Judicial Reorganization is a mechanism provided for under Law No. 11,101/2005, created to assist companies facing economic and financial difficulties. Its purpose is to allow the company time and conditions to reorganize its finances, renegotiate debts, and maintain its operations, thereby avoiding a declaration of bankruptcy.

This instrument goes beyond the exclusive interest of the entrepreneur. Brazilian legislation recognizes that a company performs a relevant social function, being responsible for job creation, the production of goods, the provision of services, and the circulation of wealth within the economy. The interruption of its activities may generate significant negative impacts not only on shareholders, but also on employees, suppliers, creditors, and society as a whole.

For this reason, the Brazilian legal system prioritizes the preservation of the company whenever possible, based on the principle of maintaining business activity during periods of crisis. Judicial Reorganization therefore seeks to balance business continuity with the protection of creditors’ rights.

Pursuant to Article 1 of Law No. 11,101/2005, business companies are entitled to apply for Judicial Reorganization. Although this is the general rule established by law, case law admits exceptions in specific situations, to be assessed on a case-by-case basis.

The procedure begins with the filing of a Judicial Reorganization petition before the Judiciary, which must be accompanied by essential documents, including the reorganization plan and the list of creditors. The reorganization plan sets forth the measures proposed by the company to overcome the economic and financial crisis and must be submitted for approval by the creditors. The list of creditors details existing claims, with the possibility of subsequent inclusion of those not initially listed.

During the processing of the Judicial Reorganization, the so-called stay period applies, consisting of the suspension of enforcement actions and collection proceedings filed against the company for a period of up to 180 days. This suspension period provides financial breathing room for the company to reorganize and negotiate with its creditors in a more balanced manner.

At the conclusion of the procedure, Judicial Reorganization may result in two main outcomes. If the company complies with the approved plan and successfully restructures, the Judicial Reorganization is closed. Conversely, if the plan is breached or the company’s recovery is deemed unfeasible, bankruptcy may be declared.