Bankruptcy Agreements and Liquidation Procedures Explained

The Convention: Nature and Content of the Agreement

The agreement is defined as a meeting of the minds between the debtor and the community of creditors, which, when signed by the judge, satisfies the creditors' claims.

Mandatory Rules and Limitations

The contents of the agreement are subject to mandatory rules:

• Acquittals: May not exceed half of each unsecured debt.
• Payment Terms: Expectations for ordinary loans shall not exceed five years following court approval.

These limits may be exceeded when the insolvent business holds special importance to the economy, supports the economic management authority, or when the agreement is treated as an early proposal.

Effectiveness and Conclusion

The effectiveness of the agreement requires two successive elements: the conclusion between the debtor and the creditor community, and approval by the bankruptcy judge. The conclusion of the agreement requires an offer and an acceptance.

The proposed agreement must be in writing and signed by the proponents or third parties providing financing, guarantees, or assuming obligations. It must be accompanied by a payment plan and, in some cases, a feasibility plan specifying resources, collection conditions, and third-party commitments. Creditors may adhere to the proposal through a public instrument filed with the clerk of the court.

Acceptance and Judicial Approval

The agreement must be accepted by a majority of creditors:

• Early Proposal: Acceptance is written via adhesions.
• Ordinary Proposal: Acceptance is determined by a vote at the meeting of creditors.

The agreement is not complete until judicial approval is granted. The judge may, ex officio, reject the agreement if they identify formal infringements or issues with the content.

Settlement

The settlement is a phase of bankruptcy intended to monetize the assets and rights of the estate to pay creditors in the order established by law. It is divided into two phases:

1. The completion of liquidation operations, according to a plan by the bankruptcy administration or subject to extra-legal rules.
2. Payment to creditors.