The Bankruptcy Law, officially known as Law 11.101/2005, is a Brazilian legal instrument that regulates judicial recovery, extrajudicial recovery and bankruptcy of entrepreneurs and business companies. The Law is of fundamental importance for the financial system and for the credit market as a whole, as it establishes clear rules for solving companies in financial difficulties and for protecting the rights of creditors.
Bankruptcy is a legal process that begins when a company is no longer able to pay its debts. The purpose of bankruptcy is to liquidate all of the company's assets to pay its creditors and close down its activities. Bankruptcy is decreed by a judge and the process is administered by a trustee appointed by the judge.
Judicial recovery, on the other hand, is a process that allows a company in financial difficulties to restructure its debts and continue its operations. The purpose of judicial recovery is to preserve the company, its social function and to stimulate economic activity. Judicial recovery is granted by a judge and the process is monitored by a judicial administrator. The recovery plan must be approved by the company's creditors.
Extrajudicial recovery is a debt restructuring agreement negotiated between the company and its creditors. The agreement is ratified by a judge and has the force of a court ruling. Extrajudicial recovery is faster and less costly than judicial recovery, but requires the adherence of a large majority of the company's creditors.
The Bankruptcy Law also establishes the order of preference for paying creditors in the event of bankruptcy. First, labor claims of up to 150 minimum wages per creditor and claims resulting from work accidents are paid. Secondly, credits with real guarantee are paid up to the limit of the value of the encumbered asset. Third, tax credits and credits with special privilege, such as those resulting from fiduciary alienation, are paid. Fourthly, credits with general privilege, such as salaries for the last three months, are paid. Fifthly, unsecured claims are paid, such as those resulting from contracts and loans. Sixthly, subordinated claims, such as those resulting from administrative fines, are paid.
The Bankruptcy Law also provides for the liability of company directors in the event of bankruptcy. Directors can be held civilly and criminally liable if they contribute to the bankruptcy of the company through illegal or reckless acts. The liability of directors is determined in a separate court case.
In short, the Bankruptcy Law is an essential tool for risk management in the financial system. It establishes clear rules for solving companies in financial difficulties and for protecting the rights of creditors. The Law contributes to legal certainty and the stability of the credit market, favoring economic development and job creation.
