For a Brazilian company’s judicial reorganization be accepted by the courts, it needs to present the Tax Regularity Certificate.
This was the understanding of the president of Brazilian Supreme Court (STF) last week. It represents a complete shift of the caselaw until now.
This new understanding implies risk, not only for the company seeking judicial recovery, but mainly for its creditors. The fact is that, even if they accept the judicial recovery plan of a company, they will see that plan rejected by the Court if the debtor has tax debts. Consequently, due to the rejection of the plan, the company will be declared bankrupt and the chances of the creditors to recover their credits, or part of it, will frankly be reduced.
Such understanding will certainly be fought in the courts. What is certain, however, is that from now on creditors will have to monitor, in addition to the economic health of the debtor company, their tax debts.
From debtor’s perspective, the correct management of its tax liability becomes extremely important. With anticipation, monitoring and extra attention in the definition of the correct strategy of defense and guarantee of its tax debts.