Government measures in key jurisdictions 4th edition - Flipbook - Page 17
Brazil
Some key points that are addressed in the Bill of Law in order to improve the reorganization
mechanisms are: (i) a more predictable framework for DIP Finance; (ii) more certainty as to the
requirements to ensure lack of successor liability in Distressed M&A; (iii) possibility under
certain circumstances of the sale of the whole company without successor liability for
acquirer; (iv) possibility of creditors, under certain terms and conditions to present an
alternative judicial reorganization plan; (v) adoption of the provisions of UNCITRAL Model Law
on Cross-Border Insolvency; (vi) more clarity on requirements for procedural and substantive
consolidation; (vii) improvements in the out-of-court reorganization framework; and (viii)
encouraging parties to resolve disputes related to the insolvency through mediation.
Bankruptcy liquidation proceedings are applicable in case the company’s rehabilitation is not
possible. In this respect, the Bill of Law proposed to include provisions to expedite the
liquidation of assets, in order to allow for a faster reintegration of the bankrupt entrepreneur
into the market (the so-called fresh start).
Contractual
Issues
What measures
have been taken
to reinforce
contracts?
Brazilian law addresses the general rules regarding force majeure. According to the sole
paragraph of Article 393 of the Brazilian Civil Code, force majeure or act of God (provided
that such Article treats both concepts equally) is considered to be “the necessary event,
whose effects were impossible to avoid or impair”. The event must be beyond the [affected]
party’s control and diligence and must make it impossible to comply with certain contractual
obligation(s). Under such provision, if the party has not expressly undertaken liability for
force majeure and act of God events, no liability should arise from such events.
To qualify as force majeure, an event must cumulatively satisfy the following requirements:
(i) be unforeseeable; (ii) be beyond the party’s control; and (iii) prevent the performance of
contractual obligation(s). Accordingly, the COVID-19 pandemic may be considered as a force
majeure event, to the extent that the COVID-19 pandemic and its related consequences
directly affect the party’s contractual obligations. In addition, orders enacted by the Brazilian
government (or other relevant local authority) in response to the COVID-19 pandemic, which
prohibits the agglomeration of individuals at the place of work, for example, may also qualify
as force majeure.
Except for contracts ruled by consumer or labour laws, the parties are free to allocate
liabilities. Therefore, the proper determination of the parties’ liabilities, in case of a force
majeure event, must always be made on a case by case analysis and should consider
contractual provisions as a key factor.
Should the contract be silent in expressly governing force majeure, or if there are gaps on
the contract’s terms in that regard, the Brazilian Civil Code will be applicable and will serve as
guidance for the interpretation and application of the law by the courts. Considering the
COVID-19 pandemic, the parties must pay attention to the contract’s provisions and whether
the pandemic and/or its consequences (such as lockdown measures; restrictions on
travelling and transportation of goods) do in fact impede the compliance with certain
contractual undertaking(s).
Government measures in key jurisdictions
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