Brazillian businesses in judicial reorganization may participate in public tenders

By BTGGA member firm TCP Partners

Ricardo Jacomassi, Pedro Paulo de Rezende Porto Filho , Juliano Barbosa Araujo and Lucas Rodrigues O. Silva

Investments in the public sector were abruptly interrupted due to the economic crisis faced by Brazil in recent years, causing several companies operating in this segment to suffer the obvious and harmful consequences.

Investment Rate without GDP

Source: IBGE. Created by TCP Partners, TCP Partners forecast.

Last year and the beginning of 2020 brought a scenario of a certain hope for the recovery in the sector. In 2019, the investment rate on GDP reached 15.4%, the second consecutive year of growth. However, the impact of the Covid-19 pandemic is expected to lower this index to 14.0% in 2020, as predicted by TCP Partners.

The resumption will be slow and painful, putting further pressure on investments in works, services and public goods. This should worsen the situation of companies in this sector and lead many to bankruptcy. For 2021, the economy's investment rate will be 14.3%, an almost zero increase of 0.3pp.

The current scenario requires businesspeople to adopt immediate preventive and remedial measures and to restructure their activities and businesses in order to overcome the current crisis.

The challenge stands out in the accommodation between the provisions of Law 11.101 / 2005 – who’s essence is to make it possible to overcome the financial crisis with the maintenance of jobs, preservation of the company and its social function - and the legal regime to which companies are subject. They contract with the government.

The most apparent tension between Law 11.101 / 2005 and Law 8.666 / 1993 concerns the provision of the latter that "prohibits" participation in bids from companies under "bankruptcy" - since, for the purposes of qualification, it requires bidders the presentation of a “negative bankruptcy certificate or bankruptcy” (art. 31, II). This provision is usually reproduced in the Public Notices, with reference to the Judicial or Extrajudicial Reorganization regime, legal institutions distinct from the old “bankruptcy”.

It happens, however, that the final objective of the rule enshrined in the Bidding Law is not simply to remove companies that present a “positive bankruptcy certificate and bankruptcy” from participation in the public market.

The purpose of measuring economic and financial qualifications in the bidding process is to ensure that the bidder demonstrates conditions for fulfilling the obligations it will assume before the Administration.

In this scenario, it is perfectly possible to combine the stimulus to the economy and the preservation of companies that are experiencing financial difficulties (Law nº 11.101 / 2005) with the observance of the ability of these same companies (economic and financial qualification) to regulate the execution and delivery of the object of the future contract with the Public Administration (Law 8.666 / 93).

The majority in the courts throughout the country already recognizes this circumstance, with emphasis on the decision of the Superior Court of Justice, for which “The systematic interpretation of the provisions of Laws No. 8.666 / 1993 and No. 11.101 / 2005 leads to the conclusion that it is possible to balanced consideration of the principles contained therein, since the preservation of the company, its social function and the encouragement of economic activity also ultimately serve the interests of the community, since the maintenance of the source of production, jobs is sought and the interests of creditors. ” (Appeal in Special Appeal No. 309.867 - ES, Rapporteur Minister Gurgel de Faria. Superior Court of Justice).

Thus, the requirement of “negative bankruptcy certificate and bankruptcy / judicial recovery” must yield, once the bidder has demonstrated that his financial situation is sufficient to honor the commitment to be assumed with the State.

Companies undergoing judicial reorganization with a workable recovery plan focused on reorganizing their liabilities and obligations may find necessary conditions to participate in public tenders. Which will certainly help them to overcome the current financial crisis.