory creditors.

Paragraph 2. - In the event under Paragraph 1 of this Article, if the judge later denies the plan, the signatory creditors regain the right to enforce their claims on the original terms, less amounts actually paid.

Article 166. - If the ratified out-of-court reorganization plan involves judicial disposal of separate branches or manufacturing plants of the debtor, the judge shall order that this be performed, with due regard, as applicable, for the provisions of Article 142 hereof.

Article 167. - The provisions of this CHAPTER do not entail the impossibility of carrying out other modalities of private settlement between the debtor and his creditors.

 

CHAPTER VII

PENAL PROVISIONS

Section I

Specific Crimes Fraud Against Creditors

Article 168. - The commitment, before or after the decision that decrees bankruptcy, grants judicial reorganization or ratifies out-of-court reorganization, of a fraudulent act that results or may result in a loss to the creditors with a view to obtaining or ensuring an undue advantage to oneself or others.

Penalty - confinement, from three (3) to six (6) years, and fine.

Increase in penalty

Paragraph 1. - The penalty is increased by one-sixth (1/6) to one-third (1/3) if the party:

I. - prepares accounting books or a balance sheet with inaccurate data;

II. - omits entries in the accounting books or balance sheet that should be included therein or alters authentic bookkeeping or balance sheets;

III. - destroys, erases or adulterates accounting or business data stored in a computer or information system;

IV. - simulates the capital stock structure;

V. - destroys, conceals or mutilates, in whole or in part, the mandatory accounting entry documents.

Concomitant accounting

Paragraph 2. - The penalty is increased by one-third (1/3) to one-half if the debtor kept or transferred funds or amounts concomitantly to the accounting required by law.

Concert of persons

Paragraph 3. - The same penalties apply to accountants, accounting officers, auditors and other professionals who in any way contribute to the criminal acts described in this Article, to the extent of their culpability.

Reduction or substitution of penalty

Paragraph 4. - In the case of the bankruptcy of a microenterprise or small company, when no habitual fraudulent acts by the bankrupt are ascertained the judge may reduce the penalty of confinement by one-third (1/3) to two-thirds (2/3) or substitute it by the penalties restricting rights, forfeiture of assets and other amounts or rendering of services to the community or to government bodies.

Violation of trade secret

Article 169. - Violation, exploitation or disclosure without cause of a trade secret or confidential data regarding transactions or services, contributing to lead the debtor to a condition of economic or financial unfeasibility:

Penalty - confinement, from 2 (two) to four (4) years, and fine.

Disclosure of false information

Article 170. - Disclosure or propagation by any means of false information regarding a debtor under judicial reorganization with a view to leading him to bankruptcy or to obtain an advantage:

Penalty - confinement, from 2 (two) to 4 (four) years, and fine.

Misleading

Article 171. - Withholding or omission of information or rendering of false information in bankruptcy, judicial reorganization or out-of-court reorganization proceedings with a view to misleading the judge, the Public Attorney’s Office, creditors, the general meeting of creditors, the Committee or the trustee:

Penalty - confinement, from 2 (two) to 4 (four) years, and fine.

Favoring creditors

Article 172. - Performance, before or after the decision that decrees bankruptcy, grants judicial reorganization or ratifies an out-of-court reorganization plan, of an act of disposition or encumbrance of assets or that generates an obligation, designed to favor one or more creditors to the detriment of the others:

Penalty - confinement, from 2 (two) to 5 (five) years, and fine.

Sole Paragraph . - The same penalties apply to the creditor who in collusion may benefit from an act under the main Section of this Article.

Misappropriation, concealment or appropriation of property

Article 173. - Appropriation, misappropriation or concealment of property owned by a debtor under judicial reorganization or by a bankrupt estate, including by acquisition by a designee:

Penalty - confinement, from 2 (two) to 4 (four) years, and fine.

Illegal acquisition, receipt or use of assets

Article 174. - Illicit acquisition, receipt or use of an asset known to belong to the bankrupt estate or exerting influence for a bona fide third party to acquire, receive or use one:

Penalty - confinement, from 2 (two) to 4 (four) years, and fine.

Illegal proving of claim

Article 175. - Submission in bankruptcy, judicial reorganization or out-of-court reorganization of a false list of claims, proof of claims or complaint, or attachment thereto of a false or simulated financial instrument:

Penalty - confinement, from 2 (two) to 4 (four) years, and fine.

Illegal performance of activity

Article 176. - Performance of an activity for which the person was disqualified or incapacitated by court decision, pursuant to this Law: Penalty - confinement, from 1 (one) to 4 (four) years, and fine. Violation of impediment

Article 177. - Acquisition by the judge, Public Attorney’s Office representative, trustee, court administrator, expert, appraiser, court clerk, court official or auctioneer, personally or through a designee, of assets of the bankrupt estate of a debtor under judicial reorganization, or, with respect to these, engaging in any speculation of profit when having acted in the respective proceedings:

Penalty - confinement, from 2 (two) to 4 (four) years, and fine.

Omission of mandatory accounting documents

Article 178. - Failure to prepare, keep record on or certify, before or after the decision that decrees bankruptcy, grants judicial reorganization or ratifies an out-of-court reorganization plan, the mandatory accounting record documents:

Penalty - imprisonment, from one (1) to 2 (two) years, and fine, if the fact does not typify a more serious crime.

 

Section II

Common Provisions

Article 179. - In the bankruptcy, judicial reorganization and out-of-court reorganization of companies, their partners, executive directors, managers, officers and directors, de facto or de jure, as well as the trustee, are held equivalent to the debtor or bankrupt for all penal purposes arising from this Law, to the extent of their culpability.

Article 180. - The decision that decrees bankruptcy, grants judicial reorganization or grants out-of-court reorganization pursuant to Article 163 hereof is an objective condition for punishability of the criminal offenses described herein.

Article 181. - The following are effects of the conviction of a crime provided for herein:

I. - disqualification to engage in business activities;

II. - impediment to holding a position or function on a board of directors, executive board or management of the companies subject to this Law;

III. - impossibility of managing a company, with or without (negotiorum gestio) a mandate.

Paragraph 1. - The effects referred to in this Article are not automatic and shall be stated and substantiated in the decision, and they shall endure for five (5) years after extinguishment of the punishability but may, however, cease previously by penal rehabilitation.

Paragraph 2. - The penal sentence to condemn being final and conclusive, the Company Public Registry shall be notified to take the necessary steps to prevent a new registration in the name of the disqualified parties.

Article 182. - The statute of limitation to the crimes hereunder shall be governed by the provisions of Decree-law 2848 of December 7, 1940 (Penal Code), starting to run on the date of the decree of bankruptcy, concession of judicial reorganization or ratification of the out-of-court reorganization plan.

Sole Paragraph . - Decree of bankruptcy of the debtor tolls the limitation that started to run upon concession of judicial reorganization or ratification of the out-of-court reorganization plan.

 

Section III

Criminal Procedure

Article 183. - The criminal judge of the venue where bankruptcy was decreed, judicial reorganization granted or an out-of-court reorganization plan ratified shall hear the criminal action for the crimes provided for herein.

Article 184. - The crimes provided for herein are subject to public criminal action not requiring representation of the victim or the filing of criminal charges by the victim.

Sole Paragraph . - The term referred to in Article 187, Paragraph 1, having elapsed without any accusation by the representative of the Public Attorney’s Office, any proven creditor or the trustee may file a private criminal action subsidiarily to the public action, with due regard for the six (6)-month term of loss of procedural right.

Article 185. - The accusation or complaint having been received, the sequence established in Articles 531 to 540 of Decree-law 3689 of October 3, 1941 (Code of Criminal Procedure) shall be followed.

Article 186. - In the report under Article 22, main Section , II (e), hereof, the trustee shall submit a detailed report to the bankruptcy judge, considering the causes of the bankruptcy, the debtor’s procedure, before and after the decision, and other detailed information regarding the conduct of the debtor and of other persons, if any, liable for acts that may typify a crime related to the judicial reorganization or the bankruptcy, or any other offense related thereto.

Sole Paragraph . - The detailed statement shall be supported by a report by the accountant in charge of examining the debtors’ bookkeeping.

Article 187. - Having been notified of the decision that decrees bankruptcy or grants judicial reorganization, the Public Attorney’s Office, ascertaining the occurrence of any crime provided for herein, shall immediately file the proper criminal action or, if it deems it necessary, shall petition for the opening of a police investigation.

Paragraph 1. - The term for accusation is regulated by Article 46 of Law 3689 of October 3, 1941 (Code of Criminal Procedure), unless the Public Attorney’s Office, the defendant being released or on bail, decides to await submission of the detailed statement under Article 186 hereof, being then required to file the accusation within fifteen (15) days.

Paragraph 2. - If any circumstantial evidence of any of the crimes provided for herein appears at any procedural stage, the bankruptcy or judicial reorganization or out-ofcourt reorganization judge shall inform the Public Attorney’s Office.

Article 188. - The provisions of the Code of Criminal Procedure apply subsidiarily insofar as they do not conflict with this Law.

 

CHAPTER VIII

Final and Temporary Provisions

Article 189. - Law 5869 of January 11, 1973 (Code of Civil Procedure) applies, as relevant, to the procedures provided for herein.

Article 190. - Whenever this Law refers to a debtor or a bankrupt, it shall be understood that the provision also applies to the partners with unlimited liability.

Article 191. - With due regard for the specific provisions of this Law, the publications required shall be made preferably in the official press and, if advisable as regards the debtor or bankrupt estate, in a newspaper or magazine circulated regionally or nationally, as well as any other periodicals circulating nationwide.

Sole Paragraph . - The publications required hereunder shall contain the words "judicial reorganization of", "out-of-court reorganization of" or "bankruptcy of".

Article 192. - This Law does not apply to bankruptcy or concordata proceedings filed before the commencement of its term of effectiveness, which shall be concluded in accordance with the provisions of Decree-law 7661 of June 21, 1945.

Paragraph 1. - It is hereby prohibited to grant a suspensive concordata in ongoing bankruptcy proceedings, it being permitted to provide for disposal of the assets of the bankrupt estate as soon as their schedule has been completed, independently of the formation of the general list of creditors and conclusion of the judicial investigation.

Paragraph 2. - The existence of a petition for concordata prior to the term of effectiveness of this Law does not prevent a petition for judicial reorganization by the debtor who has not defaulted on any obligation under the concordata, it being prohibited, however, to petition based on the special judicial reorganization plan for microenterprises and small companies referred to in CHAPTER III, Section V, hereof.

Paragraph 3. - In the event under Paragraph 2 of this Article, if processing of the judicial reorganization is granted the concordata proceeding shall be extinguished and the claims submitted to concordata shall be enrolled in the judicial reorganization in their original amount, less the installments paid by the concordata debtor.

Paragraph 4. - This Law applies to bankruptcies decreed during its term of effectiveness and resulting from the conversion of previous concordatas or petitions in bankruptcy, to which, until the decree, Decree-law 7661 of June 21, 1945, applies, with due regard, in the decision that decrees the bankruptcy, for the provisions of Article 99 hereof.

Paragraph 5. - The judge may authorize the rental or leasing of movable or immovable properties to avoid deterioration thereof, and the proceeds shall accrue to the bankruptcy estate."(as amended by Law No. 11127 of June 28, 2005)

Article 193. - The provisions of this Law do not affect obligations assumed in the sphere of financial clearance and settlement houses or service companies, which shall be closed and settled by the house or service company, pursuant to their regulations.

Article 94. - The proceeds of realizing the guarantees provided by the participant in the financial clearance and settlement houses or service companies subject to the systems hereunder, as well as the financial instruments, securities and any other of their assets under clearance or settlement, shall be allocated to settlement of the obligations assumed in the sphere of the houses or service companies.

Article 95. - Decree of bankruptcy of utility concessionaires entails cancellation of the concession, in accordance with the law.

Article 196. - Company Public Registries shall keep a public, free of charge data bank available on the worldwide computer network, containing a list of all bankrupt debtors or those under judicial reorganization.

Sole Paragraph . - Company Public Registries shall integrate their data banks nationwide.

Article 197. - Until the respective specific laws are approved, this Law shall apply subsidiarily, as relevant, to the systems provided for in Decree-law 73 of November 21, 1966, Law 6024 of March 13, 1974, Decree-law 2321 of February 25, 1987, and Law 9514 of November 20, 1997.

Article 198. - Debtors prohibited to file for concordata under specific law in effect on the date of publication of this Law are hereby prohibited to file for judicial or out-ofcourt reorganization hereunder.

Article 199. The provisions of Article 198 of this Law shall not apply to the companies referred to in Article 187 of Law No. 7565 of December 19, 1986.

Paragraph 1. Under the judicial reorganization and bankruptcy of the companies referred to in the main Section of this Article, in no event whatsoever shall the exercise of rights arising from agreements for rental, financial lease or any other mode of lease of aircraft or parts thereof be suspended. [amended by Law No. 11196 of November 22, 2005]

Paragraph 2. The claims arising from the agreements mentioned in Paragraph 1 of this Article shall not be subject to the effects of the judicial or out-of-court reorganization, and the ownership rights over the thing and the contractual conditions shall prevail and the proviso set out in the final part of Paragraph 3 of Article 49 of this Law shall not apply thereto. [amended by Law No. 11196 of November 22, 2005]

Paragraph 3. In the event of bankruptcy of the companies dealt with in the main Section of this Article, the ownership rights over the thing under agreements for rental, financial lease or any other mode of lease of aircraft or parts thereof shall prevail." [amended by Law No. 11196 of November 22, 2005]

Article 200. - With the exception of the provisions of Article 192 hereof, Decree-law 7661 of June 21, 1945, and Articles 503 to 512 of Decree-law 3689 of October 3, 1941 (Code of Criminal Procedure) are hereby repealed.

Article 201. - This Law takes effect one hundred and twenty (120) days after its publication.

Brasília, February 9, 2005; 184^th year of Independence and 117^th year of the Republic.

LUIZ INÁCIO LULA DA SILVA
Márcio Thomaz Bastos
Antonio Palocci
Filho Ricardo José Ribeiro Berzoini
Luiz Fernando Furlan

 

SUPPLEMENTARY LAW

Amends and supplements Law No. 5172 of October 25, 1966 - National Tax Code, and provides for the construction of Article 168, I thereof.

The NATIONAL CONGRESS has decreed as follows:

Article 1. Law No. 5172 of October 25, 1966 - National Tax Code shall henceforth take effect with the following amendments:

“Article 133. [...]

Paragraph 1. - The provisions of the main Section of this Article shall not apply in the case of judicial sale:

I. - in bankruptcy proceedings;

II. - of a separate business unit or branch, in judicial reorganization proceedings.

Paragraph 2. - The provisions of Paragraph 1 of this Article shall not apply when the buyer is:

I. - a partner of the company declared bankrupt or under judicial reorganization, or otherwise controlled by the debtor declared bankrupt or under judicial reorganization;

II. - ascendants, descendants or next-of-kins up to the fourth (4^th) degree, whether related by consanguinity or affinity, of the debtor declared bankrupt or under judicial reorganization, or of any of its partners; or

III. - identified as an agent of the debtor declared bankrupt or under judicial reorganization, with a view to defrauding succession to tax liabilities.

Paragraph 3. - In bankruptcy proceedings, the proceeds from judicial sale of the company, branch or separate business unit shall be kept available to the bankruptcy judge on a deposit account for a period of one (1) year from the date of judicial sale, and may only serve for payment of post-petition claims or credits with seniority over tax claims.”

“Article 155A. [...]

Paragraph 3. - The conditions for installment payment of tax liabilities by the debtor under judicial reorganization shall be governed by specific law.

Paragraph 4. - The non-existence of specific law to which Paragraph 3 of this Article refers shall cause the general installment payment rules set out by the Brazilian government instances to apply to the debtor under judicial reorganization, provided,

however, that the time span for installment payments shall not be lower than what is granted under specific federal law.”

“Art. 174. [...]

Sole Paragraph . [...]

I. - by decision of the judge who orders the service of process in tax enforcement proceedings;”

“Article 185. The disposal of or creation of a lien on assets or income, or the commencement thereof, by a taxpayer in default on its federal tax obligations entered in the overdue tax liability roster shall be deemed fraudulent.

Sole Paragraph - The provisions of this Article shall not apply if the debtor has set aside assets or income enough to cover the overdue tax liability in full.”

“Article 186. - Tax liabilities have priority over any other claims of whatever nature or date of creation, except those claims relating to labor laws or occupational accidents.

Sole Paragraph . - In bankruptcy proceedings:

I. - tax claims do not have priority over post-petition claims or sums refundable under the bankruptcy law, nor over claims secured by collateral, up to the extent of the value of the collateral;

II. - limits and conditions for seniority of labor-related claims may be set by law; and

III. - the tax fine shall have priority only over subordinated credits.”

“Article 187. - Judicial enforcement of a tax liability is not subject to collective enforcement by creditors or proof of claim in bankruptcy, judicial reorganization, concordata proceedings, inventory or listing of assets.”

“Article 188. - Tax liabilities related to triggering events during the course of bankruptcy proceedings shall qualify as post-petition claims.”

“Article 191. - Discharge of obligations of the bankrupt party shall be conditioned to evidence of payment of all taxes.”

Article 2. - The following Articles 185A and 191A shall thenceforth be added to Law No. 5172 of October 25, 1966 - National Tax Code:

“Article 185A. - If the tax debtor, after duly summoned, fails to timely pay or offer assets for a tax lien thereon, and no assets qualifying for a tax lien are found, the judge shall render the debtor’s assets and rights unavailable, disclosing such decision - preferably by electronic means - to the bodies and entities that arrange for asset transfer or conveyance registrations, especially to the public register of real properties and to the banking and securities market monitoring authorities, so as to have this court order enforced within their respective spheres of authority.

Paragraph 1. - The unavailability dealt with in the main Section of this Article shall be limited to the overall tax liability value, whereupon the judge shall order a prompt reversal of said freeze on assets or sums beyond the aforementioned limit.

Paragraph 2. - The bodies and entities notified as per the main Section of this Article shall promptly forward to the judge a detailed list of assets and rights rendered unavailable thereby.”

“Article 191A. - Granting of judicial reorganization shall be conditional on evidence of payment of all taxes, with due regard for Articles 151, 205 and 206 of this Law.”

Article 3. - For purposes of interpreting Article 168, I of Law No. 5172 of October 25, 1966 - National Tax Code, the discharge of a tax liability occurs, in case of taxation subject to subsequent recognition by the tax authorities (lançamento por homologação), upon early payment thereof as dealt with in Article 150, Paragraph 1 of said Law.

Article 4. - This Law shall come into force one hundred and twenty (120) days from its publication, with due regard - as to Article 3 hereof - for the provisions of Article 106, I of Law No. 5172 of October 25, 1966 - National Tax Code.

Brasília, 9 de Fevereiro de 2005; 184ª Independência e 117ª República.

LUIZ INÁCIO LULA DA SILVA
Márcio Thomaz Bastos
Antonio Palocci Filho
Ricardo José Ribeiro Berzoini